Dunne Peter: Taxation (Budget Tax Measures) Bill — First Reading Second Reading In Committee 
Dunne Peter: Taxation (Budget Tax Measures) Bill — First Reading Second Reading In Committee 
[Volume:654;Page:3959] 
Hon PETER DUNNE (Minister of Revenue) 
 on behalf of the  
Minister of Finance 
: 
 I move  
That the Taxation (Budget Tax Measures) Bill be now read a first time. 
 As announced in today’s Budget the second and third stages of the personal tax cuts that were to have taken effect on 1 April 2010 and 1 April 2011 respectively are being deferred to prevent further increases in Government debt. Large Budget deficits are already being forecast for 2010 and 2011 and these will clearly have an effect on gross debt that Treasury projects could have increased to above 70 percent of GDP by 2023 in the absence of any policy changes. 
The current and projected fiscal position therefore constrains policy choices and places greater emphasis on maintaining revenue flows. As Minister of Revenue I am acutely aware of the need to ensure that our tax revenue remains sufficient to finance Government spending on the essential services that New Zealanders expect—a point I was making in an earlier address a moment or two ago. By delaying the second and third tranches of personal tax cuts the Government estimates it will save around $900 million a year from 2011-12 and that has to be seen as prudent fiscal management for difficult times. 
Let me turn for a moment to the language of the bill. As drafted the bill speaks of “repealing” the further tax cuts rather than “delaying” them. That is merely because the date when these tax cuts can be reinstated is not yet known. If an undated delay were legislated for it would combine the repeal with a provision to allow the dates of the cuts to be restored by Order in Council which is not the most appropriate way to set tax rates. Tax rates are the province of Parliament and Parliaments historically in this country and elsewhere have fought quite properly to retain the right to set tax rates and have always resisted deferring those to an Order in Council or other mechanism outside the parliamentary process. 
This delay should not be interpreted as the end of further tax cuts. The Budget states clearly that the Government is committed to further reducing income tax rates as the economic and fiscal conditions allow and it clearly identifies further tax cuts as a fiscal risk meaning that the Government’s future reinstatement of the tax cuts has been explicitly taken into account. We have already made clear our medium-term commitment to aligning the top personal company and trust rates at 30c in a manner consistent with the broad-based low-rate approach. 
This bill also cancels the associated increase of $5 a week in the independent earner tax credit which was to take effect from 1 April 2010. At present that credit puts an extra $10 a week in the pockets of those earning between $24000 and $44000 a year who do not receive a benefit Working for Families tax credits or New Zealand superannuation. 
The second part of this bill relates to the KiwiSaver mortgage diversion facility which allows KiwiSaver members to divert up to half of their contributions to their mortgage repayments. That facility is to be closed to new applicants from 1 June 2009 although it will remain available to existing participants so long as their providers and their banks continue to offer it. Not all banks currently offer mortgage diversion and it appears that only about 600 people out of a KiwiSaver membership of more than 1 million have actually taken advantage of it. Now I acknowledge that this was the initiative of a former member of United Future—one whose name I dare not speak because it has become a byword for treachery—but in practice it has been demonstrated that this policy has not worked that any benefits of the facility are completely outweighed by its many disadvantages and I frankly see little reason to continue with it. 
Mortgage diversion imposes additional and unnecessary compliance costs on KiwiSaver providers and on the banks and these costs have been generally passed on to members who use it through increased fees. A further problem that has arisen with mortgage diversion from a policy perspective is that it goes against a basic principle of KiwiSaver which is to lock in savers’ funds until they are 65 thus helping them to save for their retirement. With mortgage diversion on the other hand it becomes possible to sell the house in question before the member is 65 and thus for the member to gain access to his or her funds. There is no easy way of preventing members from gaining early access to those funds through mortgage diversion so it is much simpler to close the facility altogether to help reduce the costs of running the KiwiSaver scheme and to leave things pretty much as they are for those who might currently be in the scheme. 
Let me conclude by saying this bill is a response to the difficult challenges that face the country today. It gives effect to measures that were announced in the Budget a couple of hours ago and I therefore commend it to the House.