Taxation (KiwiSaver and Company Tax Rate Amendments) Bill — First Reading 
Taxation (KiwiSaver and Company Tax Rate Amendments) Bill — First Reading 
[Volume:639;Page:9379] 
Taxation (KiwiSaver and Company Tax Rate Amendments) Bill 
First Reading 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill be now read a first time. 
 This is the first of the two taxation bills to be tabled in the wake of Budget 2007. This bill focuses on tax changes that will assist to transform the economy and transform New Zealand savings culture. It complements the second bill which will introduce other measures announced in the Budget. 
As part of the business tax reform package announced in the Budget this bill provides for the reduction in the company tax rate from 33 percent to 30 percent from the beginning of the company’s 2008-09 income year. This major change—a product of the business tax review—will help to increase New Zealand’s international competitiveness including with Australia. Aligning our company tax rate with that of Australia makes New Zealand more attractive internationally as a country in which to do business. It is estimated that the $2.1 billion cost to the revenue over 4 years will actually be an investment in New Zealand’s future because it will increase investment into New Zealand and boost New Zealand’s capital stock and that in turn will increase and boost labour productivity and wage rates. 
The bill also makes changes to the uplift factors for calculating provisional tax to recognise these tax rate decreases. An associated tax rate change—another to emerge from the business tax review—is the reduction in the tax rate for certain savings vehicles from 33 percent to 30 percent from the beginning of their 2008-09 income year. As a result of that change people who save through entities such as unit trusts and widely held superannuation and group investment funds will benefit from the new 30 percent rate that will apply to those funds. Likewise many people who invest in managed funds that elect into the new portfolio investment entity tax rules will benefit from the reduction in the top tax rate from 33 percent to 30 percent. Less tax paid on income from these savings vehicles will mean faster accumulation of savings by individuals. 
This bill also gives effect to some of the major enhancements to the KiwiSaver scheme that were announced in the Budget. The changes build on to the KiwiSaver model in a way that greatly increases incentives for people to join and to continue to make contributions to KiwiSaver for the rest of their working lives. Under this bill from 1 July people who save through KiwiSaver or a complying superannuation fund will be eligible for a new tax credit that matches their contributions of up to $20 per week. That means that if they save $20 a week through their fund they will receive an extra $1040 a year in their account via the tax credit and that will help them build up their financial assets faster. Employer contributions will not count for the purposes of this tax credit. 
The second bill will provide for a credit for employer contributions to come into effect next year. Members of these funds who are entitled to the credit will not have to do anything to receive it; their scheme provider will claim the tax credit each year from Inland Revenue and simply credit the amount to members’ accounts. Making it easier and more rewarding to save has benefits for all; it helps people to have greater financial security and a better retirement and it helps to create a stronger economy. 
Finally as announced in March the bill also introduces a number of amendments to the portfolio investment entity tax rules that will ensure the smooth introduction of KiwiSaver later this year. To help funds make the necessary changes to their systems in time the technical changes in this bill focus on problems relating to the portfolio investment entity calculation. The changes are intended to ensure that KiwiSaver funds that are portfolio investment entities will be able to operate with certainty from the start up of the new rules. Given that the new scheme applies from 1 July it is necessary to move swiftly hence this bill being taken through all stages at this time. I commend it to the House. 
Hon BILL ENGLISH (Deputy Leader—National) 
: 
 In the brief time—6 minutes I think—that we have had to peruse the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill National has decided that it will be opposing it. [ 
Interruption 
] Yes there is the trapdoor. [ 
Interruption 
] I ask members to get over it. The problem with this bill reflects the larger problems of the Budget. We believe that this country needs a better balance of incentives for saving and incentives for growth. The growth forecasts in the Budget itself show just what the effect of 8 years of Labour in power actually is. Over the next 5 years they forecast that this economy will not grow faster than 2.5 percent and over the next 3 years it will grow on average slower than 2.5 percent. So in that context it does not matter how many savings are stacked away now if the economy has not grown significantly in 20 or 30 years’ time when New Zealanders comes to realise the value of those savings then their standard of living will simply be lower. It will simply be lower. 
The other reason we will oppose this bill is not because we are totally opposed to incentives for savings—that is not a bad idea—but because of the dishonesty about who is going to pay for these incentives. Who is going to pay for these incentives? This bill is titled the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill and is meant to encompass aspects of the KiwiSaver announcements made today and aspects of the company tax rate announcements. In the end there is only one group of people who will pay the bill for all of that—the average New Zealand wage or salary earners and the lower-income self-employed. 
The $20 tax credit that is coming from the Government comes from the taxpayers’ pockets. It is their own incentive. Who is paying for it? The person who is paying for it is the taxpayer. That is the only place that the Government can get the money from. So it is a money-go-round as my leader John Key said today. Who is going to pay for the compulsory employers’ contribution? Well the wage or salary earner is going to pay. If wage or salary earners opt into this version of KiwiSaver they can forget about increases in their net pay for some years. The employer is going to say to them: “You opted in so I have to contribute 1 2 3 and eventually 4 percent—in pretty short order actually—so why are we going to have a wage increase on top of that to increase your net pay?”. 
For the average wage or salary earners sitting there today the news is that the “chewing gum tax cut” they were going to get has now gone. They were promised that two Budgets ago—before the election. Labour was saying that it would give some grudging tax reduction but today that promise is gone and it will not happen. The effect of that is that because of inflation people on the average wage who in 2000 were paying 19 percent of income as tax now pay 22 percent of income as tax. Their effective rate of taxation has risen—it has risen—and today they lost the chance for any tax reduction and I now get the news that they are going to be funding a tax credit to help them save. They are going to be funding a tax credit to help them save. They are going to be giving up increases in their net income. They are going to be giving up increases in their net income in order to fund the employers’ contribution to the KiwiSaver.There is no new money coming into this system; the money can only come from the economy. It can only come from the pockets of the taxpayers who pay the tax. I think Dr Cullen should write legislation that is more honest. 
The best insurance that this country can take out against future demographic challenges and retirement income is still a growing economy. It does not matter how those claims are accumulated; if there is no growing economy then people cannot get much of value when they retire. Let us just remind ourselves that the KiwiSaver part of this bill is all about people putting money away until they reach 65. So the $20 per head that the Government puts in stays in there until a person is 65. I ask members to imagine they are part of a household that is struggling to deal with rising costs facing rising interest rates—[ 
Interruption 
] Well Dr Cullen is trying to tell people he will increase savings but not cut consumption. One of the first laws of economics is that savings are what one does not consume. So I want Dr Cullen to go out there and tell New Zealand that the $5 billion he is putting into this is not coming from reduced consumption—because he knows that it is. The only way he can finance any of this is to cut the workers’ pay. That is what he has to do—cut the workers’ pay. 
Some of those cuts of course are quite dodgy. That is taxation increases because inflation pushes salaries up through the tax brackets. So he is cutting the workers’ pay now by $1 billion per year in fiscal drag. That is one way he will finance it. The other way he will finance it is that when the workers go to the boss and say they want a pay rise the boss will say: “Sorry mate Dr Cullen has already given it to you. It is sitting in your account. You’ll get it when you’re 65.” 
Simon Power 
: Andrew Little knows that. 
Hon BILL ENGLISH 
: Andrew Little knows that. If he thought this was a great idea he would be coming in here to get the political credit but he is staying out there. So Dr Cullen’s challenge is to explain to the households of New Zealand that this is what he is saying. The Government will keep spending up large—$3.785 billion of new spending in this Budget—so it can win the 2008 election with people’s taxes and it will cut New Zealanders’ consumption and make them save in order to cure the inflation that he caused. That is the recipe. That is why 50 percent of New Zealanders will not take it up. 
He has made it more attractive but they just cannot afford it. After 8 years of a growing economy nothing has come back to New Zealanders. What lies behind this bill is the fundamental problem with Labour. Dr Cullen imagines himself as engineering the economic outcomes for New Zealand. He is absolutely dismissive of the idea that any proceeds of growth should be allowed to be used by households and that they should have any say at all over what happens about the future of this economy—it is all him. Labour does not fundamentally trust the people of New Zealand. The effect of that is the worst growth outlook we have had for 15 years and that is 5 years of 2½— 
Hon Trevor Mallard 
: No way! Dear oh dear! 
Hon BILL ENGLISH 
: Well even in the depths of the recession in the 1990s it turned out that we got up to 4 to 5 percent growth. Now we have an economy that will grow at 2.3 percent and that means that the gap between us and Australia will continue to widen. The income gap will continue to widen. 
We support some incentives for savings but we also support a much better balance between a focus on savings for problems that will actually come up in 20 to 30 years and a focus on growth in an economy that needs to yield higher incomes for New Zealand households so they can make their own choices take their own opportunities express their own innovations and fulfil their own aspirations all of which are increasingly different from those of the Labour Government. 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 That speech showed why that man led National to its worst ever election defeat in 2002—21 percent of the vote. That speech made Social Credit members look like orthodox economists. Let me take just a few things. 
Bill English said we had the worst growth outlook in 15 years. This economy went into negative growth in 1998-99 when National was in power and unemployment was rising. He said we want a growing economy but we should not be trying to increase saving and investing. We have a 9 percent current account deficit an 11 percent negative household saving rate and we have a National Party finance spokesperson who says we should not be trying to cut the rate of growth and consumption but increasing it. 
Where did this mickey mouse man come from? Which bit of Nightcaps did he suddenly emerge out of without realising that at the end of the day people have to earn what they are spending? If people want to grow they have to save and if they want to grow they have to invest—and people’s behaviour has to be changed to achieve those things. But no the man who only 2 weeks ago said large-scale tax cuts at this point would be out of the question has now dropped into his leader’s trap of saying it is the only thing that should be on the agenda. 
He also told us that the workers—the “werkers” sorry—will pay for their own tax incentive. But his leader said in his speech that it would cost the employers $2 billion a year. Well which is it? 
Hon Member 
: Both. 
Hon Dr MICHAEL CULLEN 
: Oh both. That was Lockwood Smith who has it both ways at everything in life. He can actually have the tax incentive costing employers $2 billion a year but somehow it is the workers paying for it. This is mickey mouse economics at its worst. 
Hon Bill English 
: No it isn’t. 
Hon Dr MICHAEL CULLEN 
: No it isn’t? It is what goes down well in Nightcaps—it is the kind of economics they run down there for the poor old member from Southland! When will he front up with some solutions around savings and investing? 
Let me take his leader’s numbers—$2 billion a year. That figure is actually completely impossible. He thought that everybody who is employed is in full-time employment. There are actually 1.35 million full-time equivalents in employment and if 50 percent signed up as Mr Key said that would actually cost the employers $1.35 billion a year. But half of that is paid back straight away in the tax credits—$670 million. One-third of what— 
Hon Bill English 
: What’s the point of that? 
Hon Dr MICHAEL CULLEN 
: The point of that is that John Key cannot add up for a start and his finance spokesperson is even worse: he was out by a factor of three. When one is a shoddy money trader that stuff may do but it does not do when one is trying to run a country and when people’s success in life depends on what one does. Borrow and hope went out of fashion 25 years ago and Mr Key said today that he wanted to borrow more money—that is what he actually said in this afternoon’s speech. Then if there was only a 0.5 percent moderation of wage demand in total over the next 4 years—in total not each year—that $670 million would come down to a bit over $300 million a year. That is actually— 
Hon Bill English 
: Cut the workers’ pay! 
Hon Dr MICHAEL CULLEN 
: No a 0.5 percent moderation in wage demands for a 4 percent contribution into superannuation is actually a pretty good deal. 
Bill English’s problem is that he has been on the parliamentary superannuation scheme for too long. He does not realise how it works out there in the real world for the average person who actually expects to save in order to increase his or her savings. The average person does not think there is a magic tap that gets turned on and savings come out of it. We have a finance spokesperson who thinks that with a current account deficit we should be increasing the rate of growth in consumption. What on earth is that supposed to be? It will not even sell out there in mickey mouse land which he tries to appeal to. 
What do people say? Standard and Poor’s says that this will maintain our triple A foreign currency rating and importantly that the Budget includes measures to boost contributions to KiwiSaver to promote high savings. What does the New Zealand Exchange say? It says: “There’s no doubt we’re swimming in a global talent pool. Now employers will be able to contribute to their employees’ savings in a low-cost tax-efficient way adding a degree of flexibility to structuring pay packages that will help them to attract and keep the best people”. This will actually help to keep the best people in New Zealand. He does not want to do that; he thinks that if people are given a five-bucks-a-week tax cut then they will stay in New Zealand rather than go to Australia. That is what he is saying. No wonder his leader ripped up every page of the speech as he went along—screwed it up and threw it away. That is all it was worth this afternoon as a speech in the House; it was so shallow that it was unbelievable given the challenges facing this country. 
The fact is that the member has fallen through the trapdoor I talked about a week or so ago. He is voting against a company tax rate reduction; the biggest—and only—tax rate change since 1988 under a Labour Government. For 9 long years National did not reduce the company tax rate and we now find out why: it is opposed to it. The National Party the party of business opposes a cut in the company tax rate. 
Hon Bill English 
: We said it was a lower priority. 
Hon Dr MICHAEL CULLEN 
: That sound members just heard was the sound of Bill English’s neck being stretched as he fell through the trapdoor. No wonder his leader will not allow him to go on  
Close Up 
 in order to debate with me tonight. His leader is going to go on instead because he thinks that he is prettier and better than Bill English is. Well he is half right in that respect. 
He is going to vote against a tax credit that will add to KiwiSaver contributions and that will help lower-income people make the decision to save because proportionately it is worth more to somebody on $25000 per year than to someone on $50000 per year or $100000 per year. It is worth basically four times as much to somebody on $25000 per year compared with somebody on $100000 per year. It is a very good tax credit because it will increase people’s savings proportionately over the long term. 
Of course the National Party does not want to see a more equal distribution of wealth over the long term. It does not want to see people more independent in retirement. It does not want to see people building up their own savings just as Australians are building up their savings. No wonder it has got no answers to New Zealand’s economic and social future. No wonder National members sat there like stunned mullets as they came in at 2 o’clock wondering what to do about this Budget. It swept the ground out completely from under their feet. All they could do was come back and say that there should have been a personal tax cut. 
Mr English rejected a personal tax cut publicly on more than one occasion over the last few weeks; he knows it would make no sense at all. He knows that in a country with our savings and investment problems and with our current account deficit it would be madness to be feeding more demand into the New Zealand economy. He knows that it would keep interest rates higher for longer. He knows that it would keep the exchange rate higher for longer as well. 
Ron Mark 
: They’re silent now. 
Hon Dr MICHAEL CULLEN 
: They are very very silent now. He knows that it is economic nonsense but for the sake of trying to make a cheap speech in the House this afternoon he got up and somehow suggested that is what should be done. 
We are going to have the National Party voting against a corporate tax rate cut and voting against a tax credit for savers that helps those on modest incomes more. I say to National members: make my day; please do it. I ask them to please carry on opposing it for as long as they can all the way through tomorrow. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 We have just been listening to Dr Michael Cullen. We have heard all of that bitterness and all of that nastiness. I want to remind him that in 1990 when Labour was losing the plot—the last time it was thrown out on its ear—he spent money illegally. He was prepared to do anything to retain power. He was the Minister of Social Welfare in the Labour Government leading up to the 1990 election and he illegally spent unappropriated money—money that had not been appropriated by this Parliament—to try to buy votes. Cullen and Goff—Goff did the same thing in education spending. I know that because I followed Goff as Minister of Education and I had to make legal the illegal spending of Phil Goff. And Jenny Shipley had to make legal the illegal spending of Michael Cullen. 
The bitterness and vitriol that we heard in the House this afternoon was from Michael Cullen when he is losing. He does not know what to do. Economic growth is down to under 2 percent a year yet inflationary pressures are so high that the Reserve Bank is putting interest rates up all of the time. The exchange rate is crippling exporters and Dr Cullen does not know what to do about that. He has referred that issue to the Finance and Expenditure Committee. 
I want to refer to something highly relevant to this Taxation (KiwiSaver and Company Tax Rate Amendments) Bill that Dr Cullen said in his Budget speech just a little while ago. I think it is very pertinent. Dr Cullen said: “This Labour-led Government wants to see more people not fewer sharing in the wealth that we create.” Dr Cullen thinks the Government creates the wealth in this country and that his job is to share it out to everyone. He is so wrong—so deluded—about that. The Government does not create the wealth; hard-working New Zealanders create the wealth and they are finding it harder and harder to do so under this Labour Government. It is a stunning statement from the treasurer that he thinks the Government creates the wealth. 
The explanatory note of this bill says that one of the reasons why the Government is going ahead with all of these incentives around KiwiSaver and the other measures is to increase productivity and improve our international competitiveness. Productivity right now is a huge issue for this economy. When Dr Cullen and this Labour Government came into office productivity in this country had been growing throughout much of the 1990s at 2 percent per year. In the time that Dr Cullen has been Minister of Finance in this country the average productivity growth rate has dropped from 2 percent per year down to under 1 percent per year—down to 0.7 percent per year. It is only one-third of what it was during the 1990s. Now the latest estimates on productivity growth in this country have it as being almost stalled. 
If Dr Cullen thinks that this bill will suddenly turn around the massive decline in productivity that we have had under this Labour Government then he is deluded. One of the reasons why productivity has collapsed in this country is that the Labour Government has brought in 2000 extra pieces of regulation and legislation since it has been in office and that makes it more expensive to do business in this country. Our productivity has fallen off because all the regulation means that an employer must employ a whole lot more people in order to get the same outputs. That amongst other reasons is why productivity has fallen off. This bill does nothing to address that. 
As I look at this bill and after hearing Dr Cullen’s Budget speech this afternoon I am reminded very much with regard to this Labour Government that Dr Cullen and Helen Clark think they know best. They will not trust Kiwis by giving them back any of the hard-earned money that they earn—oh no this Government knows best. It thinks that big government is good for New Zealanders because it does not trust New Zealanders to have more of their hard-earned money. So the Labour Government says that the only way people will get back any more of the money they earn is by putting money into its scheme—the KiwiSaver scheme it has dreamt up. In fact the “chewing gum” tax cuts that were promised are gone. They are sacrificed because this Government which knows best is not prepared to give ordinary New Zealanders a chance to actually do what they think is best for them and their families. 
We have the incentive of a $20 per week tax credit—up to a bit over $1000 per year—if people do what Dr Cullen and Helen Clark dictate that they should do. What is very unfair about it is that the low to average wage earner will not get any benefit from that—the very people whom the early Labour Governments genuinely represented before we had academics—like Dr Cullen in Labour. They do not actually represent working-class people at all. In the old days of Labour it actually cared about low-income people. Today we have a measure that low-income people will not be able to get any benefit from at all. How will someone who earns $20000 or $25000 a year say be able to put 4 percent of his or her income into the KiwiSaver scheme? How can people on $25000 a year get the benefit of the tax credit by putting money into that scheme? They will not be able to. 
Only some will benefit from the scheme—and when I say “benefit” let us not forget that it is their own money that is being given back to them. It is a bit like the Labour Government’s Working for Families package. The Government says it is giving families all that money but the families earned it in the first place. It is all their money. They pay it in PAYE the Government puts it into a great merry-go-round and then the Government gives it back to them. Families have to apply for it though. They have to go crawling to the Government to actually get it back. 
Now we have another merry-go-round. If people earn enough to be able to put money—4 percent of their earnings—into the KiwiSaver scheme the Government will give them some of their own money back. But of course it will give it back to them only once they are aged 65. 
Hon Trevor Mallard 
: Twice. Put a green one down and you get two on top of it. 
Dr the Hon LOCKWOOD SMITH 
: I ask Trevor Mallard who is interjecting whether he honestly believes that low-income wage and salary earners—those on $20000 to $25000 a year—who pay 20 percent of their income in PAYE if they have no children will be able to put 4 percent of their income into KiwiSaver. 
Hon Trevor Mallard 
: Yes they will. 
Dr the Hon LOCKWOOD SMITH 
: Of course they will not. So they will get no benefit whatsoever. And what is worse is that not only will they get no benefit but when they come to their annual wage negotiations their bosses will say: “Uh-uh! The Government has already forced us to put money into its scheme and there is no money to increase your pay.” So the low-wage earners will miss out twice. They will miss out twice because they will not get any pay increase. 
Let us remember that when people do not get an increase this Labour Government has a habit of calling that a cut. Members will recall Labour said that with regard to national superannuation. When the rate of increase was reduced in the late 1990s by not linking it to the movement in the average wage Labour called that a cut. So if Labour members are honest they will call this measure a measure to cut wages as well. Low-income people will not get the same wage increases that they would otherwise have received and they will not be able to put 4 percent of their incomes into the KiwiSaver scheme. They will not get the $20 a week tax credit and they will hurt. They are hurting already. Working for Families does nothing for low-income people with no children and what is more they pay significant tax. At $25000 a year of income as I said 20 percent goes in PAYE. Those low-income people have to pay a lot of tax. 
This Budget does nothing for low-income people. Their costs have gone up very much in the last few years. The cost of housing has gone up hugely. This Budget does nothing and this bill will do nothing for the low-income New Zealanders whom Labour once used to believe in and used to support and help. It is little wonder that ordinary New Zealanders are leaving the Labour Party in droves. 
R DOUG WOOLERTON (NZ First) 
: 
 I would like to be a little bit more positive than the Hon Dr Lockwood Smith. 
Hon Trevor Mallard 
: It is “Dr the Hon Lockwood Smith.” 
R DOUG WOOLERTON 
: Dr the Hon—is it that way round? 
Hon Trevor Mallard 
: That’s the way he likes it. 
R DOUG WOOLERTON 
: I would like to be more positive than him anyway. I do not usually talk about my family but I want to do so tonight because I want to be positive. But before I do that I want to say that I think taking the company tax rate down from 33c to 30c in the dollar is positive. I think it is long overdue. It is something that needed to be done in this country. Now it has been done and I applaud the Government for doing it. New Zealand First would like to take the rate down further but that is something for the future. 
As we are talking about incentivised savings and tax cuts I want to talk about the Working for Families package and how it affected my family. My youngest son who is a hard-working funeral director has a wife and two young children the second of whom was born only a year ago. We were talking about Working for Families during the time his wife was unable to earn an income to help with the bills. At that point—I am quoting from memory and I am not as exact as some of my more financially learned colleagues—I think under National’s tax cuts I as an MP would receive something like $90 a week and my son with a newborn babe would earn no income at all from tax cuts or perhaps at best $5 a week. Under Working for Families my son now receives something like $120 a week extra and I—and I do not believe I need anything—receive nothing. I would like it but I do not believe I need it. I think that is right I think that is proper and more than any of that I think that is just. 
We are more than happy to see that sort of thing continue. It is a tax cut it is targeted and it is targeted at the people we want to encourage in this country. I go on talking about my son and say that if the KiwiSaver scheme incentivised as it is with an employer contribution will help him and my daughter-in-law and my other family members to save for their future then I say it is fantastic and we are voting for it—and we are. These things are of real interest because I believe that at some point in life we do have enough. 
I know that people say one has to have more and more to invest more and more. I have three brothers—I said I would talk about my family and I hope they are not listening to this—who are millionaires of substantial means. Good luck to them; they worked really really hard and I am very very proud of them. But I have to say that at this point in their lives when they have that wealth rather than entrepreneurial investors I see cautious people who are intent on retaining their wealth. I think that that is right and proper too. But members should not come into this House and say that tax savings for the rich will go into investment because they will not and they have not for anybody I have known in my lifetime. Tax cuts go into consumption. That is what this Budget is about. This Budget is about trying to cool an overheated economy without putting penalties on people and I think that has been done in innovative ways and in ways that protect the future of families and people in this country. I applaud that and New Zealand First applauds that. 
I am not saying that wealth should be punished. I am not suggesting in any way that the seeking of wealth—and I am saying this for my brothers because they are all bigger than me—should be inhibited. Hard work should be encouraged and while I am talking about hard work I must say that I do not see my son who is receiving money from Working for Families working any less. I do not see that his drive to succeed is any less than it has ever been. In fact I see just the opposite. He is able to go to work and give his skills his sympathy and his empathy to the people who need it without having to worry that he might have to go out and get another job or that his beloved wife will have to go out and work when she should be looking after that child in its first year and things like that. We are not talking about losing incentives to work. I will always work. My sons work hard. My daughter works hard and my brothers have worked hard and because they have been shall I say perhaps more cautious than me and perhaps less profligate than me they are commensurately wealthier and God bless that fact. I do not deny them one cent of what they have. 
But I think that when we retire into our corners and talk politically we should at some point admit that there is a crossover here between one side of politics and the other. I do not like to hear the bold statement that if one gives a young person a chance not to work then those young people will not work. That is not true. By the same token if one says that the rich should be stopped from getting richer that is not true either. It is also not true to say that the wealthier a person gets the more that person will invest. I know from experience that that is sometimes true but not always. New Zealand First is in favour of this bill. New Zealand First has long wanted to see company tax rates reduced and to see some incentives in the taxation system. This bill is a recognition that we need to catch up to other countries in that area. I applaud this bill. 
JEANETTE FITZSIMONS (Co-Leader—Green) 
: 
 Probably only three or four people in this House—if that—have had the opportunity to read the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill. Therefore all that the rest of us can do is reply to what the Minister Peter Dunne said in his introduction of the bill and to the explanatory note on the front of it. Nevertheless the intention of the bill is reasonably clear. 
The KiwiSaver-related tax credits are a very smart way to increase savings and to give tax cuts to those who save while avoiding consumption-led inflation with all its evils—pushing up the dollar and interest rates—and ensuring that the benefits from those tax cuts are not captured by the very wealthy which is what usually happens with a tax cut regime. The tax credits are also a clever way to get employers involved in matching the superannuation savings of their employees with the sweetener that initially it is at no cost to them and what cost there is will be partly subsidised forever. 
So far so good. I think the Greens will be able to support that idea. But let us look at who misses out. This scheme is not one that offers opportunities equally across all of society. First of all anybody earning less than $500 a week will not achieve with their 4 percent savings the maximum subsidy that the Government is prepared to give. Anybody saving 4 percent of a less than $500-a-week income will receive less from the Government in these tax credits. That might be for a number of reasons. It might be that those people are on the minimum wage. Anybody who is on the minimum wage will not get the maximum tax credit from the Government. It might be because they are working part-time. 
I have not had the opportunity to see exactly what is stated in the bill about full-time and part-time workers. People might be working part-time for a variety of reasons. It might be that they cannot get full-time work. It is much more likely that they are trying to balance work with the needs of their children—I think particularly of solo parents who have decided that they want to work while they bring up their children and not go on a benefit. Some parents do that and work very hard but they cannot work 40 hours a week and if they are on a low income then they will not get the full tax credit. 
There are those who for whatever reason are on a low income and simply cannot afford to save 4 percent of their income. Their employer might be topping it up so that they can still have some superannuation savings but the employer’s contribution will not be matched. Then of course there are those who are not working at all who get absolutely nothing out of this scheme. People on invalids benefits domestic purposes benefits and unemployment benefits will get no tax credit at all. Working for Families started to drive quite a big wedge between those who are in employment and those who are not. That wedge will now get a whole lot bigger. 
The KiwiSaver scheme means some people will have not only permanently low income during their working lives but much lower superannuation than others when they retire as well. I challenge the Minister Peter Dunne to tell the House at some stage in this debate how many people in New Zealand earn less than $500 a week—if he knows—and how many people will miss out on this scheme even if they would like voluntarily to join it. 
The second issue I want to address is that of lowering the tax rate on managed funds or portfolio investment entities. At first sight that appears to be non-contentious and straightforward. It simply brings the tax on managed funds into line with business taxes generally. But when one looks at it it is actually a disguised tax cut for people on the top tax rate. It works like this: the KiwiSaver legislation as it stands now passes through the tax rate of its investors. So for an investor in a managed fund who is on a 19c tax rate the fund pays 19c on that person’s investment and the investor gets the benefit. But the KiwiSaver legislation does not pass through the tax rate of those investors who are on a 39c tax rate. A person on a 39c tax rate who invests in a managed fund is already getting a 6c tax advantage in that the managed fund pays only 33c; now they will get a 9c advantage. 
Then there is the business tax cut. I have spoken a number of times before—in the House and elsewhere—of the missed opportunities to target some of this business tax cut towards investment in sustainability. That was a huge missed opportunity because it was never part of the options that were discussed initially. It has another effect as well and I challenge the Minister to quantify it for us. A lot of that business tax cut will go to the overseas owners of the New Zealand economy; it will simply disappear from this country. I ask the Minister how great overseas ownership of the New Zealand economy is. There must be some figures on that. We can look at Telecom and all the banks at most of the forestry industry and forest processing industry and at all of our metal smelting—and that is before getting down to medium and smaller-scale businesses. I am challenging the Minister to tell us—I am working from memory here because this has all been at such short notice—how much of the $680 million that he says the lowering of the business tax rate will cost us will disappear straight overseas with no benefit to the New Zealand economy or to New Zealand investors. 
The second question is—when businesses receive this tax cut—what it will do to the amounts that they reinvest in productive enterprises as distinct from what they pay out in dividends. Because most New Zealanders’ investments are in their homes or in other housing they need dividends from any investments they have in the share market—housing after all costs them money. They are investing in housing in order to get a capital gain later on. 
New Zealand businesses tend to have a very high rate of paying out dividends rather than retaining earnings to reinvest in productive enterprise. I ask the Minister whether that will change and whether we will see any difference in the amount that is paid out in dividends. I understand that Telecom pays out 90 percent of its earnings in dividends. I ask the Minister whether we are really going to see the investment in productive capacity increase in New Zealand as a result of this tax cut. I think it is very unlikely. Those are the questions that the Minister needs to come back to the House and give us the answers to. 
RODNEY HIDE (Leader—ACT) 
: 
 Let me just respond to Jeanette Fitzsimons’ point. Of course if we cut taxes—company rates and personal rates—the question is whether we would see an investment back into New Zealand. What Jeanette Fitzsimons was thinking about was that we would get a higher dividend stream. That is quite right—there is no guarantee that that dividend stream will then be invested back into New Zealand. But if we think about it for a minute when people are making a decision about whether to invest in a company or in particular whether to invest into a country they are interested in the return they will get balanced against the risk. If we cut taxes on the return from investing in a New Zealand company we automatically boost that return. In that sense we would not necessarily expect that people would be getting a higher dividend but all around the world there would be a proportional higher investment back into New Zealand simply because we have increased the return from investing in the country. 
So I think we do know that all things being equal if we reduce the tax on companies and drop taxes on capital then we will see increased investment. That does not necessarily mean that a particular dividend stream that a particular shareholder gets will be returned to New Zealand. 
I like the idea of cutting the company rate of tax from 33c to 30c. 
Hon Clayton Cosgrove 
: Are you going to vote for it Rodney? 
RODNEY HIDE 
: I would like to vote for that bit but I am afraid I cannot vote for this other stuff. 
Hon Clayton Cosgrove 
: Aw! 
RODNEY HIDE 
: I know that the member for Waimakariri is upset that I am not joining him on this particular occasion but I have a problem with it. One of the things that concerns me is that people are actually voting for a pay cut for the people who will go into this scheme. 
R Doug Woolerton 
: What’s that? 
RODNEY HIDE 
: It is a pay cut. What I want is a tax cut and a boost to people’s pay and Mr Woolerton is voting for people who go into this scheme to have a pay cut. How smart is that? What people think about when they get paid each week is what they get in their hand each week. If people enrol in this scheme what they will get each week will be less. It will be less—they will be getting it paid but it will be paid into Michael Cullen’s scheme. Then he is telling people that he will pay them if they put it into that scheme but they will not be able to get it until they are 65. 
I think that it is quite a good thing that people save but saving is not for everyone all through their lives. I pick up on what Mr Woolerton was saying about his son. It is probably not the smartest thing for him to be saving in an investment scheme right now. He would be better off investing in his business and paying off his mortgage. But what will happen under this scheme is that he will be denied the opportunity to invest in his business or pay off his mortgage. He will be encouraged to put money into the KiwiSaver and as a consequence of his doing that his take-home pay will be reduced. I do not know why this House is so cock-a-hoop about voting for a scheme that will reduce people’s take-home pay. [ 
Interruption 
] Mr Clarkson has a point. 
Bob Clarkson 
: There’s going to be a sliding benefit. 
RODNEY HIDE 
: I look forward to hearing about that too because I tell Mr Clarkson that I am just a simple man and what I see is a reduction in take-home pay. 
Here is another problem with this scheme. John Key and Bill English are quite right. This scheme is a money-go-round and it does nothing to boost investment and saving in New Zealand—nothing. It does nothing whatsoever because it simply takes money that people have already earned and gives it back to them if they put it into the dopey KiwiSaver scheme. That is what it does. It is money they have already earned. 
If we care about the future of New Zealand and about providing for our elderly into the future the only way we can do that is to have a bigger economy. That is the only thing we can do. If we think about it if our economy is just this size there is only this much for everyone—it does not matter how much we have saved or invested. If our economy is only this size that is what we have. However if we have an economy twice as big in 30 years’ time we will have twice as much ability to provide for the elderly. That is where we should be focusing our attention. 
Dr Cullen is right: it takes investment and saving—in part—to grow an economy. By the way it is not guaranteed that if we invest and save we will get a stronger economy. It depends on where we put it and that is another key thing about this scheme. I think that if Doug Woolerton’s son were to be left to his own devices he would be better off taking his own money and investing it into his mortgage his business and into his family rather than into a State-run superannuation scheme particularly given that he has a young family. That is the point. 
Investment and saving are important but it has to be good investment and good saving. The other thing is that just letting people keep a little more of the money they earn if they save in a particular scheme does not actually generate any economic growth or prosperity. It would be far better to do this: cut taxes across the board and flatten taxes across the board. That would produce—[ 
Interruption 
] Mr Woolerton says that he has heard it before. I am pleased that he listens to my speeches because he will hear it time and time again. The great thing is that in the 2009 Budget he will hear it and it will actually be happening. If we cut taxes and have a flatter tax system then we will get investment we will get savings and we will grow the economy. 
I can tell Mr Woolerton that his son will be far better off when our economy is growing at 4 percent 5 percent and 6 percent in real terms rather than at 2 percent in real terms. I can tell the Maori Party that Maori will be better off if they can keep more of their money and they will be better off if the economy is growing at 4 percent 5 percent and 6 percent than when it is growing at 2 percent. All this bill does is to take what money we have and redistribute it slightly and it says that we have to save it until we are 65. It does nothing—nothing—to boost the economic fortunes of our country. That is why I tell Mr Cosgrove that I am sorry I know he is looking forward to the day that the ACT party joins him in a vote—and I will tell him when that day will be; it will be when Labour returns to its glory days when it actually stood up for the working person of New Zealand actually stood up for the future of New Zealand and when it actually had a vision for the people of New Zealand—not this little Budget that tinkers around. 
In this bill the Government says to working people that it has this scheme that it is a savings scheme and that it knows that people do not want to invest in it. The Government is saying that what it will do is rob some money from people and that it will give them some of it back if they put even more money into its scheme. That is the deal Michael Cullen is promising New Zealanders—and Doug Woolerton is voting for a scheme that will reduce the take-home pay of New Zealanders. I do not get it. Thank you Madam Assistant Speaker. 
Hon CLAYTON COSGROVE (Associate Minister of Finance) 
: 
 With regard to the KiwiSaver scheme so derided by Rodney Hide if we look back at history we can see it has taken 30 years to get to Michael Cullen’s scheme today. It has taken 30 years—since 1976 I think it was—to correct the biggest act of economic and social vandalism that was ever perpetrated in this country. That was when Rob Muldoon the then National Prime Minister rolled back and destroyed Norman Kirk’s compulsory superannuation scheme which had been introduced by the previous Labour Government. 
Rodney Hide 
: Roger Douglas’s. 
Hon CLAYTON COSGROVE 
: Yes—Mr Hide said “Roger Douglas’s.” so I must be fair to the member. Sir Roger Douglas was part of that. That is true; it is dead right. Also Sir Roger Douglas as patron of the ACT party ran a mile when that member became its leader—but we will get back to that later. However the member is right; Sir Roger Douglas was part of the Norman Kirk scheme. The biggest act of economic and social vandalism perpetrated in this Parliament by a National Government has now taken 30 years to correct and the KiwiSaver scheme begins to correct it today. 
Is it not interesting that this bill has the first corporate tax cut since 1988? I would ask Mr Hide who gave that. 
Rodney Hide 
: Labour. 
Hon CLAYTON COSGROVE 
: Labour—and who was the Minister of Finance I would ask Mr Hide. It was Roger Douglas. Again I say the cut was given under a Labour Government. I never thought that Rodney Hide would be a cheerleader for Labour but he has proved he is today. It was not National that cut the corporate tax rate. It had 9 years to do so—9 long years—and it did not. When was the last time that a National Government cut the corporate tax rate? I cannot remember the date but I believe it was under “Kiwi Keith” Holyoake in the 1960s. 
The National Opposition turns up today and tells the business community of New Zealand that it will vote against a 3 percent reduction in the corporate tax rate. Dr Cullen said that Bill English has fallen through the trapdoor. Bill English has fallen on his head because what did Mr English say right through the election campaign? And what did the leader of the National Party at that time Don Brash and John Key say right through the election campaign? They said we should cut the corporate tax rate. What did National’s leaders say up until a few weeks ago? John Key of course said we should cut the personal and corporate tax rates. Then on 24 April of this year on  
Morning Report 
 Bill English said: “and we would agree the last thing it”—it being the economy—“would need would be sweeping tax cuts”. Then he comes in here and votes against the cut in the corporate tax rate. 
Every business person out there who has called for corporate tax rate cuts and who believed the National Party was in favour of business is sitting stunned tonight as “Barmy Bob” Clarkson makes his contribution and confirms that National will not just vote against the corporate tax rate cut but vote against a measure in the KiwiSaver scheme that as I have said will correct 30 years of economic vandalism perpetrated by that party while in Government in 1976. The National members are very quiet over there on the Opposition benches. Mr Groser is very quiet. He may be one of the few intelligent people on that side of the House because he knows his history. He may not know much about this House but I give him this: he knows his history. And he ain’t arguing because he knows that is a fact. “Barmy Bob” is also history; we know that. 
I never thought I would say this in the House but I say to National members that although I disagree with Mr Hide’s contribution it was a far more logical contribution—a wrong contribution but far more logical—than anything we have heard from the National Party members. Do members know why? I will give Mr Hide this: he and I have had the odd rumble but at least he is consistent. He is consistently wrong but he is consistent; he is consistent in what he says and in the policies he believes in. The crew on the other side of the House—the National Party members—have flip-flopped on tax cuts. That is the most recent policy they have flip-flopped on: their flagship policy of tax cuts. Today after saying we should have tax cuts—after months and years of saying we should back business and encourage innovation and investment by cutting the corporate tax rate—what are they doing? They are doing the biggest flip-flop since that mob has been in Opposition because today Mr English confirmed National will vote against the cut in the corporate tax rate. 
Well I do not know what to say. Those guys are good. The problem is that they speak out of both sides of their mouths. John Key wanders around the country—I would love to know what he will say tomorrow—going into business houses into chambers of commerce and into manufacturers saying the National members are in favour of a cut in the corporate tax rate. 
Darren Hughes 
: But they are going to vote against it in Parliament. 
Hon CLAYTON COSGROVE 
: But they are going to vote against it in Parliament. So I look forward with relish to hearing what the chambers of commerce say about the National Party’s position on business tax. I look forward with relish to hearing that. 
There have been so many flip-flops. The National crew over there has a simple strategy. Anything this Government has done that is popular it will adopt. Any policy it has had that is unpopular it will drop. [ 
Interruption 
] Oh the National members do not like hearing that; Tweedledum and Tweedledumber over there do not like that. But they know it is true. What will the National members do before the next election? Here is a prediction: I reckon they will probably turn to my learned friend Peter Dunne and concede that he is absolutely damn right and that the bill he proposes today to cut the corporate tax rate was right. They will do that on the eve of an election to try to “me too” the Government and our partners and get into power. That is what they will try. 
But you see business people are smart. Business people go beyond reading the papers to read what politicians and finance people say in this Parliament and what analysts say outside Parliament. They know about voodoo economics and they know flip-flops when they see them. Mr English ruled out tax cuts as being inappropriate after a year or two or three of ruling them in—John Key said he would drop $7.2 billion in tax cuts on the country. The National members belittle the KiwiSaver scheme. When KiwiSaver is fully ramped up and fully implemented a person on the projected full-time average wage in 2011 will need to save about $40 a week. The result will be that $100 a week or $5200 a year will go into his or her KiwiSaver account. 
National members of course say we should scrap sustainable saving for people’s retirement. They say we should give people a tax cut. Most of the people in my electorate would get about $5 or $10 a week from National’s tax cut proposal. Although Mr Key Mr Groser and “Barmy Bob” over there would get $100 a week most New Zealanders would get about $5 or $10 a week. What can someone do with $5 or $10? Not a lot. I stack up $5200 a year—with the Government contribution the employer contribution and the saver’s contribution—against the $5 or $10 a week that that motley crew over there those indecisive champions of mediocrity and flip-flop would give to most people. 
National members have told us to give a tax cut and then they come into this House and confirm they will vote against a cut in the corporate tax rate. Well I say today that the National Party has dived to new depths. Mr Foss is the man who knows about tax; he questioned the Finance and Expenditure Committee about his own tax return of course—that was his priority. He understands tax especially his own tax return. 
Craig Foss 
: I raise a point of order Madam Speaker. I would like the member to withdraw that final remark about what happened at the Finance and Expenditure Committee because it was not accurate. 
The ASSISTANT SPEAKER (Ann Hartley) 
: That really is a matter of debate. 
Hon CLAYTON COSGROVE 
: I wonder what Mr Foss who has a reasonable understanding of tax will say when he goes to the local corporates in his electorate. What will he say to them? How will he justify National’s position of voting against a corporate tax rate cut when it campaigned on the basis that it would give tax cuts? National campaigned on the basis that it would give tax cuts up until at least 24 April when Bill English killed the policy off. What will Mr Foss say to the corporates? 
The one thing that has come out of this debate today is that the National Party members are all over the shop. I tell members that we have put our Budget on the Table; we have put a solid Budget and a plan on the Table. Did we hear one policy one creative thought one bit of initiative or innovation from the National Party? Not one thing! Well ours is out. Our plan is on the deck; I ask the National members to give us theirs. 
TIM GROSER (National) 
: 
 The member Clayton Cosgrove has just challenged us to explain why we are not voting for the Taxation (KiwiSaver and Company Tax Rate) Amendment Bill. I will explain to the member exactly why. This country fundamentally needs a coherent approach to economic management. This bill by the Government’s own admission is the centrepiece of its Budget strategy. Here we have this centrepiece of a Budget that continues a direction taken by this Government over the preceding seven Budgets. That is what we are voting on and that is why we will not support it. We are not interested in a Budget where there is a titbit here or a titbit there in respect of John Key’s excellent charities policies that Labour has just simply taken wholesale; we are not interested in that. We want a coherent approach to the economic management of this country. That is why National will not support this bill. 
Sitting suspended from 6 p.m. to 7.30 p.m. 
TIM GROSER 
: The Government has challenged us to explain why we are voting against the bill. As I explained just prior to the break we are not looking at just a bill we are looking at a bill that the Government itself has described as the centrepiece of its economic strategy—the centrepiece of its economic strategy. That is what we are voting against and I will tell members why. I do not know quite what lies behind the political thinking in this Budget. What I can see is that it is a political accommodation to certain political pressures by a Minister of Finance who for eight Budgets in a row now has had a deep and abiding reluctance to face the facts of a huge and growing Budget surplus. 
This is actually a nip and tuck operation. Michael Cullen the ultimate Budget surplus denier faced with unmistakable evidence that he could no longer torture the statistics until they confessed has had to own up to the reality that we have a Budget surplus. Essentially what the Minister of Finance has done is make a series of minimal concessions to those facts. What he has had to finally face up to is the fact that since he took the responsibility for economic management in this country the total tax take has gone up by $20 billion. The average wage or salary earner’s tax bill has gone up by a little less than $2500 and a little bit of nip and tuck has gone into this Budget bill. That is why we are opposed to it. What this country needs is a coherent strategy that addresses the fiscal realities of this country. 
This is as our party leader said a money-go-round. What the Government is trying to ask us to do tonight is to give approval to this churn factor that will cause more and more of the taxpayers’ own moneys to be recycled in various ways to very little positive effect. So instead of actually facing up to the underlying reality that has been building on the Minister of Finance over the course of the last eight Budgets for which he has had the awesome responsibility of managing this economy he has done some minimal adjustments to accommodate some overriding pressures from the minor parties on whose support his very survival depends. 
I do not know whether we are looking at the eighth and the last or the eighth and the penultimate Budget in this sorry series; I do not think anyone knows that. The answer to that lies not so much directly in the hands of the New Zealand electorate but inside the minds of perhaps four or five increasingly nervous people in some of the minor parties as they assess the relative long-term damage to themselves of staying on board this ship. 
So that is essentially the political calculation that has happened. I think that beyond that we can also see the internal political calculation. Here is a Minister of Finance with a long—and I would have to say very consistent—track record of opposing tax cuts and particularly a dislike of tax cuts for “the rich” and for companies. But he has actually been manoeuvred in a direction in which he does not really emotionally or psychologically want to go. So what has he done? He has given tax relief in the form of a reduction in the company tax rate with one hand and he has taken off with the other hand in order to finance the KiwiSaver subsidy scheme a net $672 million—$1.3 million gross $672 million net. So we have here yet another example of the money-go-round approach of this Minister. 
Why does he have this reluctance to face up to fundamentals? Well what we hear is not what I call a neo-Keynesian approach to economics it is a Palaeolithic approach to Keynesian economics—something that he learnt and perhaps I learnt 40 years ago but some of us have just added a little to the sum of knowledge in those years. Faced with this Budget surplus he seems to think that the only issue in terms of inflation is the overall fiscal surplus or deficit. What he has never accepted is that when the Government makes real claims on real assets it forces up prices and when it forces up prices it leads to inflation tendencies particularly in the non-tradable sector. That causes the Governor of the Reserve Bank to put up interest rates. That causes the exchange rate to rise. 
So when the Government bids up wages—and we know that for the last 5 years wage increases in this country have been led by the State sector—that is a claim on real resources. When the Government fills Wellington with more and more bureaucrats such that it is hard to find spare office rental accommodation in Wellington City that is putting pressure on real asset prices. When the Government expands its core spending often in poor-quality areas of spending there are very few demonstrable outcomes for this extra spending. Take the $4 billion spending on public health and look at the results of that. That is putting pressure on real asset prices. But he has failed to understand that that is his responsibility to deal with and now things are coming home to roost. 
Another Minister of Finance not too far removed from us across the ditch Mr Costello yet again using what is actually relatively more modest headroom for tax reform in Australia initiated yet another series of a continuing process of tax reform. The economists of the Commonwealth Bank of Australia in their analysis of that put out the following statement: “There have been 13 significant tax cuts since the late 1970s. But history shows no clear correlation between those cuts or the size of the cuts and ensuing trends in consumer spending.” If that was not enough the OECD said just a few weeks ago to the Government: “A clearer strategic direction for the tax system is needed to maximise living standards in the long term.” If that was not enough he should have listened at least to Tom Scott. 
Hon Trevor Mallard 
: How can you listen to a cartoon? 
TIM GROSER 
: Because there is some speaking inside the cartoon mate. I have the cartoon in front of me and it is a typical very clever Tom Scott cartoon. It has a picture of Michael Cullen in the sandpit guarding the toys in the sandpit against any encroachment from others. The teacher writes: “Michael is a very clever boy who needs to learn how to share. If not corrected soon it could affect his whole life.” Well ladies and gentlemen it has affected the whole macroeconomic settings of this country over the last 8 years. But Michael Cullen is not prepared to listen to the OECD. He is not prepared to look at the Australian experience. He will not even follow the implicit advice of a cartoon. He has convinced himself as a Budget surplus denier to the point at which the evidence has accumulated beyond any reasonable stretch of imagination to where he has had to make some minimal adjustments. This churn factor this money-go-round bill we are being asked to support is not a coherent approach to New Zealand problems and that is the reason the National Party will not be supporting this bill. 
Hon TREVOR MALLARD (Minister for Economic Development) 
: 
 The people of New Zealand should know that that was John Hayes the member for Wairarapa and I am sure the people of the Wairarapa will be calling out for Georgina Beyer to come back to Parliament again. “Come back Georgina.” they are saying. John Hayes might have done good work at Bougainville but he has done no good work in this Parliament at all. 
Nathan Guy 
: I raise a point of order Mr Speaker. The speaker should address the member by his correct name. 
Mr DEPUTY SPEAKER 
: It was clear he was referring to the speaker who had just made his contribution Tim Groser and I am sure all members know who other members are. 
Tim Groser 
: I raise a point of order Mr Speaker. I do not find this at all upsetting. This is actually the fourth occasion. It is obviously a deliberate tactic. Just let it go. It does not worry me at all. 
Hon TREVOR MALLARD 
: I apologise to the member. There are a number of those new members around who have not really made an impression on Parliament yet and if that is Mr Groser I apologise. [ 
Interruption 
] Sorry? I apologise to Mr Hayes as well just to make it even-handed. [ 
Interruption 
] That is right. To accuse Mr Hayes of making a speech like that would be a terrible thing to do. 
Darren Hughes 
: Hayes would be worse. 
Hon TREVOR MALLARD 
: Oh no. He could not be worse than Groser. But what I think is really interesting is coming down and listening to the man who was paid excessively to go around the world for years and years as a public servant and who now criticises their wages. He was one of the highest-paid public servants in the country. He got overseas allowances and put money in his pocket all over the place but now he is attacking the public servants of Wellington. Well I say that for someone who apparently wants to run for Wellington Central not for Wairarapa that is very very sad indeed. 
The next question I want to ask Mr Groser is whether he ever got a posting to Australia. Did he ever notice what happens in Australia? He does the comparators between New Zealand and Australia but what will the net effect of KiwiSaver be on employers in New Zealand when fully implemented? There is debate about it—it may be 1.1 1.15 or 1.2 percent of salaries. And what does it cost in Australia? 
Hon Marian Hobbs 
: 9 percent. 
Hon TREVOR MALLARD 
: The figure is 9 percent. He says that firms will flee to Australia— 
Darren Hughes 
: To pay more. 
Hon TREVOR MALLARD 
:—to pay 8 percent more and have capital gains tax— 
Darren Hughes 
: And stamp duty. 
Hon TREVOR MALLARD 
:—and a few other things and some local taxes as well. 
Well generally public servants are good but I have a feeling that as that member has come from the public service to the National Party the average has improved in the public service. I am not sure about the National Party; that is something that is truly debatable in the House today. But what I could not believe in the House earlier was Bill English saying that the National Party will vote against the biggest cut in company tax rates since 1988. I know that politics is turning on its head and I know that the world is upside down but how could the party of Holyoake the party of Marshall and the party of Brash vote against massive tax cuts for companies? Of course it could but I can see Mike Williams doing the phone calls now. The donations will probably all be under $5000 or $10000 but companies will be saying that the National Party wants to reverse the tax cuts and they will be running to the Labour Party. I tell members that I will be photocopying that  
Hansard 
— 
Hon Bill English 
: Big business has bought Labour’s policy. 
Hon TREVOR MALLARD 
:—and I will be sending it far and wide I tell Bill English. Every employer in my electorate will get a copy of Bill English’s speech because he said that National members are against company tax cuts. You know a bright party—and even old Bob Clarkson knows this— 
Darren Hughes 
: Not bright enough. 
Hon TREVOR MALLARD 
: No he is bright enough to know that a bright party says: “We will oppose parts of this at the Committee stage. There are bits of it that we don’t like. We can’t work out which bits but we will get through to there identify the bits we are opposed to and vote against it at the Committee stage but we won’t make tits of ourselves voting right through.” There are good bits even from a National Party perspective in this bill. I think that the whole bill is excellent. I think that the bill is absolutely brilliant. I mean “Trapdoor Bill” has the noose around his neck— 
Mr DEPUTY SPEAKER 
: Order! 
Hon TREVOR MALLARD 
: I mean that Mr English has the noose around his neck and his legs are dangling in the trapdoor because he got caught. He opposed something when he did not know what was coming. 
Darren Hughes 
: But he runs the strategy. 
Hon TREVOR MALLARD 
: No he does not run the strategy. No no they have “Bright Gerry” doing the strategy or Murray McCully—it is probably Murray McCully actually by the way they are going at the moment. I think it is a McCully approach—you know to build up a lead and blow it. He has done it four elections in a row now. 
Hon Steve Maharey 
: He’s a choker. 
Hon TREVOR MALLARD 
: I really would not go into the detail of Mr McCully. But what is clear is that Mr McCully specialises as National’s strategist in building up leads and blowing them—and we can see it happening here now. It is just absolutely obvious for anyone who has any experience in politics when something is to be adopted. We know that John Key will cuddle up to KiwiSaver. We know it. We know that John Key will not take money off ordinary punters who will get their money for KiwiSaver. We know he is not as stupid as that. So why does that party oppose it now which will mean having to do a flip-flop? Why would anyone who is half rational not say: “OK every now and again Labour has a good idea assisted by Peter Dunne”—but not assisted by all of Peter Dunne’s previous team—“and Winston Peters. There is a good package here. Let’s adopt it. Let’s go for it and get it over with.” But what do they do? They say traditional old Opposition crap: “We’ll oppose it for the sake of opposing it.” 
Darren Hughes 
: The 1992 strategy. 
Hon TREVOR MALLARD 
: Well actually it is the 1999 strategy for the Labour Party policy—the bits of it they should have adopted then. In 2005 they had a very very similar strategy—and they fell over. I am not going to complain. You know Michael Cullen is approaching the mid-point of his career as Minister of Finance and if they want to take that sort of approach it is something I absolutely welcome. But I would have thought that with the quality of education these days the continuing education courses that people do the political science that is available at universities around the country and some of the wise old heads there— 
Darren Hughes 
: Like Lockwood Smith. 
Hon TREVOR MALLARD 
: Well no—people who have gone. All they had to do was give Jim Bolger a ring. Jim Bolger would have given them advice. I rang him yesterday and got some advice. He is in Ireland. They could have given him a ring and said: “Jim what should we do? You know this is quite good. We don’t want to damage ourselves. What should we do?”. Any reasonable former leader—any reasonable person—would have said: “If you really agree with it cuddle up quick. Don’t let there be any divisions and go for it. And for goodness’ sake don’t get caught doing a flip-flop because that’s the fatal thing.” 
Bob Clarkson 
: Like the Australians. 
Hon TREVOR MALLARD 
: Well a flip-flop like Mr Clarkson on smacking or puffing—“Flip-flop Bob”! We know that he was against it and now he is for it. I want to make one final comment on stadia. I want to put on the record that John Key was a stronger supporter of the waterfront stadium than I was. 
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. 
SHANE JONES (Labour) 
: 
 Kia ora anotatou. I rise to echo the remarks of the Deputy Prime Minister and Minister of Finance because today is the inordinately important day on which we as a nation through this document address the deficits of our history especially in savings. Up and down the country people are already ringing members on this side of the House because they are realising that had we been tempted to adopt the confetti-based approach in relation to colourful cheap gimmicky give-aways as that side of the House proposed to do it would have disappeared in a puff of a Warehouse experience. They know that today at the very time our birth rate as a nation increases this Government is prepared to act boldly and invest in a future that not only our children but our mokopunas will look back to gladly and celebrate the year that we were prepared to take the dividends of economic buoyancy and put them into deepening the wells of capital in our own economy. 
 Those people were not willing to follow the tasks or follow the route outlined by members of that side of the House who unwisely think that reacting to a Budget is an opportunity for indulging in minutiae. They unwisely think that members can come to this House and give flippant trivial ill-informed stories about tiny parcels of information that completely overlook what the country is really looking for. That is why this is a great day; there is an appetite a thirst and a hunger to address the issues of economic security in our families that lie at the root of the problem we have as an economy—scarcity and paucity of capital. 
Let us just recite recent history in terms of the Treasurer’s efforts in this regard. Undoubtedly his legacy will be firstly the Cullen fund. A small economy with a relatively modest population has been prepared to build step by step on enlarging its capital reserves to deal with the inevitability of the flood of ageing that has already affected that side of the House if not physiologically then certainly intellectually. Nowhere are we seeing it more brightly than in the member for Tauranga. In fact we have been told by our Maori colleague here that people in Tauranga are wandering around not with a headache but with a hangover. They curse the day they sent that man to Parliament. He boasted how he would come down humiliate Winston Peters and teach everyone else here a lesson on how the real world works. He sits over there and never says a single lucid constructive or memorable thing. In fact he joins Tony Ryall and a host of others who every time they throw foul rhetoric in this House the walls of this esteemed institution are smudged; that is all they have to offer. That and these flights of fancy into minutiae is all they have to offer. 
What exactly are we offering today to the happy workers eager families and very respectful providers of aged care? We are addressing what National refuses to do. We are dealing with the issues of security amongst those families who eke out an existence on pitifully low wages. 
What do National members say? They say that wages have grown too high the public sector is too large it has become bloated and when they come in they are going to force it back down. That is why they will never be here on the Government side of the House. They will never ever come back until they can match the quality of stewardship and the vision because there is a massive appetite out there that we have tapped into. 
KiwiSaver started last year. It arrived at our committee and was addressed by some very—well some—fine minds with occasional inputs from my colleagues from the other side of the House. I will say one thing for John Key. At the end of the day he heard what people had to say in the select committee and he realised that there was a well of massive support inside society for a savings scheme of this nature. After he had hung “Uncle Don” upon the petard which he constructed himself he then began to ape and then don the garb that we have created. I will say that much for him—he is adaptable he is a chameleon he is a plagiarist and he will do anything to occupy the benches of power. But what is his remedy and what is the grand narrative he has for our nation? 
What have National members done over the last 4 or 5 years to obfuscate the fact that they have no grand narrative? No. 1 is that they have tried to chase everyone to Australia. No. 2 is that they have tried to pit Maori and Pakeha against each other. No. 3 is that they constantly carry on about taxes. There is a clear choice. They should put their choice to the people. We have put ours in this document and we will meet all comers. On every single street corner we will be there and by Jove it will be a fantastic debate because for the people of New Zealand there are remedies in this document—clear remedies. 
Let us talk about business tax. How on earth could a party that professes to be the friend of business not even have the presence of mind to at least acknowledge the overdue steps that our colleague Mr Dunne Mr Treasurer and Mr Peters have taken. They know that in a small economy with a GDP of $160 billion there needs to be a private enterprise sector that is continuously buoyant resilient and that looks to the Government to provide through the tax system some useful incentives to enable them to keep more of that money to plough it into the business. 
That is the very thing they talk about profess to know about and have the opportunity to vote for—but no they will not do that. So we have two of these massive planks—business tax reform and KiwiSaver—that will characterise the era when this party laid down which we call in Maori the huarahi the pathway where the full benefits will be enjoyed by our mokopuna. 
Let us go back to the pool of human capital—the tertiary education sector. Fortunately Dr Cullen had already adumbrated during the last few weeks that we are continuing to invest in the tertiary sector. We do it in such a way that we remedy and redress the slights and the omissions of the 1990s—a time when trade qualifications and those skills of practical application were almost wiped out. We do it through our tertiary education investments and—of particular importance to me and my colleague in the Maori world—ongoing investment into human capital. 
So what have we here? We have leadership and boldness prepared to invest well into the future and economic capital we are continuing to grow in relation to tertiary education which is human capital. We take it from the kohungahunga the very young and nimble right through to adult students the pakeke. That is a seamless lifelong approach to learning something that this Budget is willing to invest in. It is not the politics of divisiveness it is not the politics of triviality or of an obsession with minutiae. This approach reminds me that every time Mr Ryall rises he stands almost as if he is speaking with a set of latex gloves—one can only imagine why he would need them. 
The final thing I point out about this Budget is that I look forward to the legislation associated with this grand vision we have laid out coming to our committee. I look forward to input from my colleagues who no doubt will join the fray to ensure that the legislation comes back to the House in as robust a form as possible after the theatrics the predictable rhetoric and the tired speeches of Mr Groser and others. If there was ever a reason why we have a current account deficit his speech tonight gave it. It is infrastructure—we have covered all the bases—it is physical capital human capital economic capital and a tax system that will enable private enterprise to realise its full potential. This is a grand night for a grand Government that has put forward a grand vision. Kia ora tatou. 
A party vote was called for on the question  
That the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill be now read a first time. 
Ayes 61 
New Zealand Labour 49; New Zealand First 7; United Future 2; Progressive 1; Independents: Copeland Field. 
Noes 50 
New Zealand National 48; ACT New Zealand 2. 
Abstentions 7 
Green Party 4; Maori Party 3. 
Bill read a first time.