Norman Russel William: Taxation (Annual Rates and Budget Measures) Bill — First Reading Second Reading In Committee 
Norman Russel William: Taxation (Annual Rates and Budget Measures) Bill — First Reading Second Reading In Committee 
[Volume:672;Page:18891] 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak to the Taxation (Annual Rates and Budget Measures) Bill which is part of the Government’s Budget that was introduced this afternoon. The framework for the Government’s Budget was what I have called “borrow cut and sell”. The Government has increased borrowings very significantly; it has cut spending on programmes that ordinary New Zealanders like and benefit from like Working for Families and KiwiSaver; and it is proposing to privatise Government assets in order to get some money from that privatisation to pay for future capital expenditure. It is a “borrow cut and sell” Budget. A “borrow cut and sell” Budget is not exactly an inspirational Budget and when we look at the numbers in the economic forecast we see that it shows how much of a failure this Budget will be. 
The previous speaker Mr Parker referred to table 1.2 in the Economic and Fiscal Update forecasts which has the long-term implications of this Budget and no doubt others. For those of us who are concerned about the imbalances in the New Zealand economy—clearly the Government is not—it is notable that the 2015 forecast has a current account balance of minus 6.9 percent of GDP. Minus $16.8 billion is the current account deficit forecast for 2015. If the Government has criticised the performance of the economy under previous Governments by saying that it was a borrowing-fuelled consumption boom which was the critique the Government has made then it is not changing that. If that is the Government’s critique of the position on how the economy was previously managed then further down the track our net international investment position—and that is the difference between what we owe the world and what the world owes us—is still minus 85 percent of GDP in 2015 under the magical transformational Budget that the Government has introduced. 
If the Government’s critique has been that there was a debt-fuelled consumption boom—and we see that there was considerable truth to that when we look at what happened in the housing sector—its changes will not do anything about New Zealand’s current account deficit or its net international investment position. The kinds of changes that National is bringing in will take us backwards. 
One of the problems we have in New Zealand is our savings record and the Government is proposing to reduce the incentive to save. The Government is proposing to take $2.6 billion away from KiwiSaver contributions. This was part of the incentive for people to save. The people who are members of KiwiSaver—some of us are members of KiwiSaver—will have the contribution from the Government cut and that will happen to all KiwiSaver accounts across the country. People will lose $10 a week that previously went into the KiwiSaver account which was an incentive to encourage people to save. 
The Government has argued that there is no point in borrowing from overseas in order to put money into KiwiSaver accounts; it has asked what the point is of borrowing just to put into savings. The point is that according to Treasury we get 40 percent additional savings as a result of KiwiSaver—that is it has a multiplier effect. The incentives that are in KiwiSaver produce a multiplier effect in terms of private savings. 
Hon David Parker 
: And you could say that they are borrowing for their upper-range tax cuts. 
Dr RUSSEL NORMAN 
: I will come to that. But on the issue of savings KiwiSaver actually has a multiplier effect in terms of private savings and that is why it is different from the Cullen fund. I agreed with Bill English when he said that we should take a break from contributions to the Cullen fund while we are running a deficit—I can see the logic of that. However KiwiSaver has a different logic because of the multiplier effect that we get from those contributions. There is another part of it which is the culture of savings. KiwiSaver was turning around the culture of savings in New Zealand but this Government has twice—or is it more—interfered with the basic settings of KiwiSaver. It is undermining the confidence that people have in the savings culture that is building around KiwiSaver. 
The reason why that is important is that a country that does not save will eventually lose control of its assets. It is just a simple matter of fact: if we continue not to save then sooner or later other people will own the country because slowly we flog off assets or we increase debt in order to cover the fact that we do not save. Changing the savings culture which KiwiSaver was designed to do—and there are arguments about the design of KiwiSaver but it was certainly working—interferes with the change of culture around savings which is one of the things that we are actually trying to achieve. It is hard to see how the changes to KiwiSaver are consistent with all of the Government’s rhetoric around changing the savings culture in New Zealand. 
I think it is also important for people to realise that they will end up paying for this. This is actually a tax increase. The Government does not want to sell it like this but that is what it is. Although it is going to direct employers to increase their contributions to KiwiSaver the employers are on the record as saying they intend to take that cost out of wage increases. So instead of getting a wage increase employees will get an increase in their employer’s contribution to KiwiSaver. Employees will pay for their employer’s contribution to KiwiSaver as well as the increase in their employee contribution to KiwiSaver. It is effectively an increase in tax. It is a drop in the take-home pay of workers in New Zealand in order to pay for this cut to KiwiSaver. 
As was alluded to earlier why are we in this fiscal deficit position? There are a number of contributors and to be fair to the Government it has been living in a world where there have been some really wild events that have put enormous pressure on its books. But it is also true that some of it is of the Government’s own making. The changes in income tax rates that the Government introduced the so-called tax switch was not fiscally neutral. It is funny that the Government talks about the tax switch being broadly fiscally neutral. 
When we look at the Government’s own figures in the 2010 Budget we see that over 4 years it cost $1 billion—the so-called broadly fiscally neutral tax switch. If I told someone that broadly zero is broadly equivalent to $1 billion if I said something fiscally neutral is something broadly the same as something costing $1 billion they might think I was off my rocker. When we look at the Government’s own tables in the Budget from 2010 we see in black and white—we can show them to members—that the Government’s so-called fiscally neutral tax switch cost according to the Government $1 billion over 4 years. It was not broadly fiscally neutral. When we look at the whole balance of the tax shift we see that it broadly cost a billion dollars in lost revenue. 
But that was only in theory. In practice it has cost a lot more than that because in practice the GST take has dropped—and for some good reasons; the fact that people are saving more is a good thing. But the Government’s GST increase has not covered the loss in income tax. So not only was it not broadly fiscally neutral at the beginning in spite of what the Government says—you know like the Government is only $1 billion wrong; “What’s a billion dollars between friends?”—but since then it has actually got worse because the GST take has dropped. 
The Government had to cover this huge fiscal hole in the Budget because the Government gave tax cuts most of which went to people like the people in this room who earn more than $100000. The people in this room did really well out of the tax cuts—pretty much everyone sitting in this room was a major beneficiary of the tax cuts—but the cost of them has to be covered somewhere. The way it will be covered is that ordinary workers will effectively have a tax increase because they will have to increase their contribution to KiwiSaver from their own salary and then from any potential wage increases they may have otherwise got. So that is not a tax shift; that is a tax swindle and there is no question about that. It is in fact the tax switcheroo as I have called it. It was poorly designed and poorly timed. 
The Government has missed the opportunity for transformational change in this economy. It has not had a price on carbon; instead we are subsidising carbon. This Government is giving $2 billion to greenhouse polluters. 
David Bennett 
: Go back to your billabong! 
Dr RUSSEL NORMAN 
: I ask Mr Bennett how he is going to explain that to his kids. Is he going to tell them “Oh yeah we gave $2 billion to greenhouse polluters so I am really sorry about the fact that the planet’s up shit creek because we subsidised greenhouse pollution.” What a brilliant Government strategy—not only are we $2 billion further in deficit because it is subsidising pollution but our kids have to live with an out-of-control climate because idiots decided they would subsidise greenhouse pollution. 
How about a price to make water use more efficient? How about something that would actually be transformational in the economy instead of business as usual? How about making sure we drive capital into the productive sector by using a capital gains tax excluding the family home instead of money going back into the housing market which is where it will go because there are not proper tax signals? The Savings Working Group said half of the increase in house prices from 2001 to 2007 was because of the way that the tax system is structured to encourage people to speculate in housing; so people cannot afford to buy housing because the tax system encourages this. 
This Budget is a “borrow cut and sell” Budget; it is not a transformational Budget and we will live to regret it.