Brash Don: Appropriation (2002/03 Supplementary Estimates) Bill — Second Reading Imprest Supply Debate 
Brash Don: Appropriation (2002/03 Supplementary Estimates) Bill — Second Reading Imprest Supply Debate 
[Volume:609;Page:6364] 
Dr DON BRASH (NZ National) 
: 
 It will not surprise the House to know that I am not proposing to vote in favour of the Minister’s resolution. Indeed I will oppose the Minister’s resolution. Let me say that I agree with one or two of the things he said. For example he does say that the New Zealand economy has grown well in the last few years. He does not however acknowledge why it has grown well in the last few years. The New Zealand economy has grown well because of the successful policies of the past—because in the last few years we have had the lowest exchange rate in New Zealand’s history; because with security concerns overseas we have had a strong net inflow of people over the last little while; and because in 2001 monetary policy was eased rather aggressively. Those reasons for our success have nothing whatsoever to do with this Government’s policies. 
But now as the Minister also acknowledged the chickens are coming home to roost. He said that in the year to March 2003 New Zealand would have one of the strongest growth rates in the OECD. What he did not say was that the first quarter of this year—the last quarter of that 12 months to March 2003—would have a growth rate of about 0.5 percent according to most estimates or an annualised rate of 2 percent; and that the second quarter of this year looks like seeing a contraction of the economy. Both Treasury and the Reserve Bank estimate that over the 12 months roughly starting now the New Zealand economy will grow at just over 2 percent. The building industry is slowing down job advertisements are down quite sharply and business confidence is at one of the lowest levels in New Zealand’s history. Although the Minister says the economy will bounce back to about 3 percent growth in the next financial year there are many respectable observers—such as the Institute of Economic Research—who suggest that even in the year to March 2005 the New Zealand economy will grow at only about 2 percent. 
The real problem is not this cyclical slow-down but rather the fact that the trend in the rate of growth of the New Zealand economy will be between 2 and 3 percent over the next decade. Over the last 10 years the New Zealand economy measured by gross domestic product (GDP) has grown at an average rate of 3.5 percent. Over the next 10 years as revealed in the Minister’s own Budget the estimate is an average growth rate of 2.5 percent. Growth in per capita GDP over the last 10 years—the 10 years to 2002—averaged 2.25 percent. Treasury estimates that in the next 10 years per capita GDP will grow at only 1.8 percent—significantly slower than over the last decade. 
Yes as the Minister is fond of pointing out this is a projection not a forecast but it reflects the best judgment of the Government’s official advisers on labour productivity trends. The Government’s official advisers are projecting that labour productivity will grow at only 1.5 percent per annum over the next decade. That is lower than the growth rate of 1.75 percent projected by the Australian Treasury for Australia. That means of course that the gap between our living standards and those in Australia will continue to widen. It means also that our Prime Minister was simply acknowledging the fact that there is not a dog’s chance of New Zealand recovering to the top half of the OECD within a decade. Indeed at the present rate of progress we might not make it in two decades or three decades. 
The Government is doing nothing of substance to change that situation. At almost every turn the Government erects barriers to growth. There is a failure to fix the problems in the Resource Management Act the Local Government Act the Health and Safety in Employment Act the Land Transport Management Bill and on and on. All those things make business more dangerous more risky more difficult and they will slow New Zealand’s growth rate. 
Since we are talking about the Imprest Supply Bill the Budget and similar matters I want to talk about one particular area of failure. In 1999 the Labour Party campaigned on the fact that it was proposing to increase the top rate of tax from 33c to 39c and it said that would affect only the top 5 percent of taxpayers. What do we have now? Ten percent of all taxpayers are now into the top 39 percent tax bracket and almost 20 percent—one in five—of taxpayers in full-time employment are now into that 39 percent tax rate. If we want to restrict the increase in the tax rate to the top 5 percent of taxpayers the threshold will have to go from $60000 a year to $80000 a year. Some of the people indeed all of the people who are earning more than $60000 a year face paying almost half their income above $60000 in tax—39 percent in income tax and about another 6 or 7 percent in GST. Some 60 percent of full-time employees—taxpayers—are now in a 33 percent tax bracket and paying over 40 percent of the income they earn above $38000 in income tax and GST. In addition the Government has increased taxes on cigarettes very sharply—the excise tax went up by 23 percent back in 2001. The Government has recently increased the tax on some kinds of alcohol petrol taxes have gone up and now the Government proposes a tax on electricity. In addition fiscal drag—the impact of inflation on people’s incomes—has pushed more and more people into higher and higher tax brackets. 
How can we expect to have a growing economy when we punish the most successful people in our society so aggressively? We take it for granted that if we want to discourage the consumption of cigarettes alcohol and certain behaviours we increase the tax on them. That is taken for granted by most members of this House. Surely the same effect exactly applies to income tax. If we increase the tax on higher levels of income we discourage people from earning income we discourage investment we discourage work and we discourage business risk. That cannot be good for New Zealand’s growth rate. 
It is sometimes contended that to be fair we need to have a very high rate of tax on the people who earn higher levels of income. What we sometimes overlook is that the levels of income tax paid by people earning a little above the average are already substantial. For example someone earning $100000 a year with a non-earning spouse and two children under 13 is paying approximately 1000 times more in income tax per year than someone who earns $25000 with the same family circumstances. If we want growth in this country we cannot afford the luxury of a tax system that penalises the people who work and take business risk. I am strongly opposed to this bill.