Dunne Peter: Appropriation (2009/10 Supplementary Estimates) Bill Imprest Supply (First for 2010/11) Bill — Second Readings 
Dunne Peter: Appropriation (2009/10 Supplementary Estimates) Bill Imprest Supply (First for 2010/11) Bill — Second Readings 
[Volume:664;Page:11885] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 It may surprise David Cunliffe the member who has just resumed his seat to know that when all of the rhetoric is stripped away there would be substantial agreement with the core proposition that he presented. I certainly agree that New Zealand does not export enough that we do not innovate enough and that we do not save enough. It is easy to say those things. The challenge becomes one of implementing policies that will achieve change in those areas and that is where I start to part company with the member who has just resumed his seat. 
I am probably in the unique position of being able to give a somewhat dispassionate analysis of what has happened since 2008. I say to the previous Government that at the time that the 2008 Budget was prepared the depth of the international global recession was not readily imaginable. Members will recall a fateful week in October 2008 in the midst of our election campaign. It began one weekend with the Irish Government announcing that because of the depth of the international recession it was going to immediately guarantee all bank deposits. Around the world people thought that was a very far-fetched decision. By the end of the week every Government including ours was doing the same in respect of its own nation. The point of my saying that is to underline the speed and the depth of and the lack of clear vision leading up to this crisis. So when our Government changed in November—a few short weeks after that calamitous week—it clearly needed to take stock and to make a series of changes to the existing settings to get New Zealanders through the situation. 
The member made a telling point that I want to come back to. He talked about unemployment. The experience of New Zealand in previous recessions under both Labour and National Governments has been that the first casualty was employment. People went on to the scrap heap. The fact that this year in this recession contrary to predictions of a much higher level of unemployment New Zealand’s unemployment rate has topped out at around 7 percent is a deliberate tribute to the policies put in place after 2008 to cushion that impact to keep people in jobs and to make sure that we did not suffer the level of unemployment that bedevilled us in the past. 
When the Budget was brought down in 2009 it was against the backdrop of a rapidly deteriorating revenue base. We had gone through a decade of Budget surpluses; we were now into a period of prolonged deficit. We wanted to preserve the social core that I have just spoken of and to position this economy for the transition through the recession last year to recovery this year and beyond. The measures contained in that Budget which led to the initiatives that were able to be taken this year have positioned New Zealand very strongly for the future. 
In addition to the problems that the Opposition spokesperson on finance postulated at the beginning of his speech three other issues consistently affect the New Zealand economy. First we have a highly skilled but highly mobile labour force. Outside Ireland and Luxembourg we have the highest rate of any OECD country of our labour force living overseas and we do not have the luxury that those countries have of being able to spread their workers around their European Union neighbours. Second we have significant levels of debt: $170 billion on current estimates. It does not actually matter whether it is public or private debt; it is all debt that has accumulated in the ledger entry against New Zealand. Third we face chronic fiscal problems in terms of balancing our Budget. 
The challenge that the Government faced and the reason why it embarked upon what was to become a major programme of taxation reform—a tax switch if you like—was to rebalance the economy in such a way as to give us a fighting chance of improving our productivity and savings record of boosting our export growth and of creating a positive future for New Zealanders so that they would feel inclined to stay here and build this economy rather than go and assist other nations to build their economies. What has happened since the Budget? The profound changes to personal tax rates the restructuring of the property investment regime and the move to increase the GST rate with full compensation being provided to affected parties have had a generally positive reaction around New Zealand because New Zealanders have seen these measures as being steps in the right direction. 
When we look at the structure of the marginal tax rates we see that now from 1 October the top marginal rate payable by nearly three-quarters of New Zealand taxpayers will be just 17.5c in the dollar. That is a profound shift from what it was 2 years ago. In fact it is almost half the rate of tax that someone at that level of income would have been paying 2 years ago. That is a huge improvement. The biggest proportionate changes in tax rates have been at the bottom end of the scale so that people on low incomes now get a much better boost from the tax system than they did previously. That has to be good news. We have stopped the rort of high-income earners being able to channel their incomes through trusts to minimise their tax liability and we have stopped that rort by aligning those rates. That will mean there are more opportunities for additional capital to be invested in savings and further investment in order to boost the growth of the New Zealand economy. We have tackled the imbalances in the property market through the removal of depreciation but we have not distorted the market through taking other more punitive measures. Again that is about giving New Zealanders an opportunity to make their investment decisions based on the quality of the investment concerned not the tax advantages to be derived from it. It is little wonder that around this country at the moment people are saying this is a step forward a balanced Budget tax package and one that gives us some hope. 
I note that that is causing the Opposition parties some particular difficulty. I note that Mr Cunliffe was in Palmerston North recently. He basically said the Budget has some good elements and a reversal of the Government’s GST hike is unlikely if Labour takes charge after the next election but exempting fresh fruit and vegetables from GST is a serious option. He also went on to say he is not opposed to the reduction in the company tax rate but he signalled—and here is the crunch—that the overblown property sector would come under further scrutiny if Labour returned to power next year. So a capital gains tax is back on the Opposition’s agenda. Let the Opposition members deny that; it has always been something that they have hankered after. It is signalled very clearly there. When we add to that other statements from the Opposition that the way to align the tax rates is to keep the top personal tax rate at 38 percent and boost the trust rate to 38 percent then we are drawn to this conclusion: change the Government and New Zealanders will pay more tax on their income and they will pay more tax when it comes to a capital gains tax on virtually everything that moves other than the family home. That is highly complicated and highly inefficient but it is what the Opposition members are hankering after. The fundamental challenges that the New Zealand economy faces will not be dealt with. 
A lot of people say we have to stop the bleeding of our population of young people in particular to Australia and to elsewhere. That is fair enough. One of the drivers—by no means the only driver—of that is what people perceive to be fairer and more equitable taxation regimes elsewhere. What we will see if the changes that are being proposed by members opposite come to effect is that the trickle that we have at the moment will become an absolute flood. There will be no incentive for young people to stay to make a future here and there certainly will not be any incentive for them to return home. 
So what we face with regard to this Budget the progress from it and the steps that will follow it is a generational change in the psyche of New Zealanders when it comes to thinking about their future. This Government is trying to say to people that it wants to give them a chance to have a positive future. It wants to give them some encouragement so that they can do better than they are currently doing. We now see from the Opposition a grudging acceptance of that but also a return to the old envy politics where there would be higher taxes for higher tax earners—and we have seen the distortion that that has caused over the years. Labour’s putting up the top personal tax rate 10 years ago was the biggest single taxation policy blunder in this country’s history in that time. It has led to massive avoidance and evasion problems which we are now getting on top of. Those members want to return to that and to saddle the New Zealand population with a capital gains tax as well. The country will face a stark choice next year not just in political terms but in terms of its own future. I am very confident that young New Zealanders who are weighing up their options will not want to rejoin the race to the past that is being painted by members opposite. 
I come back as I conclude to Mr Cunliffe’s scenario. New Zealanders need to invest more to export more and to save more but we also need to have liberating policies that will achieve that not stifling bureaucracy and controls that will prevent people from realising their potential. That is the challenge that faces this country. This Budget this financial programme is about giving New Zealanders that positive opportunity.