Cullen Michael: Taxation (Urgent Measures and Annual Rates) Bill — In Committee Third Reading 
Cullen Michael: Taxation (Urgent Measures and Annual Rates) Bill — In Committee Third Reading 
[Volume:651;Page:255] 
Hon Dr MICHAEL CULLEN (Labour) 
: 
 Diddums is all I can say to the poor member Craig Foss who has just spoken. Let me get this right. New Zealand is in a recession. That is not surprising—so is the United States so is Germany so is Japan so is most of Europe and so are all kinds of other countries around the world. The member says that the answer to the recession is as follows—and let me get this right. Firstly we cut long-term savings; secondly we reduce innovation; thirdly we increase taxes on people on low incomes. Then of course we have the really brilliant part of the growth strategy: we get teachers to tell parents in plain English how their kids are doing. This in itself will drive increased productivity throughout the economy. This is the growth strategy. On top of that the real big driver the real turbocharger for this 1953 Morris Oxford that the National Party is putting up is a $10 a week tax cut. People will flood into work for that; they will work so hard that the economy will take off and exports will double! We will be in the top half of the OECD within 3 years thanks to a $10 a week tax cut! Does anybody believe this rubbish? Do people believe that that is a growth strategy in the 21st century? It would not have been very good in the early 20th century; it is hopeless in the early 21st century. 
So what does this bill do? It increases taxes for many people. There is nothing urgent about this bill. The only thing that is urgent is that it is being taken under urgency. That does not make it urgent. The bill also provides for annual rates. Actually it talks about KiwiSaver. I do not know why the Office of the Clerk approved KiwiSaver being in this bill because there is no reference to it in the title of the bill. It says “Taxation (Urgent Measures and Annual Rates) Bill”. I would like to know how cutting KiwiSaver contributions come within that particular heading. National has got away with stuff I never got away with when Dave McGee was Clerk I might say in that regard. 
We know what the increased tax on low incomes is. The increased tax on low incomes is $730 million over the next 5 fiscal years. It is worse than that sounds because the increase does not take place until 1 April 2010. So it is actually $730 million over about 3 tax years. It is actually about $230 million a year in increased taxes. On whom? On those earning $14000 to $24000 a year on all families with kids that earn under $44000 a year and on quite a lot of families with kids that earn over $44000 a year. They will pay higher taxes than under the current law. That is what this bill does. 
The second thing it does is reduce innovation. It abolishes the research and development tax credit. We are told that this is because companies are rorting it. Well not a single company has got a research and development tax credit yet because the first tax year that it applies to has not yet finished. It is all very well that PricewaterhouseCoopers and all these people have been vetting these lovely schemes but nobody has actually tested anything. I have heard complaints from accountants that the Inland Revenue Department is being too tough around the rules for the tax credit. Far from the tax credit being too easy to get the complaint is that it is too hard to get. 
What we do know is that if we do not have one and Australia has one we will continue to see research and development sucked out of this country. I do not like tax credits in these areas any more than I like bank guarantees. We had to have bank guarantees because everybody else had them. If we did not have them then we did not get the money linked to New Zealand banks and we would not see New Zealand retail deposits in New Zealand banks. If everybody else does it unfortunately we have to do the same thing. The same is unfortunately true with research and development tax credits. If everybody else is doing it and we are not doing it that is an incentive to site research and development elsewhere. 
What is research and development? It is the brightest brains the highest-value jobs the companies that produce the most the companies that export and the companies that are more innovative and pay higher salaries. National says that it is going to turbocharge this economy by taking those jobs away and exporting them across the Tasman. This is part of its great strategy for bringing people back to New Zealand. Can anybody explain the logic of this? Nobody in National can explain the logic of this. Basically it is the same as with all the rest: the Labour Government did it and therefore the National Government will reverse it because it hates stuff that looks good. That is what it has done. It is like Working for Families and it is like KiwiSaver. 
Then of course we reduce KiwiSaver in this bill. We turn it from a scheme in which the average worker accumulates savings of 10 percent of his or her wages per annum of which the worker pays 4 percent to a scheme in which he or she accumulates savings of about 5 percent per annum yet many workers—particularly the low paid—will still pay 4 percent because the employer will shift the cost on to the employee. Mr English claims that lots more people will join but he failed to answer the question. In terms of the money that National has calculated—and it has calculated money; it has come up with costings and those costings are based on assumptions—one of the assumptions has to be what the increased uptake of KiwiSaver will be compared with the status quo. The fact is that National has not budgeted anything in that regard. It does not expect an increased uptake at all. 
Yes the unions wanted to retain the “2 plus 2” entry point. But they were not arguing to stay at “2 plus 2”; they were saying that people could go in at “2 plus 2” then gear up for “4 plus 4” with annual wage increases so that they did not feel the initial pain quite as much. That is enormously different from sticking at “2 plus 2” over the lifetime of savings. The sixty-eight members of this House who voted for this are all entitled to an employer’s superannuation subsidy of between 8 and 20 percent on their superannuation scheme. They all voted to lower the subsidy for ordinary workers to next to nothing and they conned the media into believing that they would get $1040 a year. They will not—only if they contribute 4 percent continuing. At 2 percent many will get a tax credit that is a great deal less than $1040 a year as a result of these changes. And the threshold of the employer’s superannuation tax payment has been lowered. It goes down from 4 percent to 2 percent. So if the employer continues to pay 4 percent instead of 4 percent going into the employee account 3.4 percent goes into the employee account. 
Time after time after time at every step there is a cut in savings. This is a country with an appalling savings record with a chronic current account deficit with an excessive reliance upon foreign capital and with endless debates about foreign ownership of the New Zealand economy—and this Government decides to cut savings. There is in an international financial crisis partially driven by the growing gap between the debtor countries—the borrowing countries—and the savings countries and the National Government has firmly nailed its flag to the mast of more borrowing and more spending. This is not an economic programme that makes any sense: a dumber economy lower private sector research and development funding more taxes on low incomes fewer savings—that is the National Government’s formula. Somehow or other a little tax cut in the middle and the top will make up for it! 
We are not actually lowering marginal tax rates for most people; they barely change for the vast majority of people. So the incentives are not there because economists tell us that the incentives are in terms of the marginal tax rate not the average tax paid. Once one lowers the average tax paid people just bank the difference—that is a given. It just becomes part of the family budget from then on. It does not change incentives to work from that point on. 
The final point is the betrayal by the Maori Party of its constituents. Those members are voting for a bill that discriminates particularly against their constituents. The low-income people who lose under this bill are disproportionately Maori. Maori disproportionately benefited from and were enthusiastic about KiwiSaver because it was particularly geared to helping low to middle income earners get a regular savings habit at work. For the first time for decades we were seeing significant Maori uptake of work-based superannuation. And the Maori Party voted for this. That is why the financial veto was withdrawn—the National Government was worried that the Maori Party members would abstain on or vote against the measure. The National Government leant on them and they caved in. Their so-called mana was not enhanced at all. Their mana is knocking around somewhere in the gutter at the present time. They are feeling about this big. Mr Harawira said that he wants to kill Trevor Mallard because Trevor Mallard dared to point out that he has betrayed his own constituents. Well utu time has a date: it is probably November 2011. 
It is already launched; the blogs are turning against National. When one of National’s favourite journalists the daughter and sister of National Party MPs is attacking it in her blog today we know that the worm is turning. The honeymoon is over. I say to the National members that it is time to get out of bed boys and girls and start trying to defend where they are because the honeymoon is over as a result of the legislation that they are pushing through. They should listen to  
Checkpoint 
 tonight as group after group is lined up to attack the National Government. This is the real world those members are in. They will go back to their offices wait for the officials to turn up and scare them with the latest frightening story panic again rush in blame everybody in sight and try to pretend they are not the Government. Well they are the Government. We know where we are—we are the Opposition. They are the Government they have to do it and what they are doing at the moment is cutting the taxes of the wealthy increasing the taxes of low-income people cutting savings cutting innovation and betraying the very people who voted for them in this election.