Cunliffe David: Taxation (Urgent Measures and Annual Rates) Bill — Second Reading In Committee 
Cunliffe David: Taxation (Urgent Measures and Annual Rates) Bill — Second Reading In Committee 
[Volume:651;Page:138] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 It is good to have an opportunity to discuss some of the detail of this bill after what has been a very rushed process to date. I hope that some of the political rhetoric may subside for a while and that we and New Zealanders can get our heads around some of the measures that are embedded in the bill. 
Let us start if we can by going through exactly what will change for average New Zealanders with regard to the KiwiSaver component of this bill. Firstly they will not get the $40-odd down payment for their registration fee. Secondly although National has tried to fill in part of the gap if someone is a low-income earner—by which we mean anyone earning less than around the average income of about $44000 a year—and that person has kids he or she will be worse off despite the fact that National has late in the piece restored some of the Government’s contribution. 
Chris Tremain 
: I raise a point of order Mr Chairperson. We are considering Part 1 which deals with personal tax rates. The speaker who is a learned member of the House is talking about KiwiSaver. I ask you to bring him closer to the part please. 
The CHAIRPERSON (Eric Roy) 
: I think that is a fair call. Members can refer to something else but they need to draw what is said back to the part for comparative purposes or whatever other purpose. 
Hon DAVID CUNLIFFE 
: Of course the tax rates are funded largely by the changes to KiwiSaver and I had thought it was appropriate to cover both the funding and the expenditure side of this bill. 
However let us go directly to the tax component. The principal difference here is twofold. The first difference concerns where the rates and thresholds are set and the second is in the top rate. Let us turn first to the thresholds. Under Labour’s package some $8 billion has already been invested in the changes that came through on 1 October. They were designed to lift the thresholds thereby providing all New Zealanders with approximately equal improvements in the tax actually paid. It was a very very fair set of tax changes and it would have carried on in that way. By 1 April 2011 people earning up to $20000 a year would have been paying 12.5 percent those earning $20000 to $42500 a year would have been paying 21 percent those earning $42000 to $80000 a year would have been paying 33 percent and those earning above $80000 a year would have been paying 39 percent in tax. What has happened of course under this bill from National is that people who are earning between $14000 and $20000 a year will now pay 21 percent not 12.5 percent. That is a very very significant difference. It means that many below average income earners second earners and families will face a higher tax threshold a higher tax rate at that level. 
Why has that been done? This is a very artificially constructed tax cut. It appears to be built around the promise that National made during the election campaign to try to engineer a $50-a-week cut for the average income earner. So in fact the tax remission spikes around that part of the band and then on either side of that it drops down. The real change occurs for those in the top bracket—over $70000 a year. Why this Government thinks that people who earn over $70000 a year deserve to be the biggest beneficiaries from this tax cut escapes me. Someone who is earning three-quarters of a million dollars gets $200 a week and someone who is on the average wage gets $2 a week. Why is that? There is no economic justification for that. People who are very wealthy of course do not spend the tax cut that they get. They can afford to save it or invest it and therefore it is taken out of circulation. 
Chris Tremain 
: So you admit that some people actually save it. Some actually save their tax cuts. That’s good to hear from you. 
Hon DAVID CUNLIFFE 
: I say to Mr Tremain that that can be useful but one has to be very careful about why one is doing it. The Government has said that the principal reason for this tax cut is to restore demand in an economy that is facing recession. It simply will not do that if the money is saved away. We have to start with $3.5 billion more in savings because that has just been sucked out of KiwiSaver. Then we have to offset the $1.5 billion of innovation that we are not going to get—or more; probably $3 billion or $4 billion—because the research and development tax credit has been axed. I think we need to be very clear about the arguments for this tax change. 
To summarise we know we have a threshold problem for people who are on lower and middle incomes. We know we have a skew of benefits to people who are at the upper end of the income range and we know that we have some perverse effects in terms of whether this tax change will help to offset the recession as a result. There is a lower multiplier on tax cuts than on Government spending if it is well directed and a very low multiplier on high-income individuals who are squirrelling the money away because frankly they do not need the tax cuts. Those are some of the economic arguments. 
The next questions that we come to around the tax rates are what the actual fiscal impacts be will be and what the outlying debt track will be. Most New Zealanders by now understand that under the previous Labour-led Government under Dr Cullen’s leadership the gross debt to GDP ratio the amount of Government debt that we owe other countries was cut in half from 35 percent to 17 percent. With the recession it is up to about 18 percent but it is still very low by world standards. Why does that matter? It matters hugely because it means the incoming Government has the wiggle room to spend and invest in infrastructure or take other measures to offset the recession. The Government has the fiscal headroom. 
The question is what has happened to that headroom as a result of this package. Treasury’s briefing to incoming Ministers made clear that in Treasury’s view it was unnecessary to pursue further tax cuts on top of the close to $9 billion of stimulus that came in on 1 October. The reason for that was that it considered that stimulus to be sufficient and that there were real risks about driving us deeper into debt. 
How deep into debt are we getting as a result of this tax cut? The answer is that we do not know. We do not know because the new Government is not telling us. It has taken the unprecedented step of ramming a major piece of tax legislation through the House under urgency with no select committee process with no ability to interrogate it on the detail and with no reliable statement of the macroeconomic implications of what it has done. This bill is a balancing act. Of course we would all like to give tax cuts—and we want to give fair tax cuts—but we have to be constrained by the ability of the Government’s books to support them. There is no information provided to the public let alone to the Opposition about the state of those books as a result of this bill. 
Let us now turn to some of the anomalies that arise. Some of those are deliberate; others may be unwitting. As Dr Cullen has said there is an anomaly around pension portability. Australia has a 9 percent robust employer-funded superannuation savings scheme. We had a roughly equivalent scheme under Labour’s KiwiSaver scheme and the previous Government had sought and received the approval of the Australian Government to allow people to move backwards and forwards between the two countries—something that was especially important one would have thought from a National Party point of view because National members spent most of the election campaign grousing about people who cross the Ditch. So what is the implication? The implication now that our tax package has resulted in a change to the KiwiSaver benefits is that that portability could be eroded. 
Regarding superannuation savings the employer contribution for those who were seeking part-time work or who were close to superannuation age was at 4 percent on a net basis after tax credits. Now that comes down to I believe about 3.2 or 3.4 percent net under this bill undermining further the ability of New Zealanders to save for their superannuation especially if they are doing so from a secondary income. 
So a number of technical anomalies alongside the headline rate and threshold changes are built into this bill and they deserve very significant consideration. 
On the question of process we have already discussed the lack of a select committee hearing. We have not really gone into the fact that the commentary on the bill admits up front—and I have never seen this before—that due to the haste with which the bill has been prepared the Government has not been able to do a regulatory impact statement. 
Hon Member 
: Amazing. 
Hon DAVID CUNLIFFE 
: That is amazing given that the new Government campaigned on regulatory integrity and has a confidence and supply agreement with the ACT Party. 
Hon Darren Hughes 
: They’ve got a new Minister for it. 
Hon DAVID CUNLIFFE 
: Yes the Government even has a Minister and on its first bill— 
Chris Tremain 
: I raise a point of order Mr Chairperson. Once again we are straying right off the subject. That is a matter for a speech on the title of the bill and this debate is about Part 1. We are dealing with personal tax cuts and the thresholds. 
Hon DAVID CUNLIFFE 
: I certainly respected the member’s earlier point of order but I think respectfully Mr Chairman that on this one he is mistaken. The regulatory impact statement applies to the whole bill including the rate changes which are the subject of this part. 
The CHAIRPERSON (Eric Roy) 
: I am not going to uphold the point of order. 
Hon DAVID CUNLIFFE 
: Thank you very much. So we know that the proper processes for regulatory scrutiny have not been gone through on this bill. 
The next problem is that the economic effects of this bill as the commentary on the bill states have not been fully analysed. We do not know those effects not only because the Government has failed to publish the debt track but also because according to the commentary on the bill the analysis has not been done even by the Government’s officials. We do not know what the flow-on effects of the funding mechanisms of this tax change will be. We do not know the net impact on innovation. We do not know the net impact on savings. We do not even know the net impact of the spending multipliers from the tax change. I say to those who have not been in Government for a while that one normally does the work before one puts a bill on the Table. Otherwise there might be an unintended consequence. 
One of the unintended consequences of this bill from a Government point of view is that a whole lot of New Zealanders are waking up and realising that this is not what they voted for. What they voted for they thought was a kinder gentler kind of National Party that would leave in place the good things that Labour had done and maybe offer a fresh face such as it was. But that is not what they got on day one. Besides this bill they have a very harsh piece of industrial relations law which we will come to shortly and they can see that some people have joined the flat earth society.