Parker David: State Sector Amendment Bill Public Finance Amendment Bill (No 2) Taxation (Livestock Valuation Assets Expenditure and Remedial Matters) Bill — Third ReadingText is incorporated into the Bound VolumeParker David: State Sector Amendment Bill Public Finance Amendment Bill (No 2) Taxation (Livestock Valuation Assets Expenditure and Remedial Matters) Bill — Third Reading[Sitting date: 10 July 2013. Volume:692;Page:11955. Text is incorporated into the Bound Volume.]State Sector Amendment BillPublic Finance Amendment Bill (No 2)Hon DAVID PARKER (Labour):I begin by also acknowledging the contribution earlier of Julie Anne Genter. I thought that was a very erudite exposition of the principles that should underlie a neutral tax system. The difficulty that the Labour Party had with this proposal was that the compliance costs as designed were high. Some of the other complexities that the member noted herself in respect of shift workers had not been fixed in the Taxation (Livestock Valuation Assets Expenditure and Remedial Matters) Bill and the politics of it got away from the Government in a way that nobody could fix. But the member is quite right in her analysis about what a neutral tax system should look like and how that can have both economic and environmental benefits for our country. I congratulate her on her contribution.I want to whilst noting that the Labour Government will be supporting this bill for reasons that other—Hon Trevor Mallard: Labour Government—soon-to-be Government.Hon DAVID PARKER: The Labour soon-to-be Government sorry. The Labour Party will be supporting the—I am not sure whether I am ahead of myself or long behind but I am—Hon Trevor Mallard: You’re slightly premature.Hon DAVID PARKER: Premature—I like to think of it that way thank you.Hon Trevor Mallard: Well not in every sense.Hon DAVID PARKER: Ha ha! I think I might return to the bill.Other Opposition members have already acknowledged that this bill does make some minor improvements to the taxation system and that therefore it deserves the support of the House. But I want to return to the points that David Clark was addressing at the end of his contribution.We had a question in the House yesterday which the Government put up to itself where it tried to congratulate itself on having a good redistributive tax system. The problem is that it is not compared with most OECD countries and that was made clear by the OECD report on New Zealand that came out about a month ago—in June. That report said that New Zealand’s tax system is less redistributive than most OECD tax systems. What it did not say was that this Government has made it worse. This Government gave 40 percent of its income tax cuts to the top 10 percent of income earners. Mr English had the audacity to stand up and say that all is well in New Zealand ignoring the fact that the income tax system is less redistributive than it was when the Government came to power and is now according to the OECD less redistributive than the average.The same OECD report lamented the fact that income inequality in New Zealand is rising faster than in just about any other OECD country. We are no longer the equal country that we were 20 years ago. We are not as yet as unequal as some of the least fair societies in the OECD but the rate of change as we progress towards being less equal than others is one of the worst in the OECD and this Government has made it worse. It has made it worse not just through its changes to income tax but through the increase in GST that it imposed upon New Zealand.So with 40 percent of the income tax cuts having gone to the top 10 percent of income earners what was the distributional effect of the increase in GST that happened about the same time? The distributional effect of that was that it made New Zealand’s tax system less progressive and more regressive. The reason is that when you have GST it is effectively a tax on the wages of low and middle income people because their wages are all spent on GST-inclusive services with the exception of their rent and interest payments. The proportion of a low to middle income earner’s income that is spent on GST is higher than the proportion of income that is spent by a high-income person on GST. So in effect GST is more expensive for low and middle income people than it is for high-income people.That was another step by this National Government towards a less equal and more unfair society—so much so as I have already said that the OECD has been lamenting the fact that New Zealand is becoming an unequal place. Further the OECD noted that the most glaring hole in our tax system is not these little things that are being fiddled around with by this bill but the lack of any taxation on capital income. There is very very little tax on capital income.Sam Lotu-Iiga shakes his head and says that is not right. Well he is wrong. He says that is not right; he is absolutely wrong.The National Government occasionally says: “Well if you’re a trader in property you pay tax.” Yes but you are not paying tax on capital income; you are paying tax on trading income. The wealthiest people in New Zealand can construct their affairs in such a way that their income is capital income not taxable income. We do not taxcapital income in New Zealand. We on the Labour Party side are not saying that you should tax all capital income. You have to be careful that you are not taxing inflationary gains in property because that is not real income but you should be taxing capital income because otherwise you have rising inequality.You have lots of other problems as well. One of the reasons why we have got rampant house price inflation is that there is a tax bias—which is felt most in Auckland at the moment—that drives investment into rental housing because there is a tax break. Again the OECD said this in its report in just the last month. It said that the effective tax on different classes of investment is different and that drives investment patterns. The effective tax rate on capital gains from investing in residential housing is nil—it is nil. In fact you get tax deductibility from interest which includes an inflation component. You would effectively get a tax deduction for some of the inflation that you suffer when you are in society because your interest payment includes an inflationary component. You get a tax deduction for that in New Zealand. You do not get taxed on any of the gain—any of the gain—and it is just unfair. Not only is it unfair; it holds the economy back.That is why when we talk about capital gains tax we are safe when we say that a capital gains tax excluding the family home would grow the economy. It is part of our pro-growth tax reform package. We know that if you have a proper tax signal in the economy instead of overinvestment in the housing market in Auckland—which drives up house prices to the detriment of people trying to buy their first home. It also means that there is not enough money going into other more productive parts of the economy. So too much money goes into the speculative economy based on a tax bias favouring tax-free capital gains—capital income—and not enough money goes into our productive factories or into our service industries which are selling services overseas and even into other parts of our export economy. That is one of the reasons why this Government has failed completely in its ambition to rebalance the economy.National came into office promising that it was going to do a number of things. It was going to stop the drain of people going to Australia. “Wave Goodbye to Higher Taxes. Not Your Loved Ones.” was its slogan. It has failed completely in that ambition with more than 200000 New Zealanders having since left to live permanently in Australia—an enormous number of people. It is going to show up in the census figures when they come out soon particularly in some of the provincial centres that have been so ignored by this Government.It also shows up in the Government’s failure to rebalance the economy towards exports. Exports as a percentage of GDP have not changed despite the Government’s promise that it was going to increase exports as a percentage of GDP.Of course it also shows up in the lamentable statistic that New Zealand has the worst current account deficit in the developed world according to the IMF. The OECD says that it is the second worst in the developed world and is likely to be for the next 3 or 4 years into the end of the projection period—worse than Greece’s.This is all because we do not cover the cost of our imports and interest from the value of our exports in part because our tax system has these structural biases that drive our investment capital into the wrong parts of the economy. It costs us jobs. Wages are lower as a consequence. We are a low-wage economy compared with most of the developed world now. And this National Government does nothing to change that because it has not got the gumption to put aside the interests of the cronies for whom it governs—to put aside the interests of the wealthiest in society who in the long term would benefit from the changes that we propose but who would in the short term pay a little bit more tax. This bill does not do the many things that are needed to improve the New Zealand economy.