Copeland Gordon: Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Second Reading 
Copeland Gordon: Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Second Reading 
[Volume:613;Page:10052] 
GORDON COPELAND (United Future) 
: 
 I have pleasure in rising to speak to the second reading of this bill. There are many things in this bill that will be to the overall benefit of New Zealand taxpayers and as a centrist moderate and business-friendly party United Future has been happy to lend its support to new rules surrounding the GST zero rating for supplies of financial services the trans-Tasman imputation rules the closure of loopholes relating to aggressive tax arrangements that offer investors more tax reduction than the money invested the income tax exemption for community trusts the alignment of taxation on employer contributions to superannuation funds with the marginal tax rate of the employee clarification of GST relative to local bodies and the lowering of compliance costs. All these are worthwhile initiatives and for that reason we will support this bill through all its remaining stages. 
However it is also true that United Future has expressed a minority view to the effect that the income tax bands confirmed in this bill should have been relaxed to take into account the effects of cumulative inflation since the rates were richly established on 1 April 2000. Inflation in New Zealand is measured by the movement in the consumer price index. Accordingly when inflation moves up all New Zealanders recognise that this signals a corresponding movement in the average level of prices for goods and services in our economy. It is perhaps not quite so widely understood however that the increase in the consumer price index is also a measure of the reduced purchasing power of the New Zealand dollar over the same period. 
This can easily be illustrated by an example. If goods cost $100 at the beginning of the year and the consumer price index and thus inflation is 4 percent during the year then at the end of the year to purchase exactly the same quantity of goods the taxpayer will need to have $104 in his or her pocket. Accordingly as all taxpayers know if inflation goes up by 4 percent they will need to have a increase in their pay packet of at least 4 percent in order to maintain purchasing power parity and a consistent standard of living. 
I set out these basic economic fundamentals so that people can clearly understand that if that goal is to be achieved namely the mere maintenance of a consistent standard of living during a year then it is also necessary to adjust the tax bands themselves for the effects of inflation. Unless this is done the income retained by all taxpayers earning $9500 or more after they have settled their tax bill will be worth less at the end of the year than the comparable figure was at the beginning notwithstanding the fact that they have received a wage increase equal to the rate of inflation. 
 This is because in a progressive tax system the tax that people are paying has increased by a percentage greater than the rate of inflation—a situation that is typically referred to as “fiscal creep”. Fiscal creep has already been mentioned by my colleague Ken Shirley. It is not an honest straightforward tax increase that has been brought to this House in an open manner and debated but it is a tax increase nevertheless. It is these economic fundamentals that lead United Future to the strong conviction that the tax bands reaffirmed in this bill at their current 1 April 2000 levels should have been adjusted at 1 April 2003 as follows: the 15 percent low-income rebate level from $9500 to $10000; the 19.5 percent rate from $38000 to $42000; the 33 percent rate from $60000 to $65000; and the 39 percent rate from above $60000 to above $65000. 
The Government’s failure to make these adjustments results in the overtaxation of New Zealanders in the following amounts: for those earning between $9500 and $38000 $60 a year; for those earning between $38000 and $42000 $300 a year; for those earning between $42000 and $60000 $600 a year; and for those earning over $65000 $900 a year. 
Those figures may seem relatively modest but with 2.7 million taxpayers in this country they represent cumulatively an overtaxation of $400 million a year. 
Hon Ken Shirley 
: How much? 
GORDON COPELAND 
: The figure is $400 million a year. It represents funds that will be held back by this Government and that in our view properly belong in the pockets and purses of New Zealand taxpayers and their families. Even then the Government might argue that those sums are relatively small but we in United Future do not think one can honestly argue that $400 million is a small amount. Certainly Dr Cullen in his recent announcements has regarded a figure of that size as being a massive amount—an amount that he would not dream of putting back into the hands of the taxpayer. 
In any event United Future believes that this is a point of principle. The Government itself has pledged not to increase tax rates. It did that on its pledge card. In reality if it persists in its failure to adjust the tax bands for inflation it is allowing such increases to occur simply through fiscal creep and its own inaction. This is wrong in principle and United Future will continue to draw to the attention of the New Zealand electorate the Government’s inaction in that regard. 
In my closing comments I want to respond to Craig McNair and to say why then we are not voting against the bill. I will give him the response I have given consistently to everybody else who has asked that question. It is as simple as this: during the last election we said that if we were elected and were in a position to do so we would work with the largest party elected into this Parliament. That was the democratic wish of the people. That party was the Labour Party. We entered into a supply and confidence agreement with the Labour Party and under that agreement which we are not about to welsh on we will give support to the Labour-led Government on confidence and supply until after the next election in 2005. 
That is our pledge and we are not about to go back on it. But it does not under the same agreement prevent United Future from bringing this kind of point to the attention of the electorate and also to the Government as a challenge. If the Government does not listen then we will note very very clearly to the electorate in 2005 that on this point we believe the Government is erring. It is failing New Zealanders and it should act at the next opportunity which I believe will be the 2004 Budget to put this matter right. If it does not then rest assured that I will be making exactly this same speech again next year only then instead of the figure being $400 million it is likely that we will be talking about $500 million or more. 
Bill read a second time.