Tremain Chris: Taxation (KiwiSaver and Company Tax Rate Amendments) Bill — First Reading 
Tremain Chris: Taxation (KiwiSaver and Company Tax Rate Amendments) Bill — First Reading 
[Volume:639;Page:9397] 
CHRIS TREMAIN (National—Napier) 
: 
 I rise to speak to the first reading of the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill. I would have welcomed this bill if the only thing in it was a reduction in company tax rates. But in fact this bill is a lamb with a wolf behind it. I would have welcomed this bill if it had just broken the company tax rate but this bill does something else as well. 
I will be opposing this bill for two reasons: firstly businesses will be worse off not better off than they are now and secondly employees will not accept lower wage rises than they would otherwise get. 
Hon David Parker 
: How? 
CHRIS TREMAIN 
: I will explain that to Mr Parker. This is something that together with across-the-board tax cuts the National Party would welcome. But this business tax rate cut comes as I said before like a wolf in sheep’s clothing. The wolf is Dr Cullen and the sheep’s clothing is today’s Budget and this bill. This bill does not include just a company tax rate cut but it comes with a kick in the tail. That kick in the wolf’s tail is the compulsory matching employer contributions to employee savings and that kick is the reason that National will not be voting for this bill. 
 Up front that measure looks good and no doubt the spin on it will be fantastic. But here is a question for Labour and particularly for those Labour members who have run businesses. Mr Parker would fall into that category. I ask Minister Parker what the single largest cost is for most businesses particularly for service businesses. 
Hon David Parker 
: Labour. 
CHRIS TREMAIN 
: It is the cost of labour. After materials it is normally the cost of labour—the cost of employees. In many businesses—in fact in most—labour is the highest cost by a long shot. For most small to medium sized enterprises—86 percent of the businesses in this country have fewer than six employees and 97 percent have fewer than 20 employees—the cost of labour is the largest cost. I put it to that member that the cost of labour is often significantly higher than the bottom line of a business. That would be a fair comment. For most businesses as I say the cost of labour is higher than the profit of the business. For some it is not but for most it is the biggest cost and for the majority the cost of labour is larger than the bottom line as I said previously. 
Let me give members an example from the travel industry. I no longer have businesses in that game but I do understand the figures—I have a pretty good knowledge of that industry. In the travel business the cost of labour is 40 percent. If one is making a profit which not many businesses in the travel industry do and if the bottom line is 10 percent one is doing pretty well. Let me take a business that has a $250000 turnover with a wages cost of $100000 and a possible net bottom line of $25000. Under this bill with a drop in the tax rate from 33 percent to 30 percent we have a 3 percent saving. So with a bottom line of $25000 that business which would have paid $8250 in tax will now pay $7500. That is a straight tax break of $750 which is good. 
I am a fair man in doing this calculation so I will take out the credits that will be given back on the PAYE and allow for the fact that there will be employees who do not take up the KiwiSaver scheme. So I will drop the cost of wages down to 50 percent of what I was talking about—from $100000 to $50000. In year 1 a 1 percent contribution will cost that business $500. In year 2 it will be $1000 in year 3 it will be $1500 and in year 4 it will be $2000. That is more than the tax saving that the business will make. That situation will apply to many many businesses in this country. 
So on the one hand Labour is out there saying it is fantastic that there is a tax break—a 3 percent drop—but Labour members forget that the cost of labour is significantly higher than the bottom lines in most of our small businesses in this country. What will happen is that the poor old small-business person will be kicked. 
Chris Auchinvole 
: In the guts! 
CHRIS TREMAIN 
: He or she will be kicked in the guts. In fact it is worse than that because the contribution costs rise for the business—to 4 percent over 4 years—and what happens if businesses cannot pass that on to the consumer which competitive businesses like service businesses cannot? That will erode the bottom line. So instead of having as in the example I gave a bottom line of $25000 that will drop to $22750. 
Members should tell me how that improves the situation for small businesses in this country. It does not. This bill is a wolf in sheep’s clothing and that is why members on the Opposition side of the House will not be voting for it. Additional contributions on the key expenditure line could easily outspend the actual tax advantage on the bottom line and that will be the case especially in service businesses. Members can do the numbers. 
Darren Hughes 
: Will you be saying that on Marine Parade? 
CHRIS TREMAIN 
: I would certainly give this speech on Marine Parade. I ask the member to listen to this. 
Labour says that the contributions by employers will be taken into account in future wage negotiations. That was in Dr Cullen’s speech today. That is if an employer pays a 1 percent contribution into an employee’s superannuation the employee will forgo that as part of the rest of the wage rise. Let me quote the Budget speech: “The Government expects”—members should note that word; it does not guarantee—“that the phase-in of the compulsory”—and take note of that word as well—“matching employer contributions will be taken into account in wage and salary bargaining as is the case”—this is great—“in the current campaign by the Engineering Printing and Manufacturing Union.” Guess what! When that campaign was being negotiated was that contribution compulsory? No it was not. But it will be compulsory from today if this bill goes ahead. 
What happens in negotiation when something is compulsory? Suddenly it cannot be negotiated can it? Here we see the wolf coming out from under the sheep’s clothing yet again. Firstly the Labour Government expects—it thinks—that there might be a phase-in and that employees will take a cut in their future wages and that employers will not be worse off because of that. Secondly the employer contribution will be compulsory. That makes a big difference when one is on the other side of the negotiating table. Mr Parker will know that having negotiated wages before. When something is not compulsory it is a bargaining chip is it not? When something is not compulsory it is a bargaining chip. When it is compulsory it is a given and it cannot be used in a negotiation. The only reason that employer contributions are being taken into account in the current wage and salary bargaining campaign by the Engineering Printing and Manufacturing Union is that the decision to allow the scheme right now is optional. It is optional and because it is optional it can be put on the negotiation table as something that can be negotiated. As soon as a superannuation contribution is compulsory it is off the negotiation table. As I have said as soon as that becomes compulsory it comes straight off the negotiating table. 
The other key point which members on the Government side of the House—or in fact any member of this House who has employed people—should understand is the reality of life for people on low to medium wages. The reality is that every dollar they take home counts. So firstly Dr Cullen expects medium and low-paid workers to sacrifice 4 percent—and that is not 4 percent of net income; it is 4 percent of gross income. It is 4 percent of net income but it is taken off gross income so it is about 5 or 6 percent. 
Chris Auchinvole 
: Say that again! 
CHRIS TREMAIN 
: I am talking about medium to low-wage employees who will be put in the situation of having deductions taken out of their wages but who cannot afford them. 
The Minister is trying to tell us that those employees will be happy to forgo future wage rises in lieu of the money being put into a scheme that will deliver something to them at the age of 65. I tell members that people will not like that. They are expected to do that while at the same time inflation in the range of 3-plus percent per annum is burning away at their spending power. What is worse is that employees have no chance of rising up through the marginal tax brackets. There are no changes to those in this Budget. The marginal tax brackets will stay the same and keep picking up more people. 
The guts is that employees and unions will not accept the employer contribution and forgo wage rises for two reasons. Firstly they will not be able to afford it and secondly the employer contribution has become compulsory for employers so it is off the negotiating table. Employers will not be able to use it as a bargaining chip. National will not be voting for this bill because it is a wolf in sheep’s clothing.