Parker David: Estimates Debate — In Committee 
Parker David: Estimates Debate — In Committee 
[Advance Copy - Subject to minor change before inclusion in Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 The Hon Bill English’s problem is that he has painted himself into a corner. He has ruled out a land tax and he has ruled out a capital gains tax yet he has written a Budget that by his own projections has New Zealand returning to a current account deficit of over 6 percent a current account deficit that grows every year from here on and a current account deficit being funded by increasing foreign debt for New Zealand every year. 
Mr English’s own Budget projection shows that if he and his allies in the National Party are re-elected for another term then at the end of 6 years of their Government New Zealand gets poorer then the next year New Zealand gets poorer and then the next year after that New Zealanders get poorer still because the structural problems that bedevil the New Zealand economy have not been solved by the Government’s tinkering. It has done nothing substantial. It has not pulled the levers that need to be pulled to redirect into the productive sector the precious investment capital that is currently going into the speculative sector at the expense of the productive export sector. 
Craig Elliffe is a former partner of Chapman Tripp a former tax partner of KPMG and now an academic and a successful businessman in his own right. He says that we need a capital gains tax because “To the extent to which you have tax policies that are distortionary on the economic levers and contributors to society” it is wrong. He asks “how sensible is it to have property investment four or five times the size of the sharemarket producing no tax revenue.” That is one of the comments. 
We have had another comment from the  
Herald on Sunday 
 criticising National at the same time as saying that we were right to be looking at a capital gains tax. The editorial states: “apart from borrowing money and talking up a questionable programme of asset sales National is showing no signs of a plan to get us out of the mess we’re in.” It is right. The  
Dominion Post 
 has said something similar. The  
National Business Review 
 has said that there is a need to have a tax on capital. 
The Manufacturers and Exporters Association says “the eradication of the capital gains tax harbour will help to lift productive investment. A more balanced tax system will see investment flow to the most intrinsically profitable areas of the economy rather than those that are tax advantaged.” The Productive Economy Council says something similar: “A Capital Gains Tax sends the right signals for investors and means those choosing to take the path of unproductive property investment will have to pay their fair share of tax. While fairness in tax is good the real long term benefit is the chance to get more of our limited capital invested in making New Zealand more not less competitive.”  
We have heard others like Gareth Morgan say something similar. National is on the wrong side of this argument and it should admit it. The Government has $48 million in these estimates going towards policy advice from Treasury. What did Treasury say after the last time the Government spent $48 million? It said to introduce a capital gains tax to make the economy stronger as well as to make the tax system fairer. 
I will deal with Mr English’s assertion of tax and spend. We always knew National members would come back to their original mantra. Tax and spend is the accusation they make against us. The problem is that they are wrong. It is not true. They say that our revenue projections are wrong. Well our revenue projections are all out there and the only one that has taken a flick at them other than Mr English is his colleague Mr Joyce and it has not cut through because actually the biggest line item is the revenue from the capital gains tax. 
Treasury’s estimate of the long-term revenue from a capital gains tax excluding the family home was $4.8 billion per annum. We remodelled that through our consultants Business and Economic Research Ltd and they cut that back by $2 billion per annum at the maturity of the scheme. So it is raising $2.8 billion per annum once it is a mature scheme rather than $4.8 billion. The sensitivities in the Business and Economic Research Ltd analysis show that it could be $1 billion per annum more than that but we have taken the conservative course and assumed the lower figure. 
The new progressive top tax rate raises money; so does the loss ring-fencing; so do other anti-avoidance measures; so does a moderate amount of revenue from the agricultural sector from emission trading scheme revenues. This allows us to fund the tax-free zone that David Cunliffe has already indicated—the first $5000 of income will be tax-free for every person. That is whether one is on a low income or a high income and whether one is a superannuitant or someone in paid work. In addition GST comes off fresh fruit and vegetables and there is a research and development tax credit that is funded. 
These measures are all properly costed. The Government’s claims to the contrary are not credible. They are not credible. Over the period shown in our table—which has been publicly released despite Mr English’s comments intended to misrepresent it—our package will reduce debt by $7.7 billion more than the Government would. In other words our debt track is better than the Government’s debt track. Are people surprised by that? Well they should not be. They should not be because when we were last in Government we reduced Government debt. 
When Labour was in Government we reduced net Government debt to zero. We reduced gross Government debt to 17 percent. We did it every time with the National Opposition at the time opposing the Budget surpluses that did it. National members said: “Give tax cuts.” Well we are now in a $16.7 billion deficit this year as a consequence in part of Mr English’s inability to properly cost his income tax package. 
Mr English’s prior income tax cuts resulted in an increase of the New Zealand deficit of over $1 billion. Over $1 billion over that period was paid out over 4 years of tax cuts in addition to the revenue that was collected from the switch. So he has created a fiscal hole. He has also done nothing to cure the underlying imbalances in our economy which are caused in part by the signal that people get. They make additional returns from their rental investment because of the tax bias in favour of residential property. There is $200 billion of investment and very little tax is paid from that area. That is why Treasury favours this change that is why the IMF favours it that is why the OECD favours it and that is why Australia has it. 
The Prime Minister has said that a capital gains tax would put a dagger through the heart of the economy. Since the Australian economy has had a capital gains tax the value of its sharemarket has increased seventeen-fold. Over the same period New Zealand’s sharemarket has increased in value three-fold. 
Far from it putting a dagger through the heart of the economy it is one of the things that we need in order to get that precious investment capital going into the right sectors of the economy so that we can grow our exports. Instead of the parlous future that the National Government has planned for us—where our net investment position goes to negative 85 percent of GDP by about 2015 right down there towards Greece Portugal Hungary and Iceland—New Zealand would go in the opposite direction because we would have investment in jobs and investment in the productive export sector. We would start earning our way in the world. That is why the Government is on the wrong side of this debate. 
Mr English should just accept that his Treasury officials are right and that his Reserve Bank officials are right. One of the reasons that they like it is that over time it leads to lower interest rates to the benefit of not just the export sector but everyone in New Zealand who has a mortgage. They get lower interest rates if there is a capital gains tax. The Savings Working Group which the Government set up told it that half of the last property bubble would have been avoided if we had had a capital gains tax. It would have meant that the Reserve Bank did not have to pull as hard on the interest rate lever to curb inflation. We would have lower rates of inflation there would be less pressure on the exchange rate and therefore again our exporters would benefit as would the people who work in those industries. 
Instead we have Mr Foss and the other Neanderthals on the economic front in National saying that Labour is on the wrong side of this debate when we are with every OECD country other than Turkey and Switzerland—Switzerland being a tax haven.