Volume 639 Week 44 - Thursday 17 May 2007 
Volume 639 Week 44 - Thursday 17 May 2007 
[Volume:639;Page:9339] 
Thursday 17 May 2007 
Madam Speaker 
 took the Chair at 2 p.m. 
Prayers 
. 
Appropriation (2006/07 Supplementary Estimates) Bill 
Procedure 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I hereby present the Supplementary Estimates of Appropriations for the Government of New Zealand for the year ending 30 June 2007 (B.7). I move  
That that paper be published. 
Motion agreed to. 
Appropriations (2007/08 Estimates) Bill 
First Reading 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I move  
That the Appropriations (2007/08 Estimates) Bill be now read a first time. 
Bill read a first time. 
Budget Statement 
Budget Debate 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I move  
That the Appropriations (2007/08 Estimates) Bill be now read a second time 
. 
The central message of Budget 2007 is the importance of saving and investing. Budget 2007 is designed to promote a stronger saving culture and encourage greater investing. 
This will create a more productive economy a deeper capital base a more prosperous retirement future for New Zealanders and ensure we can be less dependent on foreign capital. 
Increasing saving and investing will underpin the Government’s three core themes of economic transformation families young and old and national identity. 
It will help build a sustainable future for New Zealand over the long term. 
Higher levels of investing and deeper and broader capital markets are important preconditions for improving productivity and enhancing economic transformation. 
Higher levels of saving will assist young families to accumulate the deposit for a first home and help to build assets to improve standards of living in retirement. 
Generating more of our own saving and investing will lessen our current very high levels of dependence on foreign capital and enable us to be more economically independent. 
Budget 2007’s central message of saving and investing is given against the background of continued substantial imbalances in the economy. 
After a brief period of economic slowdown in 2005/06 economic growth has begun to pick up again. But this growth is based on domestic demand. The New Zealand dollar having briefly dropped to US60 cents in early 2006 quickly resumed appreciating to levels well above its equilibrium rate. This is placing significant stress on the exporting sector though some parts such as dairy are substantially cushioned by high commodity prices. 
At the same time the high exchange rate means that import prices remain low. With high interest rates encouraging strong capital inflows and appreciating property values and strong household spending underpinning high levels of household borrowing domestic demand growth has remained very strong. Hence New Zealand’s current account deficit of around nine per cent of GDP and continued inflation pressures. 
Meanwhile stronger economic growth than predicted last year combined with strong investment performances by the Crown Financial Institutions and underspending against Budget has led to a stronger fiscal outturn for 2006/07 than forecast in Budget 2006. 
Against a forecast cash deficit of $1.5 billion the forecast outturn for the current year 2006/07 is now expected to be a surplus of $1.7 billion. This compares with a cash surplus in 2005/06 of $3 billion. 
The operating surplus has moved much less from a forecast of $5.8 billion to $6.3 billion or 3.8 per cent of GDP. The corresponding figures in 2005/06 were $11.5 billion or 7.3 per cent of GDP. While the operating surplus has fallen substantially the Government’s fiscal management has continued to lean against demand pressures in the economy. But this level of surplus is still somewhat higher than necessary to be consistent with the Government’s long term fiscal objectives. 
What is equally clear is that while some of the economic imbalances will slowly correct over time there are more fundamental imbalances which are driving some of the short-term ones. This means that corrective action such as monetary policy has had to be more severe than is desirable. 
In particular the low and declining rate of household saving in New Zealand is a major contributor to these trends. While there is room for argument about the accuracy of any particular measure of household saving all the different measures show the same trend over the last twenty years or so – a movement into negative household saving which continues to decline. 
Moreover many of the traditional explanations of such a trend do not withstand close analysis. Once low saving was put down to high inflation – but New Zealand has had low inflation throughout the last fifteen years. Real personal and household incomes have been rising. Job security overall is much higher than it was fifteen years ago in the aftermath of the Employment Contracts Act.  
New Zealand Superannuation levels in relative terms are lower than they were twenty years ago while the age of eligibility is now five years higher. And while in fact the New Zealand Superannuation Fund has given much greater certainty to the future of New Zealand Superannuation a clear majority of New Zealanders under the age of forty still tend to doubt whether it will be there to support them in retirement. 
Thus the favourite economists’ (and others’) nostrum of simultaneously cutting taxes and New Zealand Superannuation would have no effect on the saving rate. 
There are of course a few who say New Zealand does not have a saving problem. These are the macroeconomic equivalent of climate change deniers. They only need to look at our very large current account deficit one of the highest national debts in the world relative to national income and growing public concerns about our inability to retain ownership and control of much of our own economy. 
This Labour-led Government has already put in place the KiwiSaver scheme. This begins operation on 1 July. KiwiSaver is designed to use the power of inertia to encourage people to save. On taking up a new job people will be automatically enrolled. Pay deductions at the rate of four per cent of gross income will begin with the ability to opt for a higher level of eight per cent. People not wishing to stay in must opt out within eight weeks. 
The Government will contribute an upfront payment of $1000 to kickstart each KiwiSaver account. KiwiSaver savings are locked in until age 65 subject to a small range of exceptions. 
While KiwiSaver in its current form is the most significant change in saving policy since the National Government abolished the Third Labour Government’s compulsory saving scheme in 1976 it is clear that the needs of New Zealand and New Zealanders raise the question of whether more should be done. 
The size of the fiscal surpluses allows room for further initiatives. There were two options facing me in recommending action to Cabinet. One was the tax threshold indexation changes outlined in 2005 or some other form of modest personal tax cuts which for most people would increase take-home pay by a few dollars a week while adding to the demand pressures in the economy. The other was a series of bolder moves to strengthen KiwiSaver to build greater economic and social strength for the future. 
In my view the choice was not a difficult one. Every dollar saved today is worth more in the future. A small tax cut now would be spent and then gone. Increasing saving encourages more personal responsibility. 
If we help more people save now that will reduce the need for people to receive income-tested supplementary assistance from the government in the future. That is particularly true if more saving now enables young couples to save for a deposit on a first home and work towards a mortgage-free retirement. 
But in designing assistance and encouragement for saving it is important to recognise that those on modest incomes have the most difficulty in saving and therefore need a stronger relative incentive to encourage saving. Traditional saving incentives tend to have the opposite effect. 
This Labour-led Government wants to see more people not fewer sharing in the wealth that we create. 
Madam Speaker 
Three major initiatives are being announced today. 
First the vast majority of full-time income earners will qualify for a tax credit of $20 a week for their KiwiSaver contributions. 
This will take the form of a dollar for dollar matching credit of up to $20 per week for individual contributions. Thus anyone earning $500 per week or more will automatically qualify for the full credit. The credit will be paid on an annual basis into a person’s KiwiSaver account after the end of each tax year. 
This credit will come into force with the start of KiwiSaver on 1 July. Legislation to enact this will be introduced and passed under urgency later today. 
The new tax credit will also be available to members of schemes that are subject to complying fund rules. Self-employed people in a KiwiSaver scheme will also qualify for the credit. 
The second major new initiative is to provide that from 1 April next year where an employee opts to stay in KiwiSaver or to join it and make contributions a compulsory matching employer contribution will be phased in. This will start at one per cent of the employee’s gross income in 2008/09 and will over the next three years be phased up to match the minimum employee contribution level of four per cent by 2011/12. Employers will not be required to match the higher contribution rate of eight per cent. 
There is no doubt that employer contributions will create a greater sense of employee loyalty. The accumulation of savings funds in this way will also create greater incentives for workers to stay in New Zealand. 
The Government expects that the phase-in of the compulsory matching employer contributions will be taken into account in wage and salary bargaining as is the case in the current campaign by the Engineering Printing and Manufacturing Union. 
In order to ensure that contributions do reach the four plus four level all options which allow an employer contribution to count towards the minimum KiwiSaver member contribution (such as the two plus two option) will be phased out from 1 April 2008. 
The third major initiative which will substantially reduce the cost to employers of the new compulsory contributions will be that those employer contributions will qualify for a matching tax credit of up to $20 a week per employee. 
Unlike the employee tax credit this will not be paid into a KiwiSaver account but will be available directly to the employer to offset costs. The effect of this is that at full operation the first $500 a week of each employee’s wage or salary will not incur a net cost in relation to the KiwiSaver employer contribution for that employee. In the first year 2008/09 the employer’s contribution costs on the first $2000 a week of employee income will be met and in 2009/10 on the first $1000 a week. The net additional costs to employers by 2011/12 should overall be no more than around one per cent of the national wage and salary bill at that point. 
The combined effect of the employee and employer tax credits is that the Government will be supporting saving on all those earning $500 a week or more by $40 a week and fully matching the costs of KiwiSaver contributions on earnings of up to $500 a week. 
There are a range of subsidiary and consequential decisions which are being announced separately. Legislation to provide for the employer’s contributions and tax credits will be introduced and referred to a select committee under urgency later today. 
The impact of changes to KiwiSaver on a range of average New Zealanders will be dramatic. For a couple on the average household income with one income earner entering KiwiSaver at age 30 their accumulated savings at age 65 in constant dollar terms are projected to be $380000 under the revised KiwiSaver scheme compared with $170000 under the initial provisions. 
If the same couple on the average household income each had the same income then accumulated savings at age 65 would be $440000 on the revised KiwiSaver scheme compared with $170000 under the initial provisions. 
The social justice element in KiwiSaver becomes even clearer if we consider a two income couple both on the same wage where total income is just 60 per cent of the average household income. If they enter KiwiSaver at age 30 they are now projected to accumulate $300000 between them compared with $100000 under the initial provisions three times as much. 
Obviously the cost of the new KiwiSaver provisions will depend on the rate of take-up. On the assumption that there is a 50 per cent take up after ten years the annual cost of the additional expenditure will be $680 million in 2008/09 rising to $1.63 billion in 2016/17. This will take total KiwiSaver expenditure to $965 million in 2008/09 rising to $2.03 billion in 2016/17. 
If take up is faster – say 50 per cent after five years – the additional expenditure for the new elements will be $1.14 billion in 2008/09 rising to $1.57 billion in 2011/12. Total KiwiSaver expenditure would be $1.43 billion in 2008/09 rising to $1.94 billion in 2011/12. 
Unlike tax cuts in the pocket the impact on demand will be very small and may well be negative. And while the increased availability of realistic first home deposits five years or so down the track may put a little extra pressure on the housing market the greater encouragement to non-housing saving and investing should more than counterbalance that. 
One issue that has come to the fore in recent years which the enhancements to KiwiSaver highlight is the growing pressure for large managed funds to be accountable for the way in which they invest. 
Disclosure requirements can be a low cost and efficient way of encouraging responsible investing. The United Kingdom has had such disclosure requirements in place since 2000. Australia has similar requirements. 
Disclosure requirements allow providers to market themselves as responsible investors but also ensure fund members are aware of the portfolio decisions made on their behalf. 
The Government has agreed that KiwiSaver providers will be required to disclose their approach to responsible investing. It is also intended that a joint working party with scheme provider representatives will be set up to develop guidelines on responsible investing. 
To recap. Once the revised KiwiSaver is fully implemented a person on the projected fulltime average wage in 2011 will need to save about $40 per week. That will result in $100 a week going into their KiwiSaver account or about $5200 a year. The net additional cost to the employer will be zero in the first two years rising to $20 per week by the fourth year. The Government expects this small additional cost to be taken into account in wage bargaining over the next four years. 
KiwiSaver now presents the chance for a new beginning for New Zealand in terms of saving and investing. It is the individual’s equivalent to the New Zealand Superannuation Fund – the opportunity for greater security in retirement. 
At the same time it will significantly increase the flow of funds in New Zealand for investing both here and overseas. The effects of such funds can be seen in Australia. By some measures Australia is now the world’s fourth largest offshore investor. We on the other hand are one of the world’s largest borrowers relative to our size. 
Madam Speaker 
The returns on saving and business investing will be increased as a result of the second main element of Budget 2007 the Business Tax Reform package. 
This package is the outcome of Labour’s confidence and supply agreements with the United Future and New Zealand First parties. I particularly want to acknowledge the role of the Minister of Revenue Hon Peter Dunne in developing this package. 
The most obvious and expensive though not necessarily the most important part of this package is the reduction in the headline rate of corporate tax from 33 per cent to 30 per cent from 1 April 2008. 
Business has long argued that such a reduction will assist in boosting productivity and competitiveness and attracting more foreign direct investment increasing labour productivity and wage rates. 
It should also reduce the attractiveness of structuring businesses so as to report minimal profits within New Zealand. 
The cost of the reduction is expected to be $675 million in the first full year 2008/09. Dividends are generally paid out in arrears so to ensure that credits are not trapped in companies the current 33 per cent imputation credit ratio will be available until 31 March 2010. This leads to a transitional cost of around $115 million in 2008/09 and $40 million in 2009/10. In Australia this concession was not allowed when the corporate tax rate was last reduced. 
At the same time the tax rate for widely held vehicles and the top tax rate for Portfolio Investment Entities will be reduced from 33 per cent to 30 per cent from 1 April 2008 at a cost of $50 million in the first full year. Certain closely held saving vehicles will continue to be taxed at 33 per cent. 
These rate reductions will be legislated for later today. 
When the business tax discussion document was released proposals were also included for tax credits for research and development export market development and skills training. Following feedback from business and tax advisory groups it has been decided not to proceed with the latter two proposals. 
Instead some $87.8 million of new funding over the next four years will be provided for the Market Development Assistance Scheme to encourage firms to take new products to market so as to boost exports and productivity. $53 million will be invested over four years to increase participation in industry training. 
After careful reflection the Government has decided to proceed with a research and development tax credit. This credit will be at the rate of fifteen per cent of eligible expenditure. 
To qualify research and development activities must be systematic investigative and experimental. They must either seek to resolve scientific or technological uncertainty or involve an appreciable amount of novelty. They must be directed at acquiring new knowledge or creating new or improved products processes or services. 
Certain activities are excluded as they are in other jurisdictions generally to delineate more clearly the boundary between innovation and routine activity. 
A business must control the research and development expenditure bear the financial and technical risk and own the results. The research and development must be carried out predominantly in New Zealand. 
Eligible expenditure will cover employee remuneration depreciation of tangible assets used primarily in conducting research and development overheads consumables and payments to entities conducting research and development on behalf of the business. 
The tax credits will reduce tax payments and imputation credits will arise for tax paid by way of the research and development credit. Credits will be paid out in cash to loss-making businesses. Businesses will be able to claim the credit as part of their normal tax return process. 
The fiscal cost is expected to rise from $140 million in 2008/09 to $260 million in 2010/11. This represents a massive investment by the Government in private sector research and development and will place us in a much more competitive position vis-à-vis Australia in particular. 
Madam Speaker 
The review of the international business tax regime may be even more important than the corporate rate cut or the research and development tax credit in contributing to future economic growth though it is likely to cost far less. 
Our current tax rules in relation to New Zealand companies investing in offshore activity impose additional costs that are not faced by businesses resident in other countries. This has created an incentive for New Zealand firms to migrate.  
Currently New Zealand taxes New Zealand residents on their worldwide income. This includes any income that is earned by a foreign company that is controlled by New Zealand residents. This applies in all countries except the eight countries on the grey list. 
The discussion document released in December last year signalled an intention to provide a tax exemption for active income earned by such a controlled foreign company. This is the international norm. 
The Government has decided to introduce a package with the following features: 
introduction of a tax exemption for active income 
tax exemption for ordinary dividends from controlled foreign companies 
replacement of the current grey list exemption relating to eight countries with a simple test treating controlled foreign companies with less than five per cent passive income as exempt no matter where they do business 
a limited definition of passive income under the new rules 
introduction of interest allocation rules for offshore investments and  
repeal of the conduit rules. 
This is a balanced package which is simpler more consistently applied and more internationally competitive than the current controlled foreign company rules. A number of base maintenance measures canvassed in the discussion document are not being pursued. 
A second round of consultation will be undertaken to work through detailed design and implementation issues. The final policy package will be conditional on the outcome of this consultative process. 
The downside of this is that the time required for further consultation and then drafting and passage of the legislation will mean that it is very unlikely to be able to come into effect before 1 April 2009. However the clear indication that reform will occur should be helpful in business decisionmaking around firm location. 
Madam Speaker 
The total cost of this Business Tax Reform package is estimated to be $1.06 billion in 2008/09 rising to $1.13 billion in 2010/11. It is easily the most comprehensive business tax package since the mid-1980s and marks the first reduction in the corporate headline rate since 1988 under the Fourth Labour Government. 
In addition other tax changes which are business friendly will be introduced today. The bill to be referred to a select committee will include changes to the compliance and penalties regime. Included in the bill to be passed through all stages will be remedial measures for Portfolio Investment Entities. These measures will address a number of technical issues with the Portfolio Investment Entity rules and ensure that prospective KiwiSaver funds can convert their systems on schedule. 
Later this year a Limited Partnerships Bill will be introduced which the Government hopes the House will be able to deal with expeditiously as it will assist significantly new technology and venture capital companies. 
Finally the Government will release a discussion document exploring further potential measures for simplifying tax compliance focussing in particular on small to medium sized businesses. 
There are two other major developments in relation to taxation which deserve discussion today. 
First as a result of the confidence and supply agreement with United Future a discussion document was released last year outlining options in relation to the taxation of charitable donations. 
As a consequence of the submissions on the discussion document the Government has decided to remove the current rebate threshold on individuals’ charitable donations. In future all such donations to organisations with charitable donee status will qualify for the 33 per cent rebate. 
The deduction limit on charitable donations made by companies and Maori authorities will also be removed. The company deduction will also be extended to small unlisted companies. 
In November this year the Government will issue a further discussion document on proposals for a system of payroll charitable giving. This if approved would provide a mechanism for employees to donate to their charity of choice and receive a deduction immediately. 
The second matter is of quite a different nature. Much concern has been expressed about overinvesting in housing and the impact of the tax system in encouraging this. While there is no political consensus on any major remedial measures I am mindful of the fact that under the current law investing in housing for the purpose of making a capital gain that is trading in housing is taxable. 
In order to underline the significance of this fact and to send a clear signal to housing investors about the purport of the current law it has been agreed between myself and the Commissioner of Inland Revenue that an additional $14.6 million over the next three years will be provided to Inland Revenue to strengthen the auditing of property transactions. 
In conjunction with KiwiSaver’s encouragement of more diversified saving it is hoped that this will lead to some easing over time in the pressure on the housing market. 
Madam Speaker 
KiwiSaver and the business tax package are central to this Government’s plans for economic transformation. 
In addition to the near-doubling of the Market Development Assistance Scheme $33 million will be spent over four years towards developing better export links with Asia. This includes increasing New Zealand Trade and Enterprise services in Asia strategic tourism marketing in China and planning for the 2010 Shanghai Expo. 
A critical component of the economic transformation agenda is to lift firms’ innovative and absorptive capacity and improve research links between firms Crown Research Institutes and Tertiary Education Institutions and align tertiary skills to the needs of business. 
Budget 2007 commits an additional $67 million over four years to support innovation and improve linkages. Major initiatives include: 
lifting business performance through research and development to boost private sector R&D and research into innovative foods beverages and other new products 
building science capability through CRIs and the Marsden Fund 
improving sustainability and primary sector productivity and funding for Pastoral 21 and 
increasing high value exports by developing a 3D digital graphics cluster through leveraging the expertise and networks of an industry leader. 
In Budget 2007 the Government’s focus is on improving the quality and relevance of tertiary education with a package that will ensure the successful implementation of the tertiary reforms. This year’s Budget package will enable the tertiary system to better fulfil New Zealand’s needs and at the same time provide better value for money for taxpayers and students. Major initiatives to be funded in this Budget include: 
$129 million to strengthen universities' international competitiveness and support strategic change in the university sub-sector 
$76 million in operating and capital funding to support the distinctive contributions of the Institutes of Technology and Polytechnics sub-sector 
$35 million in capital funding to support strategic change in ITPs and wananga through the Quality Reinvestment Programme 
$6 million to build the research capability of the wananga sub-sector 
$69 million to provide for increased growth in participation in Industry Training as part of the Business Tax Reform package and sector leadership funding for Industry Training Organisations 
$28.9 million in operating funding to increase student access to allowances and scholarships (which will be partially offset by a consequent reduction in demand for student loans) and 
$14 million in additional funding for the Performance Based Research Fund to increase research activity and also increase the quality of research outputs in New Zealand. 
Madam Speaker 
Budget 2007 demonstrates the Government's leadership on sustainability by spending $30.5 million operating and $1.6 million capital over four years on a range of measures to enhance sustainability in the government business and household sectors. These include: 
building sustainability into procurement by government agencies and improving  eco-verification to grow the market for sustainable goods and services 
a household sustainable living programme focussed on promoting the uptake of sustainable behaviour and actions in the home 
working in partnership with business to enable firms to adopt more sustainable business practices and use them for competitive advantage 
moving the public sector towards carbon neutrality and 
partnering with local government to construct a network of public space recycling bins throughout New Zealand. 
Budget 2007 commits $72.4 million towards energy efficiency initiatives. 
The EnergyWise package of initiatives invests in programmes to support fitting of insulation and clean energy efficient heating to houses establishing a home energy rating scheme and general promotion of energy efficiency. This represents an investment of nearly $34.4 million over four years of which $15 million will be met from levy funding.  
$23 million over four years has been set aside for policy development and implementation of an interest-free loans scheme to support home energy efficiency measures and $15 million over four years has been set aside for implementation of the home energy rating scheme after the policy is fully developed.  
Budget 2007 also commits significant spending on climate change over four years on: 
providing international leadership and establishing international partnerships on agriculture and forestry research and 
research into the impact of climate change on New Zealand and techniques for mitigation and adaptation. 
Madam Speaker 
This Government has paid particular attention to the development of New Zealand’s  long-neglected land transport infrastructure road rail and public transport. 
When this Government came into office only 42 per cent of fuel excise duty on petrol was retained in the National Land Transport Fund. Now the income flow is in the opposite direction. General taxation is now subsidising the restoration and extension of the rail network the massive upgrading of the road system and the largest increase in public transport expenditure in our history. 
The Government is investigating full hypothecation of fuel excise duty. This would mean that all revenue collected from road users would be permanently dedicated to land transport including public transport.  
Yet still there is a demand for more. In particular the Auckland Regional Council has identified the electrification of the rail system as its top transport priority. This is on top of the $600 million which the Government committed last year for the upgrading of the Auckland rail network.  
Wellington has collectively expressed support for the building of Transmission Gully but has inadequate means for funding its share of the likely costs. Other regions have their own priorities which are not able to be funded within the current programme or which do not necessarily rank most highly on a nationally-based cost-benefit test. 
The Government has given careful consideration to these issues. The Government favours further development of the public transport system and roading especially where the latter will contribute to sustainable development and reduce congestion.  
Subject to Parliament agreeing to the necessary funding mechanism the Government has decided to proceed with the electrification of the Auckland urban rail system. In addition the Auckland Regional Council will need to purchase new rolling stock. 
In the case of Wellington the Government’s current responsibilities will be extended over the next four years by new funding for worn out infrastructure extending double tracking to the Waikanae River electrifying to Waikanae Station and enlarging the tunnels on the Johnsonville line. This is in addition to the announcement by the Greater Wellington Regional Council last week. 
The Government is budgeting $600 million over six years for its contribution to this urban rail programme in Auckland and Wellington. 
An additional $50 million will be spent on general track improvements to the national rail network over 2008 to 2010. 
Neither Auckland electrification nor such projects as Transmission Gully (beyond the investigation stage) are within the current programme or able to be funded out of it. 
The Government is therefore proposing a framework for the introduction of a limited regional fuel tax to enable local authorities and the Government to pay for transport projects sought by a region where those projects would not attract funding within the timeframe desired by the region. 
It is proposed that such a regional fuel tax covering both petrol and diesel would be at a maximum rate of ten cents a litre. Preference will be given to public transport and other land transport developments which will reduce congestion with no more than five cents a litre to be spent on roading projects. 
The tax will be collected at the wholesale level. There will be a refund system for non-road purposes using the current petrol excise duty refund system. 
The proceeds of the regional fuel tax will be reserved for specific capital assets and projects. As such it will be clear to consumers what the money is being used for. A maximum repayment period of 35 years for any single regional fuel tax proposal would apply. 
In the case of Auckland in order to fund electrification the initial rate of regional fuel tax is estimated to be five cents a litre.  
Electrification is timetabled to be completed by 2013. An earlier date of 2011 to coincide with the Rugby World Cup was considered. But it is clear that the risks of aiming for 2011 are too great including the prospect of extensive disruption to other transport modes. 
This project has the capacity to increase substantially public transport use in Auckland. It will need to be linked to integrated ticketing increased bus patronage and other developments to realise its full potential. But it provides the chance for Auckland to make up for decades of underinvesting in public transport if it chooses to grasp the opportunity. 
Madam Speaker 
Apart from the Business Tax Reform package the largest area of fiscal cost is in the Families Young and Old theme. 
Consistent with the confidence and supply agreement with New Zealand First the Government set the net married couple rate of New Zealand Superannuation at 66 per cent of the net average wage on 1 April 2007. Other rates were also adjusted accordingly including those of Veterans’ Pension meaning older New Zealanders enjoyed a 5 per cent lift in their after-tax pension income. As part of this package the income thresholds for abatement of both the Disability Allowance and the Community Services Card were increased to ensure no superannuitants or veterans would lose their eligibility to these entitlements. This represents new expenditure of $280.7 million over five years. 
The Government is spending $3 billion over four years in the health sector including: 
$1.9 billion to maintain service coverage by meeting cost pressures demographic pressures and technological change 
expanding the elective surgery initiative 
increasing the focus on obesity through Healthy Eating-Healthy Action and Get Checked  
furthering the Cancer Control strategy  
modernising information technology infrastructure  
improving services for people with disabilities and older people including through addressing workforce issues arising from low-paid workers in DHBs and within aged residential and home based support settings 
addressing emerging pressures on DHB pharmaceutical budgets and  
including the pneumococcal vaccine in the National Immunisation Schedule to protect the public from this disease. 
Budget 2007 ensures New Zealanders will have a safe and just society through increased funding to the justice sector including: 
the second tranche of extra frontline police officers and additional capacity in the justice sector for the initial flow-on effects  
construction of permanent premises for the Supreme Court including refurbishment of the historic Wellington High Court  
funding for the Human Rights Commission to ensure business continuity and to improve service delivery  
funding to allow the Police Complaints Authority to investigate and review complaints against Police within agreed timeliness and quality standards and 
implementation of the Coroners Act including establishing the Office of the Chief Coroner nine Coronial offices around the country with fourteen full-time Coroners and a new Coronial Services Unit in the Ministry of Justice.  
The Government remains committed to the future of young New Zealanders. Budget 2007 invests more than half a billion dollars in major initiatives including: 
inflation adjustment for early childhood education centre general funding rates and for free ECE funding rates and a funding increase to Kohanga Reo 
capital funding for school property including building new schools new classrooms and new school gyms modernising existing schools and development for kura and wharekura 
extra Year 1 teachers to bring the teacher to pupil ratio down to one to eighteen by the start of the second term in 2008 
a four per cent increase in school operational funding to target pressures identified in the review of operational funding and other initiatives including relief teachers and schools sharing IT expertise and 
funding to maintain support for youth programmes such as Project K and AIMHI. 
Madam Speaker 
The National Identity theme receives a major boost. 
This Government has consistently shown that we do not shirk our international duties. The centrepiece of the National Identity theme is raising annual Official Development Assistance by $246 million by 2010/11 reaching 0.35 per cent of Gross National Income. This increase was identified by the Minister of Foreign Affairs Rt Hon Winston Peters as a top priority and implements a Labour Party manifesto promise. It allows us to address urgent Pacific and Asian development needs. It is the largest increase in Overseas Aid in New Zealand’s history and underlines our commitment to helping eliminate global poverty. 
The Government is also strengthening the presence of New Zealand in the world through: 
Continuing to meet our Defence commitments by allocating an additional $58 million per annum from 2007/08 
Funding an increase in the Ministry of Foreign Affairs and Trade baselines of $105 million over four years to strengthen the Ministry's overseas networks and increase their capability to deal with our international priorities  
Continuing the New Zealand Police's contribution to the Regional Assistance Mission to the Solomon Islands and the Solomon Islands Police Force and 
increasing global science collaboration for Antarctic research as part of International Polar Year. 
Budget 2007 commits $8.2 million of operating and capital funding over four years to the National Library of New Zealand to support the Government’s Digital Content Strategy. Other initiatives include: 
providing expert information and advice relating to the creation preservation and protection of New Zealand digital content and 
enhancing access through public library networks. 
Budget 2007 meets the Government’s commitment to Vietnam Veterans and their families with a total of $16.5 million over the five year period 2006/07 to 2010/11. This funding is in relation to the provision of a welcome home ceremony medallic recognition and other initiatives around the health and well being of veterans and their families. 
Budget 2007 commits $35.6 million to Maori and Treaty-related initiatives. The significant areas include: 
enhancing the Maori Television Service  
meeting the 2020 Waitangi Tribunal Settlement target  
increased operational funding for Iwi Maori Radio and 
meeting Treaty settlement objectives and improved implementation of settlements involving cultural redress. 
Critical capability needs within National Identity agencies are being addressed through Budget 2007. These include: 
the Department of Conservation  
the Ministry for Culture and Heritage 
Radio New Zealand 
Archives New Zealand and 
the National Library. 
In addition the Government is investing $8 million in New Zealand On Air to maintain services and develop appropriate programming for the emerging digital environment. 
The Government is also providing $8 million to the Department of Conservation to prevent loss of biodiversity at nationally important freshwater sites through integrated management of pests. 
Madam Speaker 
Budget 2007 has presented even more difficulties than last year’s Budget in achieving an appropriate balance between the various competing worthy demands and needs which must be met. 
Maintaining surpluses at the very high levels seen over the last three years is not feasible indefinitely. Moreover Budget 2007 has had to accommodate the fiscal consequences of previous policies such as Working for Families the full impact of which first occurs in 2007/08 the well-signalled Business Tax Reform package and other matters arising from confidence and supply agreements. 
Significant further spending or revenue reductions in ways which would add to domestic demand hence putting additional pressure on inflation and the exchange rate would not be sustainable. 
I am satisfied therefore that the overall fiscal outturns forecast in Budget 2007 are consistent with the Government’s long term fiscal objectives. Gross sovereign issued debt is forecast to fall to about 22 per cent of GDP by the end of the forecast period. 
Net core Crown assets including the New Zealand Superannuation Fund are forecast to rise to 10.3 per cent of GDP or just over $20 billion by 30 June 2011. This compares with net core Crown debt of 20.7 per cent of GDP when I became Minister of Finance. 
Operating surpluses averaging 3.1 per cent of GDP over the forecast period are sufficient to meet the Government’s long-term fiscal targets. And we will move from a cash surplus position over the last few years to cash deficits averaging $1.4 billion a year. 
While these remain healthy numbers in comparison with international or New Zealand’s historic standards it does indicate a somewhat more expansionary position than the very large surpluses we have seen recently. I would gently remind the House that the latter position has been the subject of considerable criticism inside this Chamber as well as outside. 
More importantly four factors need to be borne in mind. 
The first is that some of the increased spending and foregone revenue will not be spent in New Zealand thus reducing any demand impacts. That is most obviously so in relation to the large increase in Official Development Assistance. 
The second is that the corporate tax rate reduction should lead to increased investing for future growth and development. 
The third is that the forecast cash deficits in every year are less than the transfers into the New Zealand Superannuation Fund. In other words the overall fiscal stance remains firm. 
The fourth and most important is that the Government has made a conscious decision to forego a substantial proportion of its own surplus in order to underpin the most significant initiative in private saving in New Zealand’s history for over a generation. 
This initiative’s design means it will have little or no domestic demand impact and so is supportive of monetary policy in the current economic environment. 
No such initiative has been successfully introduced since the saving scheme begun by the Third Labour Government. That scheme was overturned initially illegally by an incoming National Government. It was a lost opportunity to lift our saving and investing record. 
The KiwiSaver scheme is already in place and begins on 1 July. A recent survey shows a strong increase in awareness of the scheme and a higher than anticipated level of intention to participate. 
Today the Government has announced major additions to KiwiSaver which will make it even more attractive. 
New Zealand now has the opportunity to build a sustainable future of greater self-reliance greater security and greater opportunity. KiwiSaver with these additions will greatly enhance our chances as a nation of following a sustainable path to social and economic development. 
It will provide our young families with a greater chance of owning their own home. It will lift prosperity in retirement for millions of future retirees. It will support stronger and deeper investing in our own future by ourselves for ourselves. 
The chance to do this has been created by seven years of strong fiscal management. It is a chance Parliament and New Zealand should grasp with both hands. 
Debate interrupted. 
Procedure 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I hereby present the Budget 2007 Speech the Executive Summary the Fiscal Strategy Report 2007 the Economic and Fiscal Update 2007 B2 and B3 the Estimates of Appropriations for the Government of New Zealand for the year ending 30 June 2008 (B.5) and the Departmental Statements of Intent. I move  
That those papers be published. 
Motion agreed to. 
Budget Debate 
Debate resumed on the Appropriations (2007/08 Estimates) Bill. 
JOHN KEY (Leader of the Opposition) 
: 
 I move  
That all the words after “That” be omitted and the following words inserted— 
Hon Trevor Mallard 
: Admitted! 
JOHN KEY 
: —omitted Trevor; open your ears mate— 
“This House has no confidence in the Government led by Helen Clark because it has presided over a decline in New Zealand’s competitiveness and has failed after eight Budgets to deliver a meaningful reduction in taxes for New Zealand workers.” 
 They are the facts actually and we will get to those in a minute. 
That was Michael Cullen’s eighth Budget and his Budgets have not got any better. They have come in all shapes and sizes. We have had the lot. We have had the “chewing gum Budget”. We have had the “Bondi Budget”. Well this afternoon we have had the “money-go-round Budget” which will almost certainly be a minority Budget with the bulk of people in this House either voting against or abstaining on a Budget that makes no sense. 
What a cruel hoax it has been—what a cruel hoax! We have had months and months of Labour Ministers going up and down the country parading to businesses that good news was on the way—they were in for a $1 billion tax cut. Those were the words. The little thing Labour forgot to tell businesses was that after the KiwiSaver contributions the Government is taking $2 billion off businesses. That is the truth of this Budget. Businesses have $1 billion given to them and they have $2 billion taken off them. We will go through the maths if Michael Cullen cannot work it out in just a moment. 
How do they feel out there in the mortgage belt? The chewing gum in the “chewing gum Budget” has gone. The mortgage belt is not even getting the chewing gum in the “chewing gum Budget”. That has gone in this Budget as well. And they do not get a personal tax cut; there is none of that in Budget 2007. 
There is a special little treat for Aucklanders—they get a tax increase. I look forward to Helen Clark parading around Auckland and telling Aucklanders why she has a $1.7 billion cash surplus and a $6.3 billion surplus but there is not enough money to pay for rail electrification so we have to have a tax increase. We look forward to that. 
The only thing that will be very interesting for workers when they go through this Budget is when they work out that not only will they not get a tax cut under Labour but they will not get a pay increase either because that is going into their KiwiSaver account. They will not get a tax cut they will not get a pay increase and they will not get a rise in their wages for years—not for years will they get an increase. 
 So where was the only place there was something positive on tax in this Budget? Well interestingly enough it was in relation to charities. Labour took National’s policy on charities. The interest thing is that when I announced it Steve Maharey said it was Tory charity. It was Tory charity when I announced it. When I announced it Helen Clark said: “Tax cuts for the rich.” Tax cuts for the rich is what Helen Clark said. And Michael Cullen went out and gave a speech in which he said: “The only thing that will work is the redemptive power of the State. It doesn’t matter how well-meaning charity is; it won’t work.” It was not in the discussion document. National put it up and when Labour is imploding in the polls it steals anything it can from this side of the House because we are the only people making sense. 
This is the point in the exercise where the backbenchers over there realise they are gone. What I want to do for them is to take them through the little bits that Michael Cullen did not take them through—the little bits that Michael Cullen failed to tell them about when he was explaining it in Cabinet. You see John Tamihere was right: change the odd word here or there and make it—[ 
Interruption 
] Well actually I say to Trevor Mallard: “You could be gone as well son!”. But we will come back to that member in a minute because Aucklanders know all about his economic management. Helen Clark wants to put on a regional petrol tax and he reckons he can afford a billion-dollar stadium and now he cannot; now he has only $20 million. I say to him: “You’re gone Trevor. Goodbye! Bye bye!”. 
Let us go back to the business of explaining what the backbenchers in Labour did not know. You see we asked the Treasury officials in the lock-up how many people would take up this account. The answer I say to Michael Cullen—and he knows it—is 50 percent of New Zealanders. Half of all workers will not take that scheme up and I will tell members who those half are. They are those who cannot afford to who do not earn enough. They do not earn enough and they will not take up this scheme. I will tell members what is worse: they are now being told not to ask for a pay rise because some of their other mates who earn a bit more and will put money into KiwiSaver have to forgo their pay rise. The lower-paid workers of New Zealand have to give up their pay rise so that the higher-paid workers can get a cut through KiwiSaver. So they will not take it up. 
Imagine those New Zealanders who are now sitting out there thinking they just want to earn enough to pay for a house. A whole generation of them want to pay for a house. Well Michael Cullen has just told them that there are no tax cuts under Labour no pay increases under Labour and no chance for them to get their own money. That is what Michael Cullen has told them. 
And he is doing it in a money-go-round that is pretty interesting. You see when he announced KiwiSaver with no bells and whistles on it—[ 
Interruption 
] Mr Burton should be a little bit careful because everything of mine that his colleagues say things about they adopt later on. So he should be careful about what he starts disagreeing with me on. I would just keep it to myself at the moment if I were him. 
When Labour announced the KiwiSaver scheme with no bells and whistles on the Inland Revenue Department hired 400 people. What is going to happen now? What is going to happen when it has this scheme? Hundreds and hundreds more will be employed by the State civil service. That is what will happen. 
I feel sorry for the poor old employer because Michael Cullen could not do the maths. You see this is the way it works. About 50 percent of the country will take up the scheme—a million people. And when their subsidy is paid in the employers will get back about $700 million through their company tax cut and the $400 million or $500 million they get for the contribution. But the employers will be paying in on the average wage about a $2 billion contribution by the time they match it at 4 percent of the average wage. So companies get $1 billion back and pay $2 billion out. That is what happens. And that is happening at a time when companies are thinking of leaving New Zealand at a time when they do not have the right amount of money. 
Hon Trevor Mallard 
: Wrong wrong! 
JOHN KEY 
: Well do the maths: $50000 and $2000 times a million people is $2 billion. Hello! They are the numbers! I think we can work them out—OK? There we have it. New Zealand companies are leaving. They are leaving because they cannot cope at the moment. 
Michael Cullen does not actually trust New Zealanders to get ahead. You see he does not believe in growth. He has no interest in growth. The only message under Labour is that people will save through the New Zealand Superannuation Fund and now it will make people compulsorily save through KiwiSaver. People are already compulsorily saving through the New Zealand savings scheme. So the only future under Labour is that the economy will not grow. That is the only future under Labour. Well there is a future out there that is a lot brighter. 
The time has come for there to be a just a little bit of focus on the inconvenient truth about Labour’s economic management. If Al Gore was here he would be making the commercial and the video right now because the facts are pretty interesting. In 1999—[ 
Interruption 
] Well let me remind the Prime Minister of what she said when she came in here in 1999. We were 20th out of 30 countries in the OECD. She the Prime Minister of New Zealand said: “I’ll take New Zealand up in the OECD.” That is what she said. Well I will tell the House what has happened: we have not gone up; we have gone down in the OECD. We are 22nd out of 30 countries. We do not compete with America. We do not compete with the UK. We do not compete with Australia or Canada. We compete with Portugal Hungary and the Czech Republic. Under Labour that is our ambition. We are in a humiliating race to the bottom. 
What also has happened in the last 8 years has been quite interesting. You see in the last 8 years wages in Australia after tax have gone up at twice the rate they have in New Zealand—twice the rate. No wonder 700 Kiwis a week now leave for Australia! It is Export Year all right but it should not be Export Year of our people. Our people should be earning more. Seven hundred of them a week leave for Australia. It is a disgrace. Tonight when New Zealanders are watching TV they will be asking themselves a pretty interesting question: why does New Zealand a country of 4 million people have a million New Zealanders now living overseas? Why did one in four of them go to university? Why do one in two of them live in Australia? Why does Australia—a country of 20 million people—have only 800000 of its people overseas? The answer is that in the last 8 years for a start off they have had some decent economic management in the form of Peter Costello and for 5 years in a row Australian workers have got up the morning after Budget day and said: “I’ve got to keep a little more of what I earn.” And that is fair. 
Under Michael Cullen this is the only message: the only time there could possibly be a tax cut would be election year 2008. It has got nothing to do with the inflation rate nothing to do with the surplus nothing to do with the cash balance and nothing to do with whether he believes in it; it is because election year 2008 is the only time a New Zealander is allowed a tax cut and we say that is totally and utterly wrong. 
Maybe when Helen Clark is in Auckland explaining to Aucklanders why they are paying more for their petrol despite her having a massive surplus she can explain to them why— 
Hon Trevor Mallard 
: Oh this is interesting yes. 
JOHN KEY 
: Maybe Trevor can explain this question: why is a house in Auckland now the seventh most unaffordable in the world? Why does a house there cost 7½ times the average earnings? Is it because that house is so expensive? I do not think so. It is because our wages are so low. In 7 or 8 years of Labour our wage growth has been half that of Australia. That is why New Zealanders cannot afford a house and after today’s announcement from Michael Cullen they will never afford one because they are not getting a tax cut and they are not getting a wage increase; what they are getting is a little more than 45 years of renting and then they get to retire. 
What Michael Cullen should have been doing today is getting up and giving an apology. He should have been apologising for driving the highest interest rates in the developed world. He knows like the Reserve Bank knows like the IMF knows that the reason our interest rates are so high is that he has been out of control with the cheque book. It is not just the quantity of what he is spending on; it is the quality of what he is spending on. He has to step up and take some responsibility for those interest rates. 
While he is at it when he looks at the inconvenient truth of his economic management maybe just maybe he can explain why productivity is at an all-time low. Productivity in the private sector in this country is as low as it has been since the series began in 1988 and in the public sector it has gone backwards. [ 
Interruption 
] As my health spokesman said Michael Cullen is going to throw another three-quarters of a billion dollars at health the waiting lists will get longer the number of New Zealanders going overseas for health treatments will increase and the quality of health care will go down. 
I thought it was pretty interesting the other day when John Roughan made a very interesting comment in his newspaper article on Saturday. John Roughan said that John Key had a vision for New Zealand that was a “step change up”. Well I agree with him. That is exactly what we intend to do. It is exactly where we intend to take the New Zealand economy. It is exactly where we intend to take things. Under National it will not be election year when there is a tax cut. Tax cuts will be there rolled out sharing the benefit. We will not be putting on petrol taxes if expenses are at the height they are now if we have the surpluses that this Government has. 
Who owns this Budget? The answer is that nobody owns it. You see this is a Government that has given up on the business of governing. Michael Cullen does not believe in company taxes. It is Peter Dunne who believes in that message. That is why Michael Cullen took $2 billion off the companies after he gave them $1 billion. Michael Cullen does not believe in company taxes. Michael Cullen does not believe in savings incentives either—that is New Zealand First. Michael Cullen has no solutions for monetary policy; that is why he sent it to the Finance and Expenditure Committee. Michael Cullen does not have any economic message. It is a tired Government and it has absolutely no ideas at all. 
While Labour is there maybe just maybe Helen Clark might want to explain why she has racked up a bill of $1.7 billion for climate change. That is the record—$1.7 billion. 
Hon Annette King 
: You’ve got 4 more minutes. Hang in there. 
JOHN KEY 
: Maybe Annette King wants to explain why we are not getting $500 million. Well I suppose it was Pete Hodgson who said we were going to get a cheque for $500 million. Now we owe $1.7 billion and the Government will put $1 million into research and development to save it. That is the whole lot that is going in there. 
Let me finish by saying something that I think members will find rather interesting. Labour’s pollsters are a company called UMR. Labour members know UMR’s pollsters very well. They have been running polls for them for a very long time indeed. What is just a little bit interesting is that last week a constituent of mine rang me to say they had been rung by UMR which was undertaking a poll. The question was this: “What will voters remember of the legacy of Helen Clark and Michael Cullen?”. It is a shocking sign when Michael Cullen’s own pollsters think the end is nigh. They are writing the appendix now before he has even gone. I tell you what: they did not need to undertake that research; they could have rung me and I would have told them what it was. 
Michael Cullen has had 8 years to capitalise on the best weather and the best economic conditions we have had in a generation. He had an opportunity to deliver a really bright future for New Zealand and he failed and no mickey mouse roundabout Budget is ever going to save that. There was a time when I used to care who read Budget 2008. I will tell members this: I do not know whether it will be Michael Cullen who reads the Budget in 2008 and I do not care. I do not care because I know who will read Budget 2009. It will be Bill English and it will be a lot better Budget than this. 
Rt Hon HELEN CLARK (Prime Minister) 
: 
 Was that it? What a lightweight! As my colleague said that speech makes a bird bath look deep. It contained no vision for New Zealand. It was a whole speech— 
Madam SPEAKER 
: I am sorry Prime Minister—please be seated. I do not mind the level of interventions but they have got to the point where it is impossible to hear. 
Rt Hon HELEN CLARK 
: A whole speech was spent promoting something that Mr Key’s finance spokesperson does not even agree with. The finance spokesperson is not allowed to go on  
Close Up 
 tonight because he is going around saying that big personal tax cuts are not affordable; his leader has just spent his whole speech saying the opposite. It was just another bankrupt Tory speech from a leader who would bankrupt New Zealand. 
Running an economy is not about taking short-term positions in the market. Running an economy is not about gambling our country’s future. That might be all right on the money markets for money traders but it is not appropriate for running a country’s economy. We know that if John Key had had his way last election right now New Zealand would be cutting its health spending and its education spending. Right now Kiwis would be paying much higher interest rates because National was prepared to promise anything regardless of the damage it did to New Zealand. The choices are very very clear. The choices are that one can write a Budget that backs investment and savings or one can write a Budget that squanders New Zealand’s economic potential—which is the National Party way. 
 This Budget is about growing and developing New Zealand’s economy and living standards. This Budget looks to the future and to supporting New Zealanders’ aspirations for prosperity and security. The National Party looks back to the 1990s—or was it the 1890s—as we have just heard. Its policies did not work then and they will certainly not work in the 21st century—they will not work. New Zealanders have got used to experiencing something much better under Labour— 
Hon Marian Hobbs 
: I raise a point of order Madam Speaker. I have very good ears I have this speaker on full bore but I cannot hear the Prime Minister. 
Madam SPEAKER 
: There are levels of disorder that cannot be tolerated. We know that the basic rule in this House is that people are entitled to be heard. Of course members may make their interventions—it is that sort of debate—but those interventions have now got to the area where in fact it is extremely difficult to hear anything. 
Gerry Brownlee 
: I raise a point of order Madam Speaker. I hope that you are not going to listen to too many more appeals about this. At the very opening sentence of Mr Key’s speech Mr Mallard—sitting right next to the Prime Minister—practically drowned out the rest of the House. 
Madam SPEAKER 
: I thank the member. I listened very carefully when Mr Key was speaking and he could be heard. There were interventions— 
Gerry Brownlee 
: He couldn’t be— 
Madam SPEAKER 
: Mr Brownlee do you wish to remain in the House for the rest of this debate? If you do please do not intervene. 
Gerry Brownlee 
: Quite honestly no. 
Madam SPEAKER 
: Off you go then. Please leave the Chamber. 
Gerry Brownlee withdrew from the Chamber. 
Madam SPEAKER 
: As I said of course it is the type of debate where there should be interventions but every member in this Chamber is at least entitled to be heard. 
Rt Hon HELEN CLARK 
: All that latest exchange proves is that all the hollow men can do is holler—because they have no answers. 
The experience of the Labour Government has been an experience of long-term economic growth it has been the experience of low unemployment it has been the experience of rising living standards with high employment levels and support for families and it has been the experience of investing back into those all-important basics of education health superannuation law and order and infrastructure. This Government has turned New Zealand around—around from the nation that was demoralised and had no hope under a National Government. That was National’s legacy. There is no point even in having a poll that asks people what they thought about it; they know it was misery it went on too long and it must never come back. 
Not only has the economy been growing under Labour but it has experienced the second-longest run of continuous economic growth since the Second World War. We have seen benefit numbers tumbling—not just of those on the unemployment benefit but of those on the domestic purposes benefit and now sickness and invalids benefit numbers are falling as well. This Government has virtually eliminated the number of young people on the dole. It is down 92 percent—92 percent. All these things happen because of economic success under a Labour-led Government. Over there on the National benches members have been sulking for 7½ years—7½ years—and I say there are at least 7½ years to go because their legacy was to leave behind a broken-down economy and a shattered society. 
I ask members to look at what commentators are saying now about the 21st century economy. Perhaps Mr Key might like to consult the Hongkong and Shanghai Banking Corporation which last week described the New Zealand economy as the miracle economy. That is high praise. Members should look at this month’s monthly monitor from Business and Economic Research Ltd. Its economic indicators are at their most positive right now for any time in the last 5 years with 32 of the 42 measures higher than they were a year ago. So this Budget is written against a background of economic growth and development. 
The challenge before the Government is to write a Budget that makes that situation continue and that is best done by addressing the well-known imbalances in the economy. That means working to stimulate the export sector which has been hurt by inflation pressures particularly in the housing market. I am aware that although our exporters have shown considerable resilience some of them are hurting and they wonder how much longer they can carry on. We know also that those high interest rates and that high currency have made the current account deficit particularly high so the approach in this Budget—to promote investment and to promote savings—is the right approach at this time. It is the right approach at this time. 
The Minister of Finance has outlined the three big areas of initiatives in the Budget—firstly the business tax reform and assistance package of $3.4 billion promoting investment research and development and upskilling and exporting. There was a party over there on the Opposition benches that used to say it was the party of business. When did its members last deliver a business tax cut? It was not in living memory—not in living memory. 
Hon Member 
: 1960s! 
Rt Hon HELEN CLARK 
: It was in the 1960s with “Kiwi Keith” not with “Money trader John”. 
There is the $650 million rail infrastructure package and there is the $3.2 billion KiwiSaver package. That package is good for our families and it is good for the economy. It helps our families save for greater security in retirement it boosts our nation’s savings rates it makes us less dependent on foreign capital and it gives us greater control over our own destiny. It is good all round. 
It is good especially because it gives Kiwis an economic dividend from the growing economy without throwing fuel on the flames of the domestic economy. Members should make no mistake: the National Party approach outlined by Mr Key would see every family’s mortgage go up every business’s mortgage go up and the currency go up and it would make the imbalances in the economy worse not better. So this Government has set out to do what is right for New Zealand. 
We believe that the corporate tax rate cut will help our businesses invest for the future. We believe that the new tax credit for research and development will support our businesses and industries in going upmarket. We also have more funding in this Budget for Government grants for science and research—a lot of it directly helping our businesses and industries innovate in their products and services. There is new money in this Budget for industry training and for tertiary education; that is good for the economy too. There is extra support for exporters and that new funding going into the market development assistance scheme means a near doubling of the baseline support for those grants. That helps our exporters get out to market. 
The Government has long identified the state of New Zealand’s transport infrastructure as a brake on economic development particularly in Auckland. So this Budget is not only funding the commitment we made to the State highway programme but it is also acting to secure the future of rail and public transport in Auckland and Wellington. We are looking—over the next 8 years—to a 50 percent increase in per person public transport journeys in Auckland. We are prepared to play our part in investing in that. 
Our Labour-led Government is very proud of this Budget. Our philosophy has always been that the rising tide should lift every boat and that as the country’s economic capacity grows we must invest back into basic services—as our people expect us to. They expect Governments to deliver on health education superannuation and law and order. They expect those things to be looked after not cut as they have long been under National Governments in the past. 
In the health area we have been able to provide another $3 billion over the next 4 years. There is a particular boost for care and services for older New Zealanders and for people with disabilities. That might not matter to the National Party but anyone with aged parents and any aged person who needs that care and those services knows that it matters that workers are properly paid. We value and appreciate what they do and this Budget makes that possible. It never mattered to the National Party through the 1990s—and it does not matter to it now—that people then could not afford to go to the doctor. This Government’s Primary Health Care Strategy makes it affordable and 1 July is the last roll-out date of that strategy—lower doctors’ fees and lower prescription fees for every New Zealander. But we cannot have that and have big personal income tax cuts—those are the choices. Do we look after the basics and invest for the future or do we just squander tax as the “Money trader” would? 
Education is a very high area of priority for our Government. Come 1 July a very important policy will take effect which is the 20 hours’ free early childhood education policy—20 hours’ free. This is without doubt the greatest expansion of the public education system since the first Labour Government brought in free secondary education. That is how important it is. The policy has been constantly attacked by National because it prefers to give tax cuts to its rich friends rather than look after children’s education. We know where our choice is. 
The same thinking lies behind the big increase in this Budget of teachers and classrooms for small children. This Budget takes us well down the track to the implementation of the 1:15 teacher-pupil ratio in our new-entrant classes. That is the first time any Government has ever committed to that. Operations grants for our schools are up 4 percent in this Budget. Funding for student allowances is up which means that 12000 more students will have the opportunity to get a full or partial allowance. 
As well the Budget funds a very significant increase in New Zealand superannuation—a 5 percent lift in after-tax pension income. That was something negotiated with the New Zealand First Party after the last election. We have been prepared to fund it support parties are prepared to back it and it will make a substantial difference to our older people’s living standards. Also in the Budget is more support for respite care. Respite care is essential in giving a break to both carers and those they are caring for. 
We also see significant new spending in the law and order area—again that is something that has come out of the confidence and supply agreement with New Zealand First—as we put in place the 1000 new police. What will be seen from this side of the House is support for our police—not abuse—support for them to do their job. 
The Minister of Finance has focused on sustainability initiatives in the Budget and we are working on ways of helping households and businesses save money and contribute to a cleaner environment. The urban rail initiatives are all about sustainability as well as public transport and we are moving to promote greater energy efficiency in many ways. We have for some time been gearing up for a bigger programme to retrofit old homes that are not insulated. In this Budget for the first time we are looking to develop an interest-free loan scheme for a wider group of homeowners so that they too can save money on their power bills and have warmer and healthier homes. That is very very important. There will be a lot more promotion for businesses and homes generally about how to reduce their energy and water use and recycle their waste. I will also give a plug to public recycling facilities. Frankly some of the places whether local or international where our visitors visit are a disgrace in respect of rubbish. If we want our tourism image to be “100 percent pure” as the posters say we have to do something about cleaning it up and the Government has made a commitment to do that. 
Under the national identity theme of the Budget we are putting more resources into speeding up Treaty settlements. This House has passed legislation to close off historical claims by September next year but that means we have to resource the negotiations and the inquiries that make settlement by 2020 possible. We will do that. There is more support for public broadcasting including Maori television and radio and for our digital content strategy. 
There is more support for the Department of Conservation in respect of improved pest management around the conservation estate. Biodiversity is important to us. And we are supporting New Zealand’s representation and contributions offshore through extra support for foreign affairs defence police personnel and of course overseas aid. 
I know that this Budget could be written and delivered only by a Labour-led Government. Just think of what John Key had in mind. Just think of no new investments in health and education and no new investments in families and superannuitants but instead of cuts in those areas. Just think of not boosting the transport infrastructure out of taxation but tolling across the network as Maurice Williamson wants to do. Just think of not making investments in business growth innovations skills and exporting but of sitting back as National did for 9 years and letting market forces rip our country apart. 
That is not the future Labour sees for New Zealand and I do not believe it is the future that the support parties voting for this Budget see either. We are supporting saving investing and growth and development. We are working for New Zealand’s long-term health and prosperity off the back of considerable success from the time the Labour Government was elected. We look to lock in success through a better balanced economy and that is why I say with confidence that this is a good Budget for these times. 
Rt Hon WINSTON PETERS (Leader—NZ First) 
: 
 I just want to say at the start of my address that in the long time I have been in Parliament I have never before seen what I have just witnessed today. Members from one political party were prepared to listen to their leader but after he had spoken they were “ 
Gone with the Wind 
”. They are bad-mannered intellectual philistines who are not prepared in a debating chamber to hear the alternative views of other parties on the biggest debate on any given day in any Parliament. A party that is not prepared to listen to the views of others is not worthy of governing. That is a disgrace. Mind you it is that party’s problem because those members will miss out on some great dialogue from here on in. 
These debates are where New Zealanders look to for vision hope and leadership—not the kind of vision I have just heard from the Opposition side of the House which was more like an ingratiating nightmare but real leadership and vision. Then there are others who cynically see Parliament as a soap opera. As I said after the last case of hot air from the leader of the National Party National members vanished or went with the wind. There was a little bit more drama here and there and the most predictable lines were played out to well-worn plots. That has certainly been true of the contribution we heard in reply this afternoon. There was no original script and no original lines at all. It arises because this House—in the case of so many of those National members over there particularly the new members—is full of prima donnas. They could fill the cast of  
Shortland Street. 
So the real question is what new performances have we seen in this Budget year thus far? We can see that for Labour this Budget is all about trying to find “ 
Friends 
”. Labour now hopes that by “ 
Mucking In 
” its poll ratings will rise. That is predictable. Although there are some people who have questioned the Government’s “Agenda” the fact is that there is much that is commendable in this Budget and those people cannot deny it. Much of what was in the Budget I am pleased to say my party has argued for over years. Even at this late stage I am pleased to see that it has now become the mantra of Parliament. 
New Zealand businesses have been waiting to get the economy into “ 
Top Gear 
”. Cutting the tax rate to 30 percent which brings us in to line with Australia will go somewhere towards achieving this. But if our businesses are to really see “ 
Happy Days 
” again we must go a lot further. There is much good work that is being done to build our export capacity in Export Year 2007 with further initiatives in this Budget. But how much better would things be if all new export profits were taxed at 20 percent and we pursued some of the policies of successful economies—like Ireland or Singapore? 
Rodney Hide 
: Why just exporters? 
Rt Hon WINSTON PETERS 
: Why just exporters? I say to Mr Hide that that is because we are an export-dependent country. That is why. Coming in here with ill-applied American ideas—which is a totally different economy—is what has so constrained this country for the last two decades. We should focus on exports because like so few countries we are export dependent. I say to Mr Hide that instead of going off to  
Dancing with the Stars 
 maybe he should pay attention to what is going on in New Zealand’s economy. We must encourage our businesses to do better both at “Home and Away”. It is the only way we will grow. New Zealand First fully supports the Government’s efforts— 
Rodney Hide 
: You’re just jealous. 
Rt Hon WINSTON PETERS 
: I am jealous? Excuse me? I am jealous of that spastic exhibition I saw on TV? For God’s sake the only person who would be jealous is TanaUmaga—he cannot do a spear tackle that good! The member must be joking! I am jealous? Jealous of what? 
Madam SPEAKER 
: Order! 
Rt Hon WINSTON PETERS 
: Well I was asked—and one can see why. 
Madam SPEAKER 
: Could the member please return to the debate. 
Rt Hon WINSTON PETERS 
: We fully support the Government’s efforts to build our savings base. The reality is that in Australia and elsewhere they have been playing “ 
Who Wants To Be A Millionaire 
” for 15 long years. In fact New Zealand’s savings strategy until today was like a Lotto draw—hoping and wishing that things would go away. I have to say that the announcement by Dr Cullen today for New Zealand First is a bit like going “ 
Back to the Future 
”. I recall all of those comments that were made 10 years ago about New Zealand not having a savings plan. I recall all of those comments in particular from a party that claims to be conservative—but is just plain reactionary—that went up and down this country opposing a national savings strategy and that put Jenny Shipley who was hopeless incompetent and unprepared in the job of Prime Minister. Where is she now? She has taken a “Slow Boat to China”.  
Hon Members 
: Who was Treasurer? 
Rt Hon WINSTON PETERS 
: Well the Treasurer at the time was of course none other than yours truly. Today I am looking at a man Bill English who not only campaigned against the savings strategy but in his next Budget got rid of the programme designed to spend road-tax collections on roads. He will get up today and say otherwise but if one looks at the 1999 Budget one sees that that is exactly what he did. So before people accuse New Zealand First of being “ 
Supernanny 
” over compulsory savings we suggest they look across the ditch and then tell us who was right and who was wrong. 
Hon Members 
: We were right! 
Rt Hon WINSTON PETERS 
: I say to those laughing backbenchers over there that they are not going to be here for 5 minutes if they keep on laughing like that. I saw Mr Borrows on TV. 
Hon Member 
: Who? 
Rt Hon WINSTON PETERS 
: Mr Borrows. I saw Mr Borrows on TV complaining about flak jackets not being carefully fitted and being too small. I wondered how the police could possibly know what would be the right size if they were all going to look like Mr Borrows. 
We do share one of Mr Borrows’ concerns and that is on the issue of law and order. We initiated the recruitment of 1000 extra front-line policemen and policewomen. But our concern for example about the Department of Corrections today is that it is beginning to look more like “ 
Prison Break 
” and “ 
Getaway 
”. We have to do something about it. Our gangs are completely out of control on our streets at the moment. We have our own version of “ 
The War at Home 
” and it is not pretty. We can and we must do better. The time has come to declare war on gangs and to say that enough is enough. The time has come to give the image of Maori a chance instead of the degrading vision so often on TV at night at 6 o’clock which is that very abhorrent vision that the Maori people in this country do not want. The time has come to act now. In South Auckland on any given day and at any given school—and sometimes this will be for one classroom—one can find 15 kids with serious weapons on them mostly knives. Ask any teacher who knows. This is way out of hand and the sooner we do something about it then the better we will be. 
What sort of environment are we providing for our young people to learn in under those circumstances? We have heard from all of the apologists—all the sociologists. We have heard them say that it is too hard or that we should give these young people a chance—well we in New Zealand First say that they have had their chance for four long decades. We say that it is game over. The war on gangs is now a “ 
Game of Two Halves 
”. We are now entering the second half and New Zealand First says that it is time for the right team to start winning. We will outlaw the gangs hunt them down shut them down and rid our society of their scourge. [ 
Interruption 
] For those members who laugh let me say that they laugh because they know nothing of the society in which they live. How can they with their pristine backgrounds? That member from Hamilton has never done a day’s work in his life. He probably thinks that manual labour is the President of Mexico. I ask members to have a look at him. 
I say that the gangs have had their warning. Any party that seeks to work with New Zealand First after 2008 will meet the condition requiring their support which is the assurance that gangs will be shut down once and for all. One could say that they could be “ 
The Departed 
”. I heard a lady on Radio New Zealand National today between 9 a.m. and 12 p.m. Her name was te Heuheu. She has been 30 years in that world of association with the gangs and she was as certain as I am that they should be outlawed. She is Maori; she is sympathetic but this abomination must go and go now. 
We are pleased with the $400 million extra going into the elder-care sector—it desperately needs it. It is long overdue. We hope that it also relates to proper wage adjustments within the aged-care sector. We cannot have women of 55 or 60 years of age who are experienced and conscientious getting the lousy wages that they have been getting. So I am pleased and delighted—as are my colleagues—for that $400 million extra going into the elder-care sector. 
We applaud the increased funding for making free health-care more accessible for children under 6. But we ultimately hope that that will extend to all primary school - aged children. New Zealand First believes that there should be a little “ 
Nip/Tuck 
” when it comes to the administration where health care is concerned. There should be much less administration. Far too much of our health sector looks like “ 
ER 
”—one dramatic crisis after another. New Zealanders deserve better. 
New Zealand First is pleased with the massive increase in overseas aid with most of it going to the Pacific. I am also delighted with the greater expenditure on the one agency that is our image abroad—the Ministry of Foreign Affairs and Trade. I am grateful for the Government’s support on that initiative. It is desperately needed if we are in an economic sense to match the First World in the 21st century and also fulfil our obligations to our own neighbourhood. Success in our own neighbourhood makes us strong in the eyes of others miles and miles away—in the European Union the US and Asia. It is important. One could say that we believe in being good “ 
Neighbours 
” but I will speak more about that later. As we strengthen our own neighbourhood we make our future more secure—the two things go hand in hand. 
This Budget is an MMP Budget because this is an MMP Parliament. New Zealand First like United Future welcomes efforts on reducing business tax. The United Future party though I am sad to say seems to be going through its own version of “ 
Downsize Me! 
”. Some parties deserve this and some do not and New Zealand First feels genuinely sorry for Peter Dunne and his remaining colleague on this matter. We know exactly what it is like to have people ride into Parliament on one’s coat-tails. We know about all the effort the sacrifice the expenditure the door-knocking and all the work over years to get them here and then they suffer from delusions of grandeur and stab one in the back. The soap opera about which I speak reminds of that called  
“Rome 
” 
where someone has been left with a knife in his back. The explanation on  
Morning Report 
 this morning was a disgrace. How can a person call himself a Christian when the first act of his party is 5 months of deception against his leader and the troops that put him here? 
When it comes to the National Party on the soap opera front the only thing I could describe its members as is “ 
Lost 
”. They are several divided tribes who never know whom they can trust and whom they cannot and they are stuck someplace they do not want to be. They went from having “ 
The Odd Couple 
” of Don and Gerry to “ 
My Two Dads 
”—the present couple 
. 
John Key of course is going through his own version of “ 
The Apprentice 
”. First it was Jenny Shipley who got the line: “You’re fired.” Then it was Bill English: “You’re fired.” Then it was Don Brash. The one whom they said was the greatest leader the National Party had ever seen Don Brash was told: “You’re fired.” Then of course there is Nick Smith. He is living proof that still waters run shallow: “You’re fired.” Then there was Gerry Brownlee Parliament’s heaviest lightweight: “You’re fired.” Why was it that John Key today kept on screwing up his notes after he had completed each page of his speech? Why would he be screwing up his notes? 
Hon Annette King 
: Cos he’s talking rubbish. 
Rt Hon WINSTON PETERS 
: My colleague says it is because he was talking rubbish. He was getting it ready for the round filing basket. That is typical. 
Nathan Guy 
: You can do better than that. 
Rt Hon WINSTON PETERS 
: Yes of course I can and I will get to that member shortly. Now we are going through the John Key episode. He and Bill English are playing their own version of “ 
Whose Line Is It Anyway? 
” over everything from tax cuts climate change and dealing with the newly discovered underclass. Of course John Key is right in the middle of an “ 
Extreme Makeover 
”. Everything Don Brash stood for John Key is renouncing. On Treaty policy an extreme makeover; on climate change an extreme makeover; on KiwiSaver an extreme makeover; on 4 weeks’ annual leave an extreme makeover—and I could go on. National’s solution of course has always been based on one of “ 
Outrageous Fortune 
”: tax cuts funded by savings on services cutting services large borrowing and selling off more of the family silver—just like National members did back in the 1990s. For a brief time I was able to stop them but they went straight back to it. [ 
Interruption 
] It was October 1998. Despite all the desperate rhetoric they are really like “ 
Desperate Housewives 
” looking around for a suitor come the next election. I know they will climbing over cut glass. I saw them do it before twice and now they are coming again. 
ACT of course is still reminiscing about  
Dancing with the Stars 
 but all the stars have gone now. In fact we have seen Rodney go from “ 
Two and a Half Men 
” to disappearing “ 
Without a Trace 
” just like his party. For most of New Zealand of course the Greens are a combination of “ 
Fantasy Island 
” and “ 
Fear Factor 
” and although most New Zealanders had wished the Maori Party had stayed on the “ 
Marae 
” we now have those members stepping into “ 
Native Affairs 
”. They are not an option that National wants to entertain. 
Then there is the one drama show that is now topping the ratings because it is original creative and has integrity just like the one political party that now stands out from all others and offers real hope in 2007. The show is of course called “ 
Heroes 
” and the political party is of course New Zealand First. We are the party that has demonstrated that one can have quality policy solutions and that one can argue for them for years and get defeated but those ideas because they are quality ideas will one day become a reality. Today we saw that almost get there in the savings plan announced by Dr Cullen. We have proven that New Zealand can have policies— 
Hon Maurice Williamson 
: This is like “ 
One Flew Over the Cuckoo’s Nest 
”. 
Rt Hon WINSTON PETERS 
: Well we know who flew over the cuckoo’s nest in the case of Maurice. He kept on coming back. 
Which party is a hero to our seniors? It is New Zealand First. We want to ensure their quality of life is so much better through higher superannuation through the SuperGold card and through the huge increase in the funding of care for elders. We are heroes to New Zealand business because we have gone for tax cuts. We want to rewrite the Reserve Bank of New Zealand Act so that our exporters might get a fair go and that is what we will be arguing to do all the way to the 2008 election. We want a Reserve Bank of New Zealand Act that recognises that New Zealand is a uniquely export-dependent economy. We are heroes to New Zealand families. Young people today and other people on the minimum wage are getting $70 more per week because it is in our agreement to get that. We are heroes to Kiwis who want to see the Kiwi way of life preserved their ideals protected and their quality of life enhanced. 
I close by saying we are heroes to those who want to see New Zealanders as one people—different cultures but bound by shared values. We want to end the politically correct nonsense that has surrounded the Treaty and it will take heroes to do it. You see New Zealand needs political heroes who are prepared to stand up on the tough issues when others will not. Who told me in Rotorua back in 2005: “We can’t afford to pay more to the superannuitants.”? Don Brash did. We stuck it out and it is there today. We know we take a risk in standing up and fighting for ordinary New Zealanders but it is worth it. It is not easy. We now have business tax cuts a huge change in the savings plan $400 million for aged care the greatest ever increase in overseas development aid and 1000 extra police. As they say in the ghettos of North America: “Is that black enough for you?”. I close by saying that it is not easy but that is what heroes do and it is what New Zealand First does best. 
JEANETTE FITZSIMONS (Co-Leader—Green) 
: 
 I start by congratulating the Minister of Finance on his pale yellow tie. I remember that last year he wore a Shot silk tie with red and blue in it. I guess that leaves him with no other choice next year than to wear a green one and we look forward to that. Ever since the Prime Minister—[ 
Interruption 
] 
I raise a point of order Mr Speaker. I apologise for not noticing that you had taken the Chair. I have very little voice left and will not be able to shout in this speech. I am not asking to be heard in silence; I am asking just for the noise to be down a bit. 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: That is at the discretion of the House. 
JEANETTE FITZSIMONS 
: Ever since the Prime Minister declared an aspiration for New Zealand to become carbon neutral and truly sustainable the nation has been waiting for the means to this end to be revealed and funded. Instead we have a Budget designed to make us a teensy-weensy bit less unsustainable in a few years with carbon emissions growing just a little bit more slowly than they are now provided we do not upset anyone and provided we continue to move slower than all our trading partners. 
This is the first Budget since the Stern report a World Bank report on the costs of addressing climate change which showed that addressing climate change would be costly but not nearly as costly as ignoring it. It is the third Budget to have ignored the Millennium Ecosystem Assessment report which told us that the resources we depend on now—fresh water climate soils and fisheries—will not be there for our children if we continue to use them as we do now. It is the first Budget since Al Gore’s  
An Inconvenient Truth 
 hit the screens raising public consciousness to the point where the ShapeNZ poll this week found that over 80 percent of voters think that climate change is a problem 36 percent think it is an urgent and immediate problem while only 8 percent think it is not a problem at all—they are mainly ACT supporters. If the Prime Minister’s aspiration is serious we might have expected a price on carbon this year that is linked to the world price and a fairly rapid transition to polluters taking full responsibility for their carbon emissions. We might have expected a substantial fund to invest in cleaner technology better planning and design sustainable infrastructure—like public transport a decent rail system and coastal shipping—planting of steep eroding land and incentives for businesses to be more sustainable. 
Earlier this week in the House I quoted from Lester Brown’s highly respected book  
Plan B: Rescuing a Planet Under Stress and a Civilization in Trouble 
. He says: “Saving civilization means restructuring the economy—and at wartime speed. It means restructuring taxes to get the market to tell the ecological truth. And it means reordering fiscal priorities to get the resources needed to restore the earth eradicate poverty and stabilize population … If we cannot restructure the tax system to enable the market to tell the truth we almost certainly will not make it.” He is talking about the survival of large sections of humanity and of many other species with which we share the earth by protecting and restoring their life support systems. 
I have argued in this House for the last 10 years that we need to change the way we measure economic success in order to focus on human well-being and include environmental sustainability and that the genuine progress indicator would be a good way to start. We have also been arguing that we should reduce taxes on desirable things like goods work and enterprise and instead tax waste pollution and the use of scarce resources. Once again after 10 years we have a Budget that largely ignores that. In fact this Budget takes a step backwards in that last year we still had a plan for a carbon tax to come into effect this year. Now it has gone and there is nothing to replace the lost $360 million of revenue. 
Income tax company tax and GST are bearing even more of a burden proportionally. A huge opportunity has been lost with the business tax cuts handed out indiscriminately to polluters and conservers fossil energy and renewable energy organic farming and highly toxic farming good employers and bad employers and innovators and laggards in technology. Those cuts will produce no change in behaviour and serve no public good except for lining a few pockets. Instead we could have had a system of tax incentives that rewarded sustainable investments especially in technology to save energy and water reduce toxic materials and replace fossil fuels with renewables. A Government that truly cared about sustainability would not have missed this opportunity. 
This Budget was the chance for the Government to show whether the Prime Minister’s statement was a serious policy goal or hollow rhetoric. It was the chance for the Government to put its money where its mouth is. But the money turns out to be only farthings. Specifically in a Budget where a surplus is identified as $1.7 billion we are told that there is $7.5 million a year for “sustainability”. I will be generous and add to that the $18 million for energy efficiency the $16 million a year capital investment in rail—which of course does not come off the operating surplus—and some amount on climate change that must be small or it would have been identified in the speech. We were given no numbers on that. It is not that there is nothing in this Budget that goes in the right direction; it is that sustainability is a minor footnote. What is there is the result of hard lobbying by the Greens from a position right outside Government where we are not even supporting on confidence and supply. 
However let us celebrate the small things starting with the initiatives that flow from the Greens’ cooperation agreement with the Government. On energy efficiency an overall package has been put together as part of the New Zealand Energy Efficiency and Conservation Strategy to upgrade people’s homes. Declining funding for insulating low-income homes is being replaced so that we can continue at the rate of 12000 a year. A new interest-free loan scheme will enable people to get their homes insulated and to pay back out of their power savings. That will also include clean efficient heating devices because insulation alone is not enough to improve health and well-being if there is no affordable heating source. We also have the new building code coming into effect later this year with upgraded insulation requirements for new homes which in effect will mean double glazing through much of the country. There is new money for the Home Energy Ratings Scheme to go operational at the end of this year giving every home the chance of a quality mark in energy efficiency. This will protect homebuyers by informing them about the energy performance of the home they are considering buying and it will provide a market advantage for those with superior standards. The $15.5 million Green-initiated solar water heating programme is funded in this Budget and is already rolling out with better quality standards consumer information installer training and grants for complying systems. 
Also new as signalled in the Greens’ cooperation agreement but without any acknowledgment today in the speech is $2.2 million a year for the ecological restoration of three of New Zealand’s foremost wetlands—Whangamarino in the Waikato the Ashburton Lakes and Upper Rangitata River in inland Canterbury and the Waituna Lagoon in Awarua wetland complex in Southland. This new baseline funding is more than 10 times the funding these sites have had to date. We can expect it to reverse declining water quality control invasive pests and weeds and protect endangered birds—such as the bittern fernbird crested grebe and the wrybill—some of which are internationally important as they fly across the equator twice a year to breeding grounds in Siberia and Alaska. Eventually these sites will have the potential for the reintroduction of locally extinct brown teal. The Greens have ensured that a large part of these projects will be delivered by partnerships between the Department of Conservation and local communities especially adjoining landowners iwi and local conservation and land-care groups. They will also operate as test beds for new methods of control that are acceptable to local communities. 
The revelation of my co-leader Russel Norman that our savings in the Superannuation Fund and other Government funds are being invested in nuclear weapons production uranium mining tobacco landmines and other socially and environmentally destructive practices has obviously somewhat embarrassed the Government. We are very pleased to see the transparency requirements for managed funds and the advisory committee on socially responsible investment. But we do not note any change signalled in the Budget for the investment of public funds such as the Superannuation Fund and accident compensation. 
After years of pointing out the embarrassment of being near the bottom of the OECD in our generosity to countries struggling to survive we celebrate the increase in overseas aid from 0.27 percent of gross national income (GNI) to 0.3 percent. This is a big victory considering that the Government previously intended raising it to only 0.28 percent in this Budget. The Greens have been pushing the Government hard on this—as stated in our cooperation agreement and for some years before that. Of course much of the credit should go to the determined effort of the whole aid community over several years under the 0.7 percent campaign. The Greens will continue to work closely with this campaign for a timetable to get New Zealand from the 0.35 percent of GNI that this Budget projects New Zealand to be at by 2010 to the 0.7 percent international target by 2015. It is urgent to help developing countries in Pacific Island States at our back door to leapfrog the fossil fuel age and develop clean energy technologies that will give them a more stable future. 
One of the most important investments we can make to reduce carbon emissions is in transport—in particular to reduce the huge imbalance between funding for new roads and for lower carbon transport options. Labour-led Governments have for the last 5 years poured megabucks into roadbuilding. They have so stretched the capacity of the construction industry that it is pushing up prices far faster than inflation. All the international evidence is that countries that rely primarily on road transport with poorly developed or non-existent rail public transport and travel demand management have high carbon emissions. In New Zealand transport is responsible for almost half of our carbon dioxide emissions—one of the highest proportions in the world. Public transport spending has not kept pace. What improvement there has been is largely owing to the influence the Greens had in a special agreement in the 2002-05 Government where we managed to get a substantial part of the petrol excise ring-fenced for public transport travel demand management walking and cycling. 
We are pleased to see some further progress in this Budget as a result of our efforts. First the Wellington rail improvements will take some pressure off the Kapiti Coast road. This Budget funds only about half what is needed but if the rest were funded we might well find that pressure for Transmission Gully would reduce considerably. I have to give some credit to the Option3 lobby group which has consistently done the analysis to show that an improved rail option on the western corridor would be cheaper and more sustainable than more big roading projects. 
We also finally have the prospect of a mechanism for funding the electrification of the Auckland rail system which is an essential first step to increasing its carrying capacity from 5 million passenger trips a year to 38 million and eventually more. We have watched the Government gradually warm to the idea as Auckland has made it abundantly clear that it wants more spending on public transport and proportionately less on roads. There has been a petition e-cards and a very well-attended public meeting in Auckland calling for the Government to fund its share of the capital cost which will allow more frequent more reliable cleaner and quieter trains. 
A regional petrol tax of course still has Auckland paying for it yet it does not have to pay a penny for State highways like the western motorway known as State Highway 20. This is the big imbalance that must be addressed. Big roads cost the regions nothing; for public transport they have to find much of the money themselves. Legislation still has to be developed to provide for regional petrol taxes. We will reserve our position on that issue until we see the bill. Yet another way of funding yet more roads is the last thing we need. It is time to even up the balance a bit. 
It is pretty clear that if the Greens had not been in Parliament it would have been hard to find much in this Budget to support the Prime Minister’s stated goals. But in looking at the new things in the Budget we should remember also the many Green initiatives that are included without headlines because they were found in previous years to be so effective that they have been baselined. As a result of previous Green Budget initiatives which are now permanent we have for example environmental legal aid community internships organic farming support increased energy-efficiency funding and the Conservation with Communities programme to mention just a few. The last Budget allocated $11.5 million to the Buy Kiwi Made programme run by my colleague Sue Bradford. In August this year we will see the beginning of the Buy Kiwi Made media marketing campaign. The Green Party looks forward to that celebrating New Zealand manufacturers during the difficult period they are facing and encouraging New Zealand consumers including the Government I must say to support New Zealand products when they make their purchasing decisions. 
Past Budget initiatives that are not baselined but continue to be funded this year include environmental education and support for schools to offer better food to children. There have been calls today for a Budget that delivers tax cuts so that an economy running on consumption-led growth can consume even more. Consumption-led growth is what one gets with a high dollar giving us cheap imports but poor export returns and massive household debt fuelled by a perception of wealth from rising house values. Banks are not just offering easy credit; they are pushing credit in our face and suggesting we are fools if we do not let our house pay for a new car and an overseas holiday. So we support much greater enforcement of current rules on capital gains but we doubt they are strong enough or that they will work without addressing also the use of loss-attributing qualifying companies. 
We also give qualified support to the tax rebates through KiwiSaver. It is a clever way of ensuring that the assistance does not add to consumption-led inflation and that it goes to those on low incomes equally with those on high. This I have to say is vastly different from the scheme put forward in 1998 and rejected comprehensively by New Zealand voters. However it continues the current discrimination between part-time workers and full-time workers and against beneficiaries such as invalids who will have no savings in their old age. 
To conclude we cannot vote for this Budget because it fails to deliver even the first stage of investing in a sustainable future making a mockery of the Prime Minister’s goals. Our cooperation agreement always anticipated that this would be the case given the current make-up of the Government and its support. That is why our agreement is to abstain. However we see no reason to break our commitment and oppose the Budget given that the Government’s side of our very modest agreement is slowly being delivered. There is some way to go yet to implement the full agreement and there will need to be progress next year but we have no evidence at all that a National-led Government would deliver anything closer to the programme the Greens have outlined for survival; so we will not vote to bring down the Government. 
We hope that over the next year or so the competition to win the votes of the increasing number of New Zealanders who are seriously concerned about environmental sustainability will move from where it is now—a race to be not last—to a race to be first. Then we may have a partner that we can work with enthusiastically in a new Government. 
Dr PITA SHARPLES (Co-Leader—Maori Party) 
: 
Tena koe Mr Assistant Speaker. I was thinking of previous Budgets previous Governments and in particular a former Minister of Maori Affairs. We call him he Tipua—one of a kind—a leader of Maori who was able to advocate for and achieve the transfer of State resources to assist the Treaty partners in the path to self-determination. 
The leadership of Sir Apirana Ngata established the benchmark by which we can assess all subsequent Budgets—as we do today. Not for Ngata a Budget in which Maori are denied as in 2005. Not for Ngata a Budget in which the Minister failed to bid for any new funding for Maori as in 2006. Not for Ngata a Budget in which funding for Maori projects is allocated but not in any amounts of any significance as in 2007—the add-on Budget. 
The Maori Party will be the first to say we support any appropriation to advance Maori development. We are relieved that the Crown appears to have finally recognised the innovation and initiatives led by Maori even if that recognition is at best tokenistic. This Budget allocates some $3.3 billion of which $19.9 million is new funding specifically for Maori. That equates to a grand total of 0.6 percent of the funding. Wow! But forever looking for the silver lining we welcome the investment in the proud and independent voice of Maori being enhanced through $1 million a year for iwi radio and $5 million a year for Maori television the voice of our nation—matatou for everyone. 
We welcome the move towards reconciliation promoted with another $2 million a year to the Waitangi Tribunal. We are pleased that the initiative that Tariana Turia pioneered—the Mauri Ora framework—to support whanau in the prevention of violence has been extended to include another 60 workers. We congratulate those hard-working heroes in our community—Maori wardens—who are today rewarded with $2.5 million of support. 
We come to this House saluting the spirit of enterprise and entrepreneurial vigour that has defined tangata whenua. We think of the whanau who gathered in an old factory at Pukeatua in Wainuiomata some 25 years ago to set up a language nest te kohanga reo. That initiative grew into a movement of some 513 kohanga reo to nurture te reo rangatira. Today that initiative is rewarded with the equivalent of $6000 a year for every kohanga. That is not a lot but every bit counts. 
But we also recognise that one of the main difficulties facing both kohanga and kura kaupapa Maori is the challenge of finding trained and experienced teachers who are fluent in te reo. Although the Budget provided for some support for kohanga and funding for year 1 teachers we are mindful that some 30000 students are currently receiving Maori-medium education and we were disappointed to see that there was nothing explicitly allocated for kura and wharekura other than the capital funding for property. 
Indeed I would call this Budget the add-on Budget. It adds little trinkets for Maori to sprinkle in and stir little gems like $30000 a year to conserve Maori taonga. That does not sound like much when we know that Sotheby’s has valued the Treaty of Waitangi at $32 million. Although we are of course mindful of being grateful for small mercies a number of things just will not go away. For a start there are some 9000 Maori students who woke up last Budget day to the news that the manaaki tauira fund had dried up leaving them under financial strife to buy textbooks learning resources and study materials and to pay their fees. 
Yes there will be another $150000 a year for the Ngarimu scholarship and we are pleased to see the $6 million in research capability for wananga. But the unknown factor of course is how this will increase retention and completion rates in tertiary education for Maori. Although some might be happy enough juggling the small change we cannot ignore the grim reality of other statistical pressures that are literally in our face—facts such as that although 21 percent of the school population is Maori Maori account for 41 percent of all stand-downs and 47 percent of all suspensions. Another fact is that 53 percent of Maori left school without even a National Certificate of Educational Achievement level 1 compared with 20 percent of Pakeha. This is a picture of total system failure for Maori in general stream education a system in which 91 percent of Maori children are enrolled. This Budget does not include the Maori education strategy that Maori have been calling for. 
So perhaps the picture might be brighter for health. The Maori Party has long been concerned that Maori infant mortality is also significantly higher with 7.2 deaths per 1000 births compared with 5.6 deaths nationally. We are thus well pleased to see a $124.2 million investment in child and youth health over 4 years. But again we come to the crunch. We know all the determinants facts such as that 40 percent of Maori are expected to develop type 2 diabetes with 5 percent of that number dying each year or that life expectancy for Maori on average is 8 years less than for Pakeha. PricewaterhouseCoopers suggested that $50 million per year would be a good start to avoid the massive future cost of preventing and treating diabetes such as that involved in heart failure blindness circulatory problems and amputations. This Budget allocates a quarter of that giving $50 million over 4 years. 
We do not see much in this Budget that will address the rise and rise of poverty; that will satisfy the 120000 New Zealanders who petitioned Parliament to “make poverty history”. They must be heard. Indeed our preliminary analysis suggests the gap between rich and poor just continues to grow wider. An offering of peanuts will not do much to address the pervasive assault of poverty that afflicts so many in our whanau. All of these figures give us every reason for arguing for the management of appropriations to be in the hands of the Maori partner. The Crown has failed in its capacity to fulfil the promise of article 3 of the Treaty of Waitangi. Insufficient funds for Treaty settlements including quantum mean that attempts to address article 2 breaches remain unfulfilled. 
Governments speak of “what the country can afford” despite successive years of accumulating surpluses—a whopping $7 billion dollar surplus. It appears to us that the price of justice for Maori—the price of citizenship which Ngata wrote of in 1943—will always remain a debt. It is a debt that the mean-spirited appear unwilling to pay. On the basis of human rights and Treaty jurisprudence a compelling case exists for an independent and adequately funded approach that unbundles funding to be redistributed fairly. 
The Maori Party believes that Maori social aspirations have been poorly served by the mismanagement and policy neglect inherent in a mainstream bureaucracy. Mainstreaming from its very genesis was never about Treaty justice or enhanced citizenship rights. It was about savings; savings for the Crown sliced off the backs of Maori. As a consequence of mainstreaming Vote Maori Affairs was reduced back in 1991 by $212.4 million. Of that $114 million was retained by the Crown as savings. These are savings that could well have prevented a reality in which 36.5 percent of people receiving the unemployment benefit are Maori. They are savings that may have addressed the stark face of poverty extreme income inequalities and the rising proportions of Maori families in severe hardship. 
This Budget does not address that stark reality. The Maori Party believes that the only way we will truly achieve change is to instigate the unbundling of funds to assess the effectiveness of money spent for and on behalf of Maori. The way to do this is painstakingly simple. It requires a technical amendment to the Public Finance Act to enable Te PuniKokiri to monitor all Crown agency expenditure on Maori. At this current point in time the Treaty partner is being denied the information to be able to reliably gauge the effectiveness of the Government spend on Maori. If we are to truly recognise two parties to the Treaty we must also agree on how the Budget allocation is to be shared managed monitored and reported upon. 
The Treaty Tribes Coalition has advised that the greatest shortcoming of our present constitutional arrangements is the failure to recognise the fundamental significance of the Treaty. The Treaty Tribes Coalition is a major force amongst Maori. We want to see that all legislation introduced to this House is able to maximise the fulfilment of Maori aspirations. A starting point to how such a strategy will be achieved is found in the genuine progress index. This is a system of accounts that gives priority to an alternative economic system—a system driven by kaupapa—by measuring the true costs against the benefits. Under such an index we welcome the EnergyWise package: $20 million a year for energy-efficiency initiatives and $7 million a year to enhance sustainability. These are real steps in preparing for climate change. 
We believe that if the State were to unbundle the funding we would be in a far better position to assess social economic and cultural policies and programmes to determine what effect that spend is having on Maori. We do not want any more piecemeal adhockery. We seek progress on a grand scale progress and prosperity and the outcomes that really would achieve meaningful change. Thank you Mr Assistant Speaker. 
Hon PETER DUNNE (Leader—United Future) 
: 
 United Future is pleased to give its support to this Budget because in many senses it delivers on a number of the key policy objectives that were put in our election policy in 2005 and that were part of our confidence and supply agreement with the Labour-led Government. I refer to the business tax review to the changes in the donations regime for charities and to the establishment of a pest-control group to study how future pest management can occur in this country. I want to talk about each of those in a little detail in the time I have available this afternoon because collectively they demonstrate the role that a small party can play in supporting a Government to achieve its policy objectives and make significant progress for the benefit of the people of New Zealand. 
This Budget contains a $3.4 billion business tax package. It is the biggest business tax package since 1988 and the first change to our corporate tax regime since that time. I am very proud of the fact that what the package delivers is entirely the policy United Future put to the electorate 2 years ago. We talked about reducing the company tax rate to 30c in the dollar. That is achieved. We talked about bringing in a research and development tax rebate regime at around 15 percent. That is achieved. We talked about the need to maintain competitiveness in our international tax regime and through the work being done with the forthcoming changes to the international regime we can tick that off as achieved as well. Although we can sit here and feel some satisfaction at our achievement the really big gain is for New Zealanders because all those gains represent wins for New Zealand workers for their employers and for the enterprises for which they dedicate their time. 
 One of the key objectives of the business tax review was to maintain competitiveness with Australia and to boost productivity in New Zealand. By moving to a rate of 30c in the dollar we match the Australian rate and we come close to the OECD weighted average. But more important we go ahead of the Australians because we do not have the state taxes the stamp duties the capital gains taxes and the other impositions that go on top of the federally imposed corporate tax regime in Australia. At the time we started to talk about comparability with Australia some people asked: “Why limit your horizons?”. It is very simple: 70 percent of New Zealand’s business is with Australia. Australia is our major trading partner. If we can get a competitive advantage over Australia then we are well placed to take on the rest of the world and that is what the driver of that business tax review was. 
But at the time we released the document I think that potentially the most significant point came late in the document and was overlooked by many. That was the review of the international tax regime that we foreshadowed. A discussion paper was released last year. The Budget today makes it clear we are going to move to an active-passive regime for New Zealand income earned overseas. I want to explain that in a little more detail because it is critically important. At the moment we tax all New Zealanders businesses or otherwise in New Zealand on their worldwide income. So a New Zealand company that may have a manufacturing plant in Shanghai for instance paying the local tax rate that may be equivalent to 10 percent in the dollar is under our current regime taxed on that rate plus then the statutory rate in New Zealand. It makes no sense and it is a complete disincentive for those businesses to stay in New Zealand. Of course they will want to relocate manufacturing plant offshore to be nearer to markets but what we are having at the moment is that they are relocating the entire business because of the tax disadvantage. 
So the introduction of an active-passive test means that income earned actively overseas—in this case through the manufacturing entity that I gave the example of—can be offset against tax payable in New Zealand. That will even out a number of the discrepancies that are present at the moment. We have worked very closely with the business community. We have consulted widely with them and we will continue to do so in the ongoing design and implementation of that package. 
It is significant in most of the comment I have seen since the Budget that there has been very positive recognition of both the change in the company tax rate and the move to reform our international tax regime. It is rather absurd when we look back on all the changes that have occurred since 1988 in the international economic environment—the growth of free trade around the world and the opening up of various closed economies in the past—to see that we are one of the few countries that maintain the same international tax regime today as in the days when the Soviet Union was alive when the proverbial Polish shipyard was alive right through eastern Europe when the growth of China had not started to explode and when all the developments we have seen in recent years and that we have been so keen to be part of were incipient. So it makes common sense to change our rules now to get us up to play with everyone else’s game. That is exactly what today’s changes are all about and I am very very pleased to see those. 
Similarly—and I refer to changes to research and development rules—we have often prided ourselves on Kiwi ingenuity. We call it the No. 8 fencing wire mentality. In more recent times we talked about what originally was the Team New Zealand approach—it then became the Weta Workshop approach—of innovation skill and brilliant devising of new products by New Zealanders. Then we lament the fact that people say that it is too difficult to do business here and that they are going elsewhere because the regimes are more attractive. A 15 percent research and development scheme in the way it has been outlined in the Budget will give us the scope to retain a significant amount of that investment and opportunity in New Zealand and also to attract new investment in the research and development area. I think that is a very positive thing not just for our image of New Zealanders but also for those young innovators coming forward who have skills who have ideas who want to work in New Zealand and make this country their base and their home and who want to see this country benefit from the innovation they have to offer. So I am pleased for them because this Budget and these moves represent a victory on their part as well. 
I refer now to the area of charitable donations. I hate to steal the Leader of the Opposition’s thunder but I have to tell him in good truth that the very day he made his first announcement was several hours after we had actually decided on the policy that is contained in the Budget. So although he is a little bit behind the eight ball I welcome his support. It is one of those happy coincidences and I assure the member that it is absolutely true. 
Rodney Hide 
: Did it leak? 
Hon PETER DUNNE 
: No it did not leak. As far as I am aware he just happened to divine the same sort of thinking that we were working on. 
But let us go through what it means. At the moment every New Zealander who makes a donation to a registered charity—there are about 90000 of these organisations in New Zealand and we as individuals donate around $356 million to them each year—gets a rebate of 33c in the dollar on the first $1867. Under the proposals contained in this Budget which will be law from 1 April next year there will be no limit. That rebate will apply to every donation made and it will apply to every donation made by a business by a Maori authority or by other corporate identities. So the total set of restrictions is being lifted and New Zealanders will be able to embark upon the development of a culture of giving knowing that the State is there to support them in that endeavour. I think that is extraordinarily positive not only for the generosity of New Zealanders—for their sense of philanthropy—but also for the role of the voluntary and charitable sector in New Zealand moving forward. I am delighted we have been able to deliver that. 
But it goes one step further. We are also investigating the introduction of payroll giving which means that the deduction can be made at the point of payment. The employee simply notifies the employer of the charities he or she wishes to make the donation to and the rebate will be payable instantly. That happens in other countries. I think the Australians have moved in that direction; the British certainly have. We are looking at the feasibility of legislation coming in next year to provide for payroll giving in New Zealand. So a complete new way of approaching charitable donations is on the way. The one area we need to do more work on—and it was contained in the discussion paper; there is huge support for it but we have to develop the mechanisms a little better—is how we recognise the voluntary contribution of time. I give notice that that is on the agenda as well. 
To sum up—because I know Mr Assistant Speaker that you are going to call me to a halt very shortly—this Budget titled “Saving and Investing” is a positive statement for the country’s future. Its achievements as far as United Future is concerned show what a small party working constructively in Government in the MMP environment can achieve. In that sense contrary to some of the doom I have heard I think this Budget is a triumph for the politics of collaborative Government where partners work together to achieve policy objectives within a coherent whole. I think New Zealanders will look with some satisfaction at the fact that we have been able to bring together a Budget that is as bold as this one is in so many different areas. That is why United Future is pleased to support it. 
RODNEY HIDE (Leader—ACT) 
: 
 The ACT party will not be voting for this Budget. We will not be abstaining on this Budget; we will be voting against this Budget. This Budget can be summarised as one of spend spend spend and tax tax tax. It is another Michael Cullen Budget that has the same old policies the same tired old policies that he has trotted out Budget after Budget. 
When Michael Cullen took office he famously said that he would be judged and his policies would be judged on whether he achieved 4 percent real economic growth. Well the judgment is in on that I say to Dr Cullen and those famous words should be his famous last words. The outlook in this Budget for the next 5 years—and I am amazed that no one from the Government has talked about economic growth— 
Hon Member 
: You will. 
RODNEY HIDE 
: Well I will not actually. The outlook for the next 5 years is a paltry 2.3 percent increase in economic growth. That is only because in years 4 and 5 the Government is hoping the growth rate will pick up. In the next 3 years the outlook for New Zealand is an average growth rate of less than 2 percent per year. That compares with Australia which is topping nearly 4 percent a year. So the outlook is for the gap between New Zealand and Australia to widen. 
 We see again in this Budget from Michael Cullen no plan no direction and no strategic vision for New Zealand. The only thing this Budget guarantees is more spending higher interest rates and lower economic growth. In 2000 when Dr Michael Cullen took over as Minister of Finance Government spending per year was $9000 for every man woman and child in the country. So for a household of four people that amounted to $36000 a year. That is what the Government spent on average. Of course we have to ask ourselves what that average family of four gets from the Government. Is it getting $36000 worth of benefit? I do not think so. Well now that spending is $13000 a year per person and in 2011 it will be $15000 a year per person. Under Michael Cullen core Government expenditure has increased by $20 billion which is a 32 percent real increase and it is set to go up over the next 3 years by another $9 billion. 
Do members know what is truly shocking about that increase? It is that Treasury itself says it can see no benefit from that extra spending. There has been no improvement in Government service and every Kiwi knows that. In fact the more money that has been thrown at Government departments the poorer the service from them has been. 
We hear that this Budget is about savings and investment. Well the way to achieve savings and investment is to have more money in people’s pockets and to have a higher economic growth rate. The way to achieve both of those is to cut taxes comprehensively across the board. There is the money to do that. That is what this Budget should be about. But of course the Labour Government is about spending money to win votes; it is not about managing the economy for the good of the country. That is why the ACT party says that we need now a tax payout rights bill that would put politicians on a constrained budget and hold the level of Government spending at where it is. And if politicians like Dr Cullen want to spend more money in real terms then they should go to the people in a binding referendum. That is what the ACT party says we should be doing so we can have some confidence that the size of the Government in the years ahead will not ever become bigger than it is now. 
You know Michael Cullen says that we cannot let people spend their own money because that would be inflationary. Well Milton Friedman got a Nobel Prize for explaining that the cause of inflation is monetary policy not people actually working earning and spending their own money. Monetary policy is what causes inflation. So the idea that somehow allowing people to spend their own money is inflationary is totally wrong. 
Of course we are all in favour of the cut in the company tax rate that has occurred from 33 percent to 30 percent but now we have widened the gap between the top personal tax rate and the company tax rate. Tax accountants will have a field day and the other complications that have been introduced will complicate our tax code further. We should be aiming for a low flat tax across the board without the exemptions that arise when just because the Government has a policy that it wants people to follow and invest their money in it thinks it therefore has to give them a tax break. 
Here is what a real Budget would do for New Zealand. It would drop the top rate of income tax across the board to 20c in the dollar. That would be a boost for investment and savings and indeed for economic growth. We would hold Government spending in the medium to long term in real terms. We would deal to red tape with a regulatory responsibility bill. We would demand transparency and accountability from all Government departments through service-level agreements that would see departmental heads fired for any failure to deliver that. We would actually take the shares of the State-owned enterprises and distribute them to everyone. If the State-owned enterprises truly do belong to the people of New Zealand let us see that. And we would take the Cullen fund—a Government fund—and distribute that money to everyone by putting it into their KiwiSaver account or into an education endowment so that it is their money. 
We have seen even more money go on health. And where are the benefits of that? There have been absolutely none. In fact the one thing that the Labour Government has done in health is to actually deny us the opportunity to see the size of the waiting lists and to see the performance that is occurring. More money has gone in but now we are not even getting the information that we used to get on the performance of the State health system. Why is that? Because it is woeful. We cannot achieve a better result from our health system by pouring in more money. If we could it would actually be working now because we have never seen an increase of money go into the health system like the increase we have seen under Labour. The way to fix the health system is the same as the way to fix everything else in the economy. It is not to run it like the Soviet Union used to run its economy; rather it is to empower consumers—empower New Zealanders through the provision of competition and choice by introducing the private sector into the delivery of health. 
The key thing New Zealanders are looking for in a Budget is the direction that a Government is going to take. We see nothing in this Budget except a process of spend spend spend and tax tax tax. The way to approach a Budget is to introduce a taxpayer rights bill and to hold Government expenditure in real terms. If politicians want to spend more of people’s money why do they not go and ask them to agree to that by having a referendum on it? That is the ACT way. Thank you Mr Assistant Speaker. 
Hon JIM ANDERTON (Leader—Progressive) 
: 
 All I can say is that if Milton Friedman is the answer to New Zealand’s economic problems then I do not know what on earth the question was. I have to say to Mr Hide if he is interested in the facts that the economic growth gap between Australia and New Zealand has actually closed in the last 7 years but as I do not think the facts will ever get in the way of Mr Hide’s reactionary prejudice I suppose it is a bit wasteful to give him those facts. 
As leader of the Progressive Party and a coalition partner in this Government I want to say to the House how proud I am of this Budget. I congratulate Michael Cullen on it and I look forward to this side of the House delivering many more Budgets. I am proud of the Budget because it turns its back on the selfishness and government-for-privilege that is the Opposition’s only reason for being. I am proud of it because it is a Budget for all New Zealanders. I am proud because this Budget completes the decisive turn away from the disastrous policies of the 1980s and 1990s to which the National Party Opposition would drag us back. Well I am not even sure of what it would drag us back to after hearing the speech from the leader of the National Party. I have not got a clue what its policy is except that it would borrow a lot more money to pay for the groceries. That is all I heard. 
I am proud of this Budget because KiwiSaver will make a dramatic difference to the wealth of individual New Zealand households—and the only one who seems to be in any doubt about that is Mr Key the futures trader. I am proud of it because the business tax changes it introduced are the most sweeping in 20 years and it is the most comprehensive measure to lift innovation and productivity since I have been in this House which is now going on for 24 years. I am proud of it because it invests heavily in our present and future needs without worsening the stressed parts of our economy. 
I am proud of this Budget because it invests in infrastructure and builds the capacity a modern economy needs—something that Governments successively in the 1980s and 1990s failed to do. I am proud of this Budget because it makes a deep investment in tertiary education and an investment in the needs and skills to demand higher incomes in a global economy. I am proud of the initiative the Budget takes in my portfolio areas—in the primary sectors that form the backbone of our economy and in protecting vulnerable young people from suicide and drug abuse. I am proud of the Budget because it invests in better social services in stronger health-care and in education. 
I am proud of this Budget mostly because it is a Budget that is carefully shaped to fix New Zealand’s problems increasing our savings in a way that will last for generations lifting our innovation productivity and exports and investing in the infrastructure that we need. Every serious problem this Budget fixes is a problem that the National Party Opposition will ignore. We could have chosen a Budget of course that scratched the short-term itches—the ad hoc and ultimately damaging approach to which the National Party is still addicted. We could have gone back to the past to the destructive slash and burn of the 1980s and 1990s as the National Party evidently still wants to do. But this Budget is much better than that. This Budget will make a difference to generations of New Zealanders. KiwiSaver is a historic scheme. I invite Mr English to say whether he would repeal the KiwiSaver scheme if he were ever elected to Government. Let us hear from Mr English about the real policy National would follow. 
The expansion of KiwiSaver is one of the most important social programmes ever introduced into New Zealand. KiwiSaver is a very strong incentive to New Zealanders to save. It is a very strong incentive to keep New Zealanders of talent here to build for the future. The challenge for the Opposition is to say how it would create savings anywhere near as comprehensive as these. It could not and it would not because it does not actually see the need for saving. We need to save more because not enough New Zealand households have enough saved to live in retirement in the way they do during their working life. What does the Opposition propose to do about that? Clearly the answer is “nothing”. It proposes to ignore our poor household savings rate because it stands only for people who already have ample savings and it does not care about the average New Zealand family. 
What is there about an incentive for a poorer family to earn three times more than what it saves in its savings account for its future in terms of buying a house or for retirement? It is an indictment that the National Party leader holds poor New Zealanders in contempt by thinking that they will not be able to count like that. Obviously he cannot count; they can. 
We need to save more because we have a problem with interest rates and a high exchange rate. I am happy that New Zealanders feel that their household wealth is rising and they are enjoying the use of better-quality cars plasma TVs and all the rest of it but the inflationary pressure is burning our exporters. The high real interest rates are holding back our businesses. We need to move the pressure from household spending to household saving. Ever since the 1980s the current account was forecast to be repaired by exporting more. After all the pain we went through in the 1980s and 1990s the end result is that the exporting share of GDP is more or less the same as it was. But the current account deficit is worse now than it ever was. We need to lift our exports and we are not going to reduce our current account deficit until we save more. 
This Budget will make a difference to our exporters. It invests $80 million in export market development assistance. Is Mr English against that? It cuts the company tax rate. Is Mr English against that? I called for the business tax rate to be cut 3 years ago. I am glad I have had to wait only that length of time to see it brought to fruition but I will not claim any credit for it. We will not go there. 
Hon Trevor Mallard 
: Everyone else is—why don’t you? 
Hon JIM ANDERTON 
: That is true. One reason that the cut will make a difference is if there is a substantial differential between the top personal and top corporate tax rate. That encourages business to leave more capital in the business to grow it instead of taking the capital out in dividends. It makes sense to me. Everyone who is arguing now for the top personal tax rate to be cut as well as that is actually arguing for less capital in our businesses. How will that help grow the New Zealand economy? Perhaps Mr English will tell us. 
So the question for the Opposition is this: what is the most important challenge for New Zealand? Is it cutting taxes? That would be mainly for those in the top income tax bracket. Anyone in this House who does not know that tax cuts benefit the most affluent New Zealanders does not have a faintest idea. Is this Budget about saving more or is it about blowing the current account increasing interest rates and bashing exporters with a still higher exchange rate which is every single bit of the policy I hear coming out of the National Party—spend more borrow more save less and invest less? Or is the Budget about saving more for investing in our future? 
This Labour-Progressive Government is today making a $3 billion to $4 billion investment in innovation. Has the National Party ever heard that word? Does it have any understanding of what it means? This gives our businesses the tools they need to compete effectively and to make sure that New Zealand becomes a much more attractive place in which to invest in new enterprises for the benefit of all New Zealanders. It gives our infrastructure a shot in the arm. There has never been a time in the last 100 years when we have invested as much in new roads and new rail and in this Budget we are now deepening further that pool of investment. 
The only reason we are able to do that is the fiscal prudence that Michael Cullen has shown over the last 7 years to put us now in a position to deliver. The thought that a National Party might ever get into Government and with profligacy wipe out all of those advances is one of the most appalling thoughts I could have. 
We are investing in our most important industries to future-proof them from the challenges they face whether they be challenges in different markets or problems down on the farm. In my primary sector portfolios this Budget strongly supports a pro-business approach to these industries. This Budget increases research and development in the primary sector. It increases research and development in the primary sector. It increases capability at the border to keep out organisms that can harm our biologically based economy. It funds initiatives to protect rural communities from adverse weather events and erosion and it improves the environmental performance of the primary sector. 
This is simply a landmark Budget. Saving and investment will build on our progress over the last 7 years. It will continue to transform New Zealand into a more dynamic and innovative economy. The Budget provides solutions to meet challenges we face today and tomorrow and its social investment will allow New Zealand families to enjoy a better quality of life—something this Government stands for absolutely. It strengthens our place in the world it strengthens our economy and it strengthens security for New Zealand. I strongly commend it to the House and I congratulate the Minister of Finance who has delivered not only his best Budget but the most profound Budget for the future of this economy and all New Zealanders should be proud of it. 
Hon TREVOR MALLARD (Minister for Economic Development) 
: 
 I move  
That this debate be now adjourned 
. 
Motion agreed to. 
Urgency 
Hon Dr MICHAEL CULLEN (Leader of the House) 
: 
 I move  
That urgency be accorded the introduction and passing of the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill and the introduction and first reading of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill 
. This motion is moved so that a range of Budget-related measures can be referred to the select committee as quickly as possible and so that measures that come into force on 1 July can be passed as quickly as possible. 
A party vote was called for on the question  
That urgency be accorded. 
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 10 
Green Party 6; Maori Party 4. 
Motion agreed to. 
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. 
Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill 
First Reading 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill be now read a first time. 
 Later I shall be recommending that this bill be referred to the Finance and Expenditure Committee for consideration. 
This omnibus bill—the traditional May bill—introduces major changes related to the announcements in today’s Budget. These changes include the new research and development tax credit changes resulting from the reduction in the company tax rate provisions relating to employers’ obligations in the employer tax credit under the enhanced KiwiSaver scheme and increased tax incentives for people in companies to make charitable donations. The bill also introduces a number of other important tax changes several of which have been announced over recent months. The chief of these changes is the liberalisation of tax penalties to promote voluntary compliance—a reform that has met with widespread approval. 
The companion bill the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill which was also tabled today and has just received its first reading deals with the member side of the announced KiwiSaver enhancements and reduces the company tax rate from 33 percent to 30 percent. That bill also includes the associated reduction in the tax rate for certain savings vehicles and other changes that need to be enacted with urgency. 
The legislation I am introducing now gives effect to business tax reforms that have resulted from the business tax review which itself was a direct result of policy stipulated in the confidence and supply agreement between United Future and Labour and between New Zealand First and Labour. Our requirement was for “a review of the current business taxation regimes with the view of ensuring the system works to give better incentives for productivity gains and improved competitiveness with Australia.” The resulting business tax review set out to do just that. 
The first step was the release of a discussion document that canvassed views on possible business tax initiatives to increase our productivity and make us more competitive internationally. Amongst the options were reducing the company tax rate from 33 percent to 30 percent and the introduction of targeted tax credits. The discussion document was followed by further extensive consultation and policy development the results of which appear in the two business tax reform measures that are featured in this bill. 
The reduction of the company tax rate from 33 percent to 30 percent—from the 2008-09 year—aligns it with Australia’s company tax rate. This reduction thus improves our competitiveness with our largest export market as well as making New Zealand a more attractive country from which to do business. 
This bill introduces a number of transitional and consequential amendments that result from the new company tax rate most of which concern imputation credit handling in the 2-year transitional period. Without this transitional period some companies may not be fully able to distribute the profits and associated tax credits they derive before the new tax rate comes into effect. 
The new research and development tax credit is a further measure to emerge from the business tax review. Introducing tax credits for other activities was also considered in the course of the review but in the end we concluded that tax credits there would be less cost-effective than the existing mechanisms for funding areas such as export market development and skills training. On the other hand there is a significant and growing body of evidence that tax incentives have been effective at boosting business research and development. So the tax credit for research and development will help to bring New Zealand more into line with what happens in other OECD countries three-quarters of which already offer research and development incentives. 
The aim of this new tax credit is to help raise the rate of private sector research and development investment in New Zealand which is currently only a third of the OECD average. Increased research and development investment in turn is expected to have wider benefits for the economy and to help boost productivity and international competitiveness. Under the provisions New Zealand businesses that conduct research and development in New Zealand will be eligible for a credit of 15 percent of allowable expenditure. The bill defines research and development relatively widely in line with the definition that Australia uses for its research and development initiatives. 
The research and development tax credit introduced in this bill has built-in safeguards to ensure that it is as effective as possible. For example the requirement for research and development to be undertaken predominantly in New Zealand by New Zealand businesses is there because the spillover benefits to other New Zealand firms are likely to be largest in those circumstances. 
The transformation of New Zealand’s savings culture is closely related to economic transformation both of which are major themes in today’s Budget. Over the past few years we have seen major reforms aimed at both making it easier for people to save and improving the tax treatment of savings through collective investment vehicles. Legislation that was enacted last year paved the way for the introduction of KiwiSaver in July of this year. 
Further legislation last year brought in new tax rules on investment income one of the results of which is the new portfolio investment entity rules and they come into effect in October. A key role of the new portfolio investment entity rules is to prevent the overtaxation of lower-income people who invest through managed funds which are the first investment choice of many ordinary New Zealanders. They and similar funds are the vehicles through which KiwiSaver will operate. 
In this Budget the tax reform of the current savings environment continues and it takes a giant step forward with the announcements contained both in the Budget today and followed up in this bill. What the bill does is to deal with the employer side of the enhancements to the KiwiSaver scheme. It requires employers to match their employees’ contribution to KiwiSaver and complying superannuation funds up to 4 percent of employees’ gross salary or wages phased in over 4 years. Under the provisions of the bill there will also be reimbursement for employers for the cost of matching contributions through a new tax credit of up to $20 per week per employee. Employer contributions will remain tax-free under legislation enacted last year. The tax credit complements that which is introduced for members in the companion bill which we have just been discussing. 
Other savings measures in this bill include changes allowing policyholders in unit-linked life insurance products to access some of the benefits of the new portfolio investment entity rules. We are also including changes to allow certain contributions to retirement schemes to be subject to a withholding tax rather than an income tax so that the contributions are not taken into account for social assistance delivered through the tax system. 
Another key plank in the United Future - Labour confidence and supply agreement was the development of a new tax rebate regime for charities and the direct results of this commitment are found in this bill. People companies and Maori authorities will be able to claim rebates and deductions for charitable donations up to the level of their annual net income and will no longer be restricted by the present caps. Furthermore the deduction claimable for donations made by companies will be extended to close companies that are not listed on a recognised stock exchange. These changes are designed to provide greater incentives for charitable giving which in turn will benefit charitable organisations and all the communities they serve. I am very pleased that it has been possible to make these changes which arise from the review that was undertaken last year. 
A further major reform introduced in this bill results in the relaxation of a whole range of tax penalties such as that for taking an unacceptable tax position so that penalties now reflect the seriousness of the offence. It is generally acknowledged that people comply more willingly with the law when they see that it is fair and reasonable. Our current system of tax penalties does not always distinguish between people who try to do the right thing and fail and people who have no intention of doing the right thing so reinstating that distinction is very important. There are also several other areas of the law where the rules are being clarified and I think that they will be widely welcomed. 
Once enacted the changes in these areas will take effect from today the date of the introduction of the bill. Related changes involve not penalising taxpayers who occasionally pay late and updating the definition of “tax agent”. 
The reform has been the subject of extensive consultation and widespread approval. We have also made changes relating to the introduction of data matching between the Inland Revenue Department and the Customs Service to enable us to better identify those with outstanding child support above a certain level who are seeking to enter or leave New Zealand. This is part of the consistent effort we are making to crack down on outstanding child support payments and to ensure that those people who have a responsibility are able to meet it. 
Finally the bill deals with the consequences of adopting international financial reporting standards. That is a very technical area but it is a very important one and I think that will be welcomed. The bill of course being an annual rates bill also includes the income tax rates to apply for the 2007-08 tax year. Those measures that I have not been able to deal with in much detail tonight are covered in the accompanying commentary a copy of which is being distributed to members. 
I commend the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill to the House. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 Let me make it clear at the outset that National will be opposing the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. This is important legislation and it is just such a crying shame that this Government cannot bring in legislation that addresses some of these issues in a more appropriate way. The biggest problem facing the New Zealand economy right now is the fact that during a period when we are quite low in our economic growth phase—we are towards the bottom of the economic cycle if one likes—our economy is growing at under 2 percent per year right now. Yet our capacity utilisation is high and Dr Cullen cannot deny this. The Reserve Bank is deeply concerned about it. That is why it is having to raise interest rates because we are in a position where we cannot get non-inflationary growth. That is a huge problem. It is growth that delivers wealth but we cannot get the growth because at the moment our capacity utilisation is so high that we cannot get non-inflationary growth. The Government believes that this bill might improve that. Of course the real issue is productivity or the lack of it. Our productivity growth is so disastrously poor and that is why we are not getting non-inflationary growth. 
Much of Part 1 of this bill is about these new tax credits for research and development. The Government argues that this is great because this extra investment in research and development will improve our productivity—at least that is what I presume is the theory behind it. But the problem is that if I look at what is in this bill I can see it actually damaging our productivity because as businesses are forced to go through all the hoops they will have to go through to try to get these tax credits productivity will actually suffer. 
We have seen it all before around the world where Governments offer this kind of incentive. It reminds me of the European Common Agricultural Policy and how disastrous that subsidy scheme has been for productivity. Mr Assistant Speaker I invite you to look at Part 1 and see what the Government defines as qualifying research and development. It has to be “systematic investigative and experimental activities that seek to resolve scientific or technological uncertainty or that involve an appreciable element of novelty”. How the hell does one define that in law? Of course the Government tries to define it—in dozens and dozens of pages. If one looks at clause 100 onwards one sees dozens of pages in which it tries to define this stuff. 
What is extraordinary is that if one is spending money on buildings for example or tangible assets to deliver this novel research work then one can actually claim the depreciation on those. But if one needs to acquire the intellectual property—the intangible assets on which to build one’s real-value research work—one finds that that is excluded. As I read the legislation I find that expenditure on intangible assets is excluded. If the Government is serious about doing something about productivity then it will realise that the whole set of provisions around these research and development tax credits will simply have businesses—as they always do—trying to see whether they can get a handout from the Government and it will realise that the loss in productivity as they go through the whole paraphernalia of trying to actually qualify for these tax credits will all be unproductive activity. There will be the employment of people in unproductive work. I cannot believe that the Government has been convinced to go down this track when it is just going to be adding compliance costs adding more regulation. I accept that Dr Cullen has had nothing to do with business. 
Darren Hughes 
: Well he is giving them a tax cut. In the previous bill you voted against that. 
Dr the Hon LOCKWOOD SMITH 
: I ask the member whether Dr Cullen has ever run a business. 
Darren Hughes 
: Well he’s cut taxes for them. He did it before; the member opposed it. 
Dr the Hon LOCKWOOD SMITH 
: He has not has he? He was a history lecturer. At least I still run a small business. But everything Dr Cullen does—everything in this bill—I have tried to comply with. As a small employer I have to comply with all this stuff. All I can tell Dr Cullen is that it all adds compliance cost and it is all more regulation. He has got to come to understand that excessive regulation is one of the major reasons why productivity growth has collapsed. The business sector of New Zealand has become overburdened with regulation and for more and more cost there is no more output. That is why our level of productivity is collapsing. This bill is adding nothing to improving our productivity because it will involve businesses in a whole lot more worthless work as they try to qualify for these tax credits. 
In Part 1 of the bill there is also an interesting section on the Working for Families tax credits. This is hugely important stuff. Do you know what this part of the bill does Mr Assistant Speaker? It changes the name of family assistance to Working for Families tax credits. It changes the name of family support to family tax credit. It changes the name of the in-work payment to in-work tax credit. It does not change the name of the parental tax credit but it does change the name of family tax credit to minimum family tax credit. Is that not important stuff? That is hugely important stuff to bring into this House under urgency! But it shows the mindset of this Labour Government. It has no understanding of what productivity is about and no understanding of what is damaging this economy. 
If it wants to have a look at what is damaging the economy then it should look at the effective marginal tax rates around that package of Working for Families tax credits. I say to Dr Cullen that when our effective marginal tax rates are up over 90 percent they have major disincentive impacts. No wonder a lot of women are no longer working extra hours when they get to keep 7c to 8c out of every extra dollar they earn! I say to Dr Cullen that it is not worth it. If he is concerned about productivity then he should have a look at some of the fundamentals involved in this legislation. 
I want to refer now to Part 3 of the bill because it is Part 3 that brings in the provisions to actually require employers to now make contributions to the KiwiSaver scheme. The Government has argued that part of what will help employers to do this is the business tax cut. No one I have heard in this debate today since the Budget was presented has mentioned or pointed this fact out: a lot of New Zealand’s businesses and employers which employ most of our workers are small employers. A lot of them are not corporates; they will not get the tax reduction for the corporates down from 33c to 30c yet the small employers will have to pay out these compulsory contributions to this KiwiSaver scheme if their employees want it. 
It is quite clear that the tax credit available back to those employers will not cover the cost of their compulsory contributions. It is dead clear that it will not cover the costs. So what will happen is that our small employers will suffer yet higher costs under this regime. 
I cannot believe that this Government has no understanding of what it is like to run a small business—no understanding at all. All this bill means is that the cost to small businesses will go up. A lot of them are not corporates; they will not get the benefit of tax reduction but they will have to make these compulsory contributions which are all set out here in Part 3 of this bill. No consideration has been given to the impact of this on the viability of our smaller businesses in New Zealand which are so important to our economy. 
Finally I want to make this point about this KiwiSaver scheme and all the incentives around it. It will not do anything for middle to lower-paid New Zealanders. If Dr Cullen thinks that people on $20000 $25000 or $30000 can put 4 percent of that into the KiwiSaver scheme when they face all the realities of trying to meet their costs of living today he is deluded. So they will not get any of the benefits of those tax credits—not even at age 65 which of course is when these tax credits are available to them. 
It is sad that as we debate the first reading of the bill that it is ordinary low-income hard-working New Zealanders who pay a significant hunk of our taxes if they do not happen to have any children who will not get any benefit out of this because they cannot afford to put 4 percent of their income into such a scheme. It is in fact higher-income earners who will benefit just as it was with Labour’s Working for Families package cynically directed towards middle New Zealand to try to buy votes at the last election. That did nothing for low-income New Zealanders and the KiwiSaver scheme will do nothing for low-wage earners. 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 By the standards of Dr the Hon Lockwood Smith PhD that anger was very mild indeed—very very mild. That is not surprising because when National’s leader tie askew and unshaven was asked on  
Close Up 
 this evening what National would do about the KiwiSaver tax credits we heard a kind of pause which is unusual for Mr Key. He does not usually pause before he says anything. It was a long pause and he said National would have to think carefully about them before the next election. When Mr English was asked on  
Checkpoint  
what National would do about the tax credits he also said it would have to think about them before the next election. 
Darren Hughes 
: Hellfire and brimstone. 
Hon Dr MICHAEL CULLEN 
: Well of course Dr Lockwood Smith is incredibly staunch on this issue. He will oppose them—until of course it is in his interests to support them. 
Dr Lockwood Smith tells us he has a sudden large interest in people on low incomes. Well how will people on low incomes be helped to save if not through a scheme whereby if they change their job they are compulsorily enrolled and their deductions occur immediately and as long as they can continue to withstand that they will get a proportionately larger tax incentive? I am sure that if National were designing a tax incentive for savings we would get one that gave more to people like Dr the Hon Lockwood Smith PhD than to someone on $25000. People will also get the employer contribution which on a low income of $25000 will be entirely paid for by the Government at a rate of 20 bucks a week or 4 percent—if he can do the maths and work it out. As a consequence of that they will end up with three times their contributions going into their KiwiSaver account and the prospect of a substantially increased standard of living in retirement. But more than that they will be contributing to savings and to investment in New Zealand. 
We heard Mr Key on television tonight essentially say that the way to build the economy is to spend our way to prosperity and that the way to spend our way to prosperity is to borrow the money to spend. It is true of course that Jackie Dean did have the answer at the last election. She said National would not need to borrow for tax cuts and would just get the money from overseas. That I suppose is a slightly more sophisticated approach to the problem. So what is National’s answer? How do we grow the economy when our gap between savings and investment is 9 percent of GDP and when we have to borrow $15 billion from offshore every year just in order to maintain our current inadequate level of investment in economic growth? From a sort of “British Indian army” what does Dr Lockwood Smith PhD tell us—that the answer is to give somebody a $2 a week or a $3 a week tax cut? That is what National is actually offering to people on $25000 a year. Well that will go nowhere at all. 
Then we heard from Dr Lockwood Smith that research and development tax credits do not work. Well why the hell is Fonterra doing research in Melbourne? There is total silence. Maybe it is because the Australians offer tax credits and we do not. 
Maybe it is time to learn some facts—some pragmatic simple bits of fact. We have been told for years—and I used to believe this—that we did not need tax incentives for saving. We were told that we just had to get the macroeconomic conditions right—low inflation blah blah blah—and savings would go up. They have gone down. We cut the rate of superannuation and raised the age of eligibility and savings went down. They were supposed to go up. Younger people do not believe that superannuation will be there for them but they do not save. Dr Lockwood Smith has no answer to that except to say that if we give them a $5-a-week tax cut they might save it—but of course they will not. They will not save it at that point and he knows that. We know that we have one of the worst savings records in the developed world. National says that is all right. It says we will just borrow more so we can spend more and in that way we will become more prosperous. That is National’s economic policy as explained by the unshaven tie-askew Mr Key on television tonight. It would have been better to have Mr English on television; at least he looks clean-shaven and properly dressed at this particular moment. 
Then we are told that research and development tax credits do not work and I used to believe that too. We continue to have one of the worst private sector research and development records in the world and Australia which has research and development tax incentives has a much better record than New Zealand on private sector research and development. We lose private sector research and development to Australia. Even Treasury has changed its mind on that issue. I have to tell Dr the Hon Lockwood Smith that he is the last person stuck in the 1980s paradigm. Treasury believes that research and development incentives will have spill-over benefits. 
Treasury in a report that will be released tomorrow agrees that savings are a major problem and that there is a role for the Government to play by intervening and providing support for savings. That is a sea change in Treasury’s view of life but it is a fact—it is pragmatism. I suppose National members will now try to argue that I tell Treasury what to think. Well I wish that were true on occasions. But it is certainly not actually true. Treasury is highly independent in the way it arrives at those kinds of views. 
So the National Party members will be voting against research and development tax incentives. They voted against corporate tax rate cuts only half an hour ago. They voted against a tax credit for employees only half an hour ago. 
Hon Members 
: Employees? 
Hon Dr MICHAEL CULLEN 
: Employees not employers. Now they argue that compulsory contributions somehow will not work. Let us take a broader view than that. Let us stop this stupid “let’s look this far in front of our face” way of looking at the future of this country. Yes compulsory contributions will cost employers a bit. How much will it be at a 50 percent take-up rate? It will be 1 percent of the total wage and salary bill in 5 years’ time. Already there are indications and expectations of some modesty in but not nil wage increases—which is silly from Mr English—and a reduction of 0.5 percent in total wage growth over the next 4 years would pay half the net cost to employers of the employer contribution. That is not $2 billion. On the basis of a 50 percent take-up it is about $670 million and 0.5 percent moderation in wage growth in total over 4 years would pay half of that. 
What do employers get? They get out of that greater employee loyalty. They get out of that a greater tie to New Zealand particularly among our semi-skilled and skilled workers as Australia has with its compulsory savings scheme. It will improve the supply of skilled labour because we will lose fewer people. KiwiSaver at that level will lock more people into New Zealand. Employers also get out of that contribution a greater pool of savings and investment capital for New Zealand—and National members are voting against all of that which is in the long-term interest of business in New Zealand because they are obsessed with tax cuts. 
I do not know whether the National members watched television tonight but they better learn something. A sea change is going on as a result of this Budget already and they are on the wrong side of the argument. They will have to change their position before the next election. That is easy for them to do because they change every position they have. Every major initiative of this Labour Government is wrapped up cuddled and kissed and sweated to death by the National Party these days and sooner or later this will be one of those. National members will not go into the next election promising to demolish KiwiSaver; I suspect they will promise to regularly update the employer contributions maximum tax credit. That will be where they will get to by the election. They will not go into the election promising to remove the research and development tax credits will they? Well why the hell are they voting against them now then? That is very stupid. They will vote against something and give me a free speech for the next 16 or 17 months in front of businesses. I can say to them: “National voted against a cut in the corporate tax rate. National voted against the research and development tax credits. National does not believe in updating Auckland’s infrastructure and public transport system. National does not believe in increasing the pool of savings and investment in New Zealand.” 
But come election time there is one thing we can guarantee: the National members will flip-flop and flip-flop and the changes will be there. It is a pathetic effort from a narrow shallow pathetic party. 
Hon BILL ENGLISH (Deputy Leader—National) 
: 
 I do not recall Dr Cullen voting for any National Budget even when he agreed with quite a lot in quite a few of them. What a pathetic effort by him to say that somehow his Budget is so compelling that the Opposition will join the Government in confidence in its programme. 
Darren Hughes 
: You will. 
Hon BILL ENGLISH 
: We will not actually because this Budget could have been miles better. If over the last 4 or 5 years Dr Cullen had not been so dog in the manger about reducing taxes we could have had in this Budget—and we will in 2009—a much better balanced approach to how this economy should develop. We could have had a better balance between incentives to save which are certainly an issue and incentives for growth. 
This country is not retiring. There are a whole lot of 19 and 20-year-olds out there who do not think that the biggest problem with the economy is what will happen when they turn 65. This Budget is all about retirement. Between now and then we have to grow because if the economy does not grow— 
Dr the Hon Lockwood Smith 
: Labour is about to retire. 
Hon BILL ENGLISH 
: That is right. Dr Cullen is about to retire which is why he is so interested in the scheme. If the economy is two-thirds the size it could have been then it will not matter how many savings are in the bank; we will be two-thirds poorer than we should have been. That is why we have to have a more balanced approach. 
Dr Cullen contradicted himself. For instance he said that 0.5 percent reduction in wage growth will cover half the cost to employers of their contribution. Look if the cost to wages is so small then the savings cannot be big. If there is only a 1 percent moderation in wages and consumption then there can be only a 1 percent increase in savings. Dr Cullen cannot have it both ways. If this scheme is to fix the current account deficit and if it is to supply endless new capital for our investment markets then it can come only at a cost to consumption. It can come only if the working people of New Zealand tighten their belts very tightly and cough up a lot of cash into these savings accounts. Dr Cullen cannot have it both ways. If there is a whole lot of new saving in order to have a big impact on the economy then it must mean that New Zealanders are going to have to cut their spending by a lot. 
That is why Dr Cullen is going to spend the next 6 months talking to businesses rather than to normal wage and salary earners. The message to wage and salary earners is that they must tighten their belts to save the economy while he goes on a giant spend-up in order for Labour to win the election. In the Budget today Dr Cullen will spend $3.8 billion of new money. That is a much bigger new spend than in his previous few Budgets. His spending is going up while he is telling everyone else that their spending has to go down. 
I would like Dr Cullen to sort out his strategy. If he is going to claim that this scheme will transform the economy it can come only at a cost to spending by the working people of New Zealand. That is not called an economic identity. Savings are only what one does not consume. That is it—savings are only what one does not consume. If one increases then the other shrinks. That is how the system works. I advise Dr Cullen to claim less. The most immediate impact of these measures will be that people who can afford to will now take their savings in very large quantity out of their bank accounts sell their shares—maybe even sell their house—and put the money into KiwiSaver to the extent that they get a tax break and probably no more than that. The biggest single impact of these measures will be to shift savings. I am sure that Treasury has told Dr Cullen that. That is the first impact. 
The second thing is that there will be some people on higher incomes who have been spending but who will save. Because they can save they will do so. That will make some small increase to savings—and that will be it. You see there is more to growing the economy than having savings. That is part of it; we need some savings because we need investment. But we also need an environment where we can make efficient allocation of that investment where people have strong incentives to get ahead where profitability is rewarded where the infrastructure is unblocked and unplugged where businesses feel like the Government is doing everything it can to keep them competitive and where local bodies do not put up their rates by 10 percent per year. 
Dr Cullen is talking as if the only thing we need for an economy is savings. He should go to Japan. Japan has the biggest savings in the world yet it has had a 10-year recession. House prices have dropped by about 80 percent in Tokyo. Dr Cullen should go to Australia. Australia has had compulsory superannuation at 9 percent contribution. Its national savings rate is about 20 percent better than ours and much worse than in many other countries. Australia has a large current account deficit with a much bigger savings scheme than this one. That is not to say that there is no merit in Dr Cullen’s scheme but it is to say that he is simply being misleading when he says that the answer to everything is more savings. The scheme may have some impact on incomes and returns— 
Shane Jones 
: The people like it. 
Hon BILL ENGLISH 
: People might like it but we are talking here about a long-term view for the economy. It does not matter whether people have a big KiwiSaver account if when they get to retirement there is a small economy. They will be poorer. It is simple as that. 
I would also like Dr Cullen to explain why he has decided to undermine the Cullen fund so soon. What does he think will happen? The public are going to ask why when they now have an account that the Government is putting money into the Government does not take the money it is putting into the Cullen fund and instead put that money into their accounts. [ 
Interruption 
] Winston Peters has promoted that policy. He is going around telling people that that is what will happen. He has actively promoted that policy. We agreed with the Cullen fund. We signed the legislation. We have made the commitment. Why is Dr Cullen setting out to undermine the very policy he put in place? 
The National Party is voting against this legislation because there is nothing in it that provides the balance of policy to actually grow the economy. Dr Cullen is not providing a balance of policy to actually grow the economy. We also oppose Dr Cullen’s view that this scheme will save the world. It may have some impact on national savings. If we look at these schemes all around the world—and they have all been tried—we see that they may make some difference but there needs to be an economy— 
Hon Lianne Dalziel 
: What about Australia? Talk about Australia. 
Hon BILL ENGLISH 
: I talked about Australia to members before. Australia has a 6 percent GDP current account deficit. It has a national savings rate slightly better than ours because everyone takes their savings and puts them into a tax-favoured system. That is why Dr Cullen’s strategy is so unbalanced. Sure he should take some action on savings but he should balance that up with an economy in which someone who goes to work tomorrow knows that it is worth getting ahead and an economy in which workers can keep more of their take-home pay. That is not about savings; that is about getting ahead. In the long run most New Zealanders will be able to save if their incomes are higher. 
 But in a low growth economy such as this Budget is predicting incomes will not go up rapidly—they will not. People need their incomes to be rising. There is nothing in this Budget that says the Government is getting behind a dynamic economy that will raise people’s incomes. The Government is getting behind savings; that is one component. But it is not the way to raise the growth of the economy all on its own. We look forward to the economic debate over the next few months because National will be talking about a balanced approach Labour has decided that it will tell everyone how to spend their money and Kiwis will get to decide. 
R DOUG WOOLERTON (NZ First) 
: 
 New Zealand First agrees with the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. 
Chris Auchinvole 
: Ah ah! 
R DOUG WOOLERTON 
: I note that Mr Auchinvole has an “ah” stuck in his throat. If he has spent so much time going to elocution lessons then he should have learnt to clear his throat silently I would suggest. 
New Zealand First members are in favour of this bill. We applaud the Labour Government and in particular Dr Cullen’s new-found pragmatism. We have long said that the Government should incentivise our economy through the tax system and should listen to the market signals which was a favourite call through the 1980s and 1990s. The market signals are telling us that something needs to be done to stimulate savings to help our exporters and to help our business people. Thank goodness that we see something actually happening here and we think that is great. 
I do not intend to talk about the National Party particularly but it is amazing to me how much the National members talk about Australia and about our wage relativity with Australia. The relativity between New Zealand wages and Australian wages fell more when National was in Government than at any other time. That was when wages fell and when the biggest wage gap opened up. It was all about markets it was all about signals it was all about being hands-off and it was all about the market taking care of things but basically it was all about ideology. 
It amazes me that in this debate we are hearing the good old university lectures coming out from both sides of the House. We are hearing the ideology and all of the stuff that was learnt in various universities. If I myself was more learned I could almost say this person learnt under a Keynesian model or this person learnt his or her stuff at Harvard or at Oxford. To me it is all bunkum because what matters is what works. 
I say thank heavens that this present Labour Government has seen that the path New Zealand has taken in the past has not worked and it is putting in place something that has been proven in other countries. It is not ideology. It does not fit the model of the university-trained people we are hearing from today but we in New Zealand First believe that it will work and that it provides practical solutions to the problems besetting this country. We can no longer sit back and watch our research and development going to other countries. We can no longer sit back and see our businesses leaving our shores. Sure we know that some businesses can never compete with the communist regime in China which has low wages and pours heaps of money into research and development. Inevitably we will lose some of those businesses and that is sad. But we do not need to be losing as many businesses as we are so New Zealand First supports what the Government is doing and we applaud it. 
We also applaud the lift in tax credits for charitable donations right up to the net wage of the person making the donation. So if people want to give away more than they earn to charities they will get a tax credit right up to their net income. I would make this suggestion to Bob Clarkson who we know is immensely wealthy and has done a marvellous job in the community: he can now go out there and give away more than he earns because he will get a tax credit right up to his net income. We look forward to his doing that. I know that he has been a good person in the community in which he lives so I would be sure that even if none of his other colleagues supported this measure he would support it. 
It is true that in this country we should not continually look to the Government. I applaud this Government for saying that there are other methods of having money move around and go to good causes. Some people who have done immensely well in this country are willing—and I applaud Bob Clarkson because he has done this—to give money to good causes in their community. They are prepared to give money to an organisation or a cause for no better reason than they believe in it. It is their money and if they want to give it to a worthy cause they should be able to get a tax deduction to the maximum effect out of that and this bill allows that to happen. New Zealand First applauds that because we think it is wonderful. We know that the country that has the biggest the brightest and the greatest in this area is America and it has a record of getting a huge benefit out of wealthy businessmen because it is in their interests to donate. 
I also think that if we can have our company tax rates and taxation laws aligned more with those of Australia—and this bill does that—that is a good thing. I would have to say that the thought of New Zealand and Australia having a common currency let alone our having an Australian currency would fill me with horror because I think that ultimately it would be one step too far as far as the sovereignty of this country’s economy is concerned. But if we can line up more and more of our taxation— 
Hon Maurice Williamson 
: How come it worked in Europe? 
R DOUG WOOLERTON 
: The Euro? 
Hon Maurice Williamson 
: But seriously—Italy France Germany. 
R DOUG WOOLERTON 
: Yeah yeah but that was a different deal. If we can line these things up more and more I think that is beneficial to both countries. 
I cannot end without saying that we in New Zealand First—and everybody knows this—view with great concern the way in which our industries have been bought by mainly Australians but also other countries. By and large they are buying them through savings funds from savings schemes. In the case of Australia they are compulsory savings schemes and in the case of America they are its huge university funds and other funds like that. Those countries are getting the benefit of any lift in commodity prices and the benefit of the hard work and initiative of our people and we think that is wrong. New Zealand First thinks it is long overdue for New Zealand to start looking after itself building up its own savings and starting to do unto other countries as they have done unto us. New Zealand First wants to see our people buying industries in other countries and repatriating those funds to our country for the benefit of all our citizens. 
JEANETTE FITZSIMONS (Co-Leader—Green) 
: 
 I will address three issues in respect of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. The bill will require some careful scrutiny at select committee given its size and the fact that we have not of course had any opportunity to read it in advance. 
The first issue which has not been much commented on tonight is the lifting of the cap for tax deductibility of charitable donations. The Green Party has for some time argued that that cap should be much higher. We very much welcome the opportunity here to encourage greater generosity to charitable organisations and we welcome the increased income that we hope charitable organisations will receive as a result of this. But we have to look at one or two things very carefully. 
The first one is what the definition of a charity is and what it will become in the future. We have already had quite an argument which has reached a sort of compromise position where there was an attempt to exclude from charitable status any organisation that engaged in advocacy. That would have ruled out immediately all our environmental non-governmental organisations unless perhaps they were picking up oily tarred seabirds from the coast and nursing them back to health or restoring a stream bank. Any organisation doing anything of the nature of the Environment and Conservation Organisations of New Zealand the Royal Forest and Bird Protection Society the World Wide Fund for Nature or all the many others that are involved in trying to lead public opinion and advocate policy changes to Government would have been excluded under that proposal. 
A compromise was reached whereby advocacy is allowed provided that it was not an organisation’s main function. Nevertheless I think it remains to be seen exactly how this will be interpreted in practice. I hope the Inland Revenue Department will not counter the reduction in revenue from the complete removal of the cap by clamping down very narrowly so that only those organisations that help fund ambulances at the bottom of cliffs are able to be charities and not those that are involved in working with society to try to build fences at the tops of cliffs. 
Of course it is not just a question of what the definition of a charity currently is or how that might be interpreted. It is also a question of what that definition might become in the future if too many people get too generous and the Inland Revenue Department starts worrying about its loss of revenue. 
The other question of definition is whether it will be possible to set up charities that comply technically but that in fact may become a kind of tax shelter. It is a very big change indeed to go from a limit of $1890 to a limit of one’s entire salary and I think it is a very sudden step to go that far. I am not sure that we are completely sure of just what the outcome will be. We will be looking very closely at that definition in the select committee. 
Although some charities very much welcome the raising of the cap they are not sure they want it to go to 100 percent of income because of the risk that the State will see this measure as an opportunity for it to withdraw from much of the social service work that it does and leave it to private charities. That is another risk that we do not want to see eventuate. 
Secondly I want to talk about the tax credit for research and development—another thing the Greens strongly support. We do need to lift our investment in research and development in this country very substantially particularly in those technologies that will take us through the twin challenges of climate change and peak oil that will challenge our society very deeply over the next few years. 
But again there is the question of definitions. The bill states that the research must be “systematic investigative and experimental activities”. I would ask what sort of legal definition we will have of those terms and whether we are setting up a gravy train for lawyers to argue whether research and development qualifies. Of course we have to define quite carefully what activities will qualify—we are certainly not in favour of having no definition—but I think it is important that we make sure in the select committee that the definition is robust clear and unambiguous so that we do not spend all year arguing in court about whether research and development investments qualify. 
There is a set of exclusions for qualifying research and development—for example minerals exploration social science research market development stylistic changes to products and the routine collection of information. This is very proper; those things should be a normal part of what a business does and should not require any special tax incentives. But there is the opportunity for these excluded activities to come in through the back door if they are supportive of the matters mentioned in subsection (1)(a) of new section LH4 to be inserted into the Income Tax Act by clause 100(1) of the bill. I think that will also be a matter where there is considerable legal contention about what complies with the law and we need to think about it very carefully. 
A third issue is the liberalisation of tax penalties. It is very sensible for the Inland Revenue Department to develop an attitude of voluntary compliance and to work along with taxpayers to encourage and assist them to get their returns in on time and to comply with the tax laws. But for those who do not comply the penalties now seem extraordinarily light. I cannot imagine that Work and Income would ever treat a beneficiary in this way. I cannot imagine that beneficiaries who failed to comply with the requirements on them to the tune of up to $1.3 million would face a penalty of a mere $50. It seems that some people in society are to be given the benefit of the doubt in compliance matters much more than others. 
We can see the same sort of attitude going through into the KiwiSaver tax credit scheme. Generally we think the scheme is a good idea with the one big exception being that it is increasing greatly the wedge being driven between those on benefits or extremely low incomes and the rest of wage and salary earners. Not only do beneficiaries not get the child tax credit under Working for Families that all working people get but also they will not get the employer top-up of their savings scheme. They will not get the tax credit for savings. Beneficiaries with children do not receive the same State support that working people with children get and because beneficiaries have less opportunity to save they do not even get the top-up that goes with those savings. 
We are already in a situation where we have a group of people at the bottom who are very deprived compared with the rest of society. A great mass has been lifted by measures like Working for Families—and KiwiSaver will lift it again—but some people are being left behind and they are being left further and further behind as we go further down that track. 
RODNEY HIDE (Leader—ACT) 
: 
 I have to say there is something galling about being lectured to by the Labour Government about how we need to save more when we see that this Budget is about spending $56000 million in just 12 months. So we get lectured to about how we are not saving enough and the country gets lectured to but here is a Government that is spending $56 billion—the equivalent of $13000 for every man woman and child in New Zealand—and the Government tells us we have to save. What is interesting about this Government spending is that it is not its own money it is spending. It is actually the money of the people of New Zealand that it is spending—the same people whom the Government is banging up on saying that it is their fault there is inflation. Just to put it into context core Government spending has increased $20 billion since 2000. I want to take members to a line in this Budget. 
Hon Clayton Cosgrove 
: Nice glasses Rodney. 
RODNEY HIDE 
: I thank the member; I got them in Christchurch and they are very nice. 
Hon Clayton Cosgrove 
: Whereabouts? 
RODNEY HIDE 
: From the optician on the corner of Hereford Street and Oxford Terrace. 
Darren Hughes 
: Did you get a pensioner discount? 
RODNEY HIDE 
: Well actually I did not. I wonder whether he gets a student discount whenever he goes shopping and whether he still has to produce his ID. When Darren Hughes first turned up to Parliament it was embarrassing and when Bellamy’s asked for his ID he had to explain that he had been an MP for 3 years. 
I want to take members to a line—[ 
Interruption 
] Mr Cosgrove might learn something if he listened. 
Hon Annette King 
: Don’t be jealous. 
RODNEY HIDE 
: There are many strong emotions I feel at times in this House but jealousy of Mr Hughes has never been one of them. I am not even jealous of his youthful exuberance actually because Darren Hughes is one of those interesting guys who is so young yet seems so old at the same time. It is extraordinary. 
I want to take members to a line in the Executive Summary (B.2 and B.3) on page 162: “Forecast for future new spending”. This is interesting. Dr Cullen said that he will be setting aside a “bit more spending” for election year—at a time when we have to be saving—but I want to read out how much he is setting aside for extra spending. 
Hon Clayton Cosgrove 
: Slowly slowly! 
RODNEY HIDE 
: I am sorry; yes I have to wear glasses because the print is so small. The amount is $1908 million. Let us call it $2 billion. So the Minister of Finance says we all have to save. He will compel employers to save and put that money into a superannuation account and the Government will pay people $20 a week as savings. I ask Mr Groser how much he thinks they will save in the first year and how much they will save in the following year. I think the answer is not much a few hundred million. If we allow for Ricardian equivalence—I think Mr Cosgrove would like to know about this—it will be even less. It may be $200 million in net terms at best. In fact Michael Cullen will be spending an extra $2 billion. 
Then we look at the forecast new spending for the following year and it is $3838 million or say $4 billion. If we go to year 3 it is $5786 million. For Mr Cosgrove’s benefit $1 billion is a stack of $100 bills a kilometre high. That is what $1 billion or $1000 million looks like. We have a Government that will be spending about an extra $2 billion next year an extra $4 billion the year after that and an extra $6 billion the year after that. Who knows what on! Winning an election is what it is going to try to do. That money is going to be used to try to win an election yet the Government is lecturing us about the virtues of saving! 
If the Government were interested in getting people to save it is very simple. It would put more money into their pockets—like tax cuts. 
Hon Clayton Cosgrove 
: But they do not save it. They have not saved in the last 50 years. 
RODNEY HIDE 
: That’s great! Mr Cosgrove is attacking the good people of Waimakariri because they do not save yet he is part of a Government that has increased spending by $20 billion. I tell Mr Cosgrove that those people cannot afford to save because— 
Hon Clayton Cosgrove 
: Rubbish! 
RODNEY HIDE 
: He says “Rubbish!”. Mr Cosgrove says that the people of Waimakariri can save and it is rubbish to say they cannot. Mr Cosgrove will not like this but he should get out more and start talking to some real New Zealanders whose wages have not kept pace with the costs imposed by this Government. Its outlook for growth is just 2.3 percent— 
Hon Clayton Cosgrove 
: Krystal doesn’t count mate. 
RODNEY HIDE 
: I know that Mr Cosgrove is fixated about the fact that I went dancing. I know he is upset they never asked him. I know he is upset that he cannot get a date. But Mr Cosgrove should live in hope. One day I am sure he will get a date and someone might even go dancing with him. I know they did ask Mr Peters to go dancing. He mentioned that earlier. I was not going to be the first one to raise the matter but Mr Peters said that when he was asked to go dancing he agreed. He actually agreed but he put a condition on it: that he could dance only with himself. They said: “We’re sorry Mr Peters but that’s not how dancing works.” He said he was not prepared to share the stage with anyone else so he did not turn up. What we have here— 
Hon Annette King 
: Have you had a date given that you want Clayton to have a date? 
RODNEY HIDE 
: The Minister of Police across the floor of the House on Budget night is trying to date me. How disgusting is that? Maybe 30 years ago it would have been on. I have to say: “I’m sorry; I love you to bits really I love your personality I love your sense of humour but you and I aren’t going dating. I can promise you that.” I would go out with Darren Hughes before I would go out with Annette King and that is saying something—God Almighty! 
The Labour Party is desperate for friends. We saw Michael Cullen get up in this House and plead with the National Party to vote for the Budget and we can see why. We can see why Annette King is flaunting herself before me because they want me to vote for the Budget. Well I am sorry but it is not going to work. Annette King cannot flaunt herself and get me to vote for this Budget. I promise her it is not going to work that way. But members can see why Labour wants the votes because this is the first time in New Zealand’s history that a minority of Parliament has voted for a Budget. That has never ever happened. 
Darren Hughes 
: It won’t happen tonight either. 
RODNEY HIDE 
: Oh it won’t happen tonight? 
Darren Hughes 
: No. 
RODNEY HIDE 
: Well I heard that it happened this afternoon—absolutely. 
Darren Hughes 
: No. 
RODNEY HIDE 
: A minority of this Parliament voted for the Budget. The majority of this Parliament did not vote for the Budget. I can see why Annette is reaching out to me. Michael Cullen is reaching out in a caring MMP way to Bill English and John Key. Why? Because the Labour Party is losing its friends it is losing its support—[ 
Interruption 
] In the case of Annette King I wonder whether it is losing its mind. I really do. 
TE URUROA FLAVELL (Maori Party—Waiariki) 
: 
Tena koe Madam Assistant Speaker. Kia ora tatoui te Whare teneipo. I as a representative of the Maori Party come to the House tonight confident of course that the grand total of 3 hours that we have had to consider the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill has been sufficient to analyse the mere 258 pages of the bill! All jokes aside this is the big wash-up bill which includes amongst other remedial matters tax credits for research and development tax credits for employers of up to $20 per employee tax incentives for giving to charitable organisations and a whole host of amendments to the income tax rates. 
The initiatives on research and development and on skills training are going to be good for business and we hope that the proposals will do something to address the state of emergency that the manufacturing sector has reported over recent weeks. This bill introduces tax credits for science and technology - based research and development conducted predominantly in New Zealand by New Zealand businesses. Of course it is probably too late to prevent our iconic industry Fisher and Paykel from moving itself and its manufacturing operations to Thailand. It is unfortunate that Thailand pulled out all the stops—offering tax breaks and helping with training and other incentives—while this Government unfortunately just waved its premier washing machine and clothes dryer manufacturing business offshore. We said at the time that the Government must do something to address a manufacturing strategy—a strategy that will benefit those low-income workers who will be unlikely to be able to support the 4 percent contribution required for KiwiSaver. We remind the House this evening that the manufacturing sector is a major employer of Maori workers. In fact some 32900 Maori were employed in 2005 and another 23200 Pasifika workers. 
Of course the jury will be out in relation to whether the announcements are too late to stop Dynamic Controls Click Clack G L Bowron and possibly Sleepyhead Manufacturing from being able to stay in the “land of milk and honey but not much money”. We have all heard the warning signals about the exorbitant costs of retaining large-scale facilities and employees in Aotearoa and we will be watching with interest to see whether these incentives will make much of the difference that is needed. We also know that there is a huge demand for research and development which begs the question as to whether the $88 million injection announced today will respond to that. We have to wonder whether setting an entry point of $20000 is just too high a threshold to really enable companies to enter into the scheme. 
With regard to giving tax credits to employers it begs the question of why we do not do away with all the red tape and introduce tax cuts for those on low incomes. Although we support the intention of KiwiSaver to address our relatively low personal savings rate as a nation we cannot avoid the fact that hardship is increasing. The level of social deprivation in Aotearoa is deplorable. It was only a few weeks ago that the OECD economic survey of New Zealand reported that our living standards have remained some 16 percent below the OECD median for some years now. I remind the House that New Zealand suffers from what economists Dr Susan St John and Dr Steve Poletti describe as “an intractable child poverty problem”. 
I was interested to read the release this afternoon from the Auckland chamber of commerce in response to the Budget in which the chief executive Michael Barnett said: “… but to my mind our problems are urgent; we need to get beyond gradualism. If we are going to be an exceptional country and transform our economy we need to do exceptional things that are transformational.” It could be said that investment in research and development compulsory employer contributions and personal tax breaks of about $20 a week are steps towards getting the economy back in balance but I ask: what about the greater society? How do we as a Parliament address the ever-growing gap between rich and poor? The social cost of being unexceptional is too high. The issues of economic insecurity that Mr Jones referred to earlier tonight will still remain long after urgency has been wound up and we all return home. 
I want to refer to the initiative to set a 5 percent deduction limit on donations made by companies and Maori authorities. Like many multifaceted bills this bill has some good changes alongside some not-so-good changes and this initiative is a good one that responds to our culture of giving—the sense of manaakitanga that some 1.3 million people in Aotearoa represent through their dedicated commitment to the community and the voluntary sector. This bill introduces amendments that substantially increase the tax relief for donations of money made by individuals companies and Maori authorities to charitable organisations including removing the Maori authority net deduction limit of 5 percent of an entity’s net income. 
Finally I refer to the confusing picture of changing names. In the current names we have family assistance which now becomes Working for Families tax credits. Family support becomes family tax credits. The in-work payment now becomes the in-work tax credit. The parental tax credit has not changed but the family tax credit now becomes the minimum family tax credit. Some basic questions have not been able to be answered in the quick scan of the 258 pages we have had to look at but here perhaps are some. Why has there been no consultation about the decision to change the name from family support to family tax credit? The name change adds another complicating layer of confusion to an area that is already fairly confusing. We can ask anyone on the street what family support is and they would have a pretty good idea that it applies to every child regardless of whether the parents are in paid work. Whereas the old “family tax credit” previously referred to payments for children whose parents were in work it will now be the term for family support. The family tax credit now becomes the minimum family tax credit. If that is confusing to anyone in this House members should spare a thought for the many New Zealanders at home tonight. 
An obvious outcome of the confusion is that families will find those forms of assistance even more confusing to apply for and they will be more difficult to get. Evidence already shows that that will be disastrous for Maori communities. Whenever complications have been introduced Maori are more likely to miss out than other people because we simply do not know what we should be receiving. We wonder too whether the name changes will be the justification for yet another round of expensive advertisements regarding the name changes. Another important outcome of the confusion is that using the name “family tax credit” which meant one thing but will now mean something else raises concern that the field becomes very difficult to analyse and write about with any ease or coherence. 
Those are all questions that cannot be answered tonight and no doubt they will be just the start of many more discussions. In light of such great uncertainties and unknowns the Maori Party will be abstaining from voting on the first reading of this bill. 
Hon CLAYTON COSGROVE (Associate Minister of Finance) 
: 
 I rise to support the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. Earlier this evening I made a statement that I want to reiterate in respect of the KiwiSaver provisions of this bill. As with the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill this bill corrects what this evening I call 30 years of the biggest perpetration of economic and social vandalism inflicted on this country and this Parliament by the then National Government. I refer to what Robert Muldoon did in pulling the rug out from under every Kiwi who had signed up to the Norman Kirk Labour Party compulsory superannuation scheme. Tonight the provisions in this bill as with the first tax bill we debated tonight bed in and correct that wrong. 
I challenged members over the other side—Mr Foss Mr Tisch— 
Tim Groser 
: John Hayes. 
Hon CLAYTON COSGROVE 
: —no not “Sir Les Patterson”—and Mr Groser who does have a good memory of history to stand up justify and put forward a policy position. We heard Mr Key say we do not need savings schemes. He said that on television tonight. Mr Key thinks we do not need incentives to save. Mr Hide got up and said that we do not need any of this stuff because Kiwis will invest their money where they want and will invest it prudently. Well I say to Mr Hide—that great economic genius of our time who gave a lecture or two at Lincoln University somewhere along the way—that if we look at our economic history in the boom times the real boom times in this country of the 1950s and the 1960s we see that we as Kiwis do not save in the good times. 
Hon Annette King 
: We spend. 
Hon CLAYTON COSGROVE 
: We spend. And what Kiwis are looking for is some sort of incentive some sort of cultural shift to incentivise them to save. 
But of course Mr Key on television tonight said that Kiwis do not need incentives to save. Then we look at what Mr English said. He said that Kiwis do need incentives. But it is a bit like National’s position on tax. For 3 years or 6 years—nay since the 1990 election—National has claimed that we need tax cuts. Then on 24 April 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 came into the House and announced with some sort of chest-pumping pride that he would vote against the cut in corporate tax and that he would vote against a KiwiSaver scheme that backs every Kiwi in New Zealand to make provision for his or her retirement. 
Labour says to all New Zealanders that if they put some money up and if their employers put some money up the Government will put some money up. By 2011 that will add up to around a hundred bucks a week around $5200 a year that people will get back to provide for their retirement. That of course is the great divide between the parties—we believe that Kiwis should be incentivised to save. We do not believe in the slash-and-burn mentality of cutting taxes right across the board. Kiwis will compare that policy of the National Party which would have given my constituents in Waimakariri—whom Mr Hide waxed so eloquent about—around 5 to 10 bucks a week with what the Government is proposing and will implement with KiwiSaver which will give them $5200 a year and I say to the National Party that Kiwis are not stupid. 
Dr Lockwood Smith can look on from over there with his childish delicate flowerlike grin but I will tell members what he cannot do. On Monday he has to front up to the businesses in his electorate and explain in his boyish charming cream-puff way why he fought an election saying that there should be a corporate tax cut and why his party tonight voted against a corporate tax cut. In his delicate naive boyish sort of way he will have to go to those businesses and give an explanation. 
I challenge him to get up tonight along with Tim Groser Lindsay Tisch and that genius when it comes to Inland Revenue Department matters—especially his own—Craig Foss and tell us what National members will say to the business community. What will they say to Phil O’Reilly of Business New Zealand? He has been at conferences where he has said in front me in my capacity as Associate Minister of Finance that Business New Zealand wants a tax cut and that the National Party will give a tax cut. That is OK; Phil is all right. 
The National Party campaigned for years on tax cuts yet tonight it voted against it. Tonight National members continue the 30-year perpetration of what I called in the last debate the biggest social and economic betrayal of Kiwis when the National Party—and Dr Lockwood Smith laughs— 
Hon Annette King 
: No he’s not laughing. 
Hon CLAYTON COSGROVE 
: Yes he is in his boyish delicate flowerlike way. 
Hon Annette King 
: He’s agreeing with you. 
Hon CLAYTON COSGROVE 
: He laughs because he continues to perpetrate the economic vandalism of Rob Muldoon when in 1976 he pulled the rug out from under every Kiwi. 
Dr the Hon Lockwood Smith 
: I laugh because I feel sorry for the poor prick. 
Hon CLAYTON COSGROVE 
: I beg the member’s pardon? 
Dr the Hon Lockwood Smith 
: I said I laugh because I feel sorry for you. 
Hon CLAYTON COSGROVE 
: No the member did not. He said something silly but he will regret that because he has proved he is a small man with a small policy and a small brain. Every Kiwi who listens to that mob over there knows that he and every member of his party who has stood up tonight said for 3 years that National wants a corporate tax cut and tax cuts across the board and tonight they voted against it. Well there is a word for that. He used a word against me and I will not lower myself to that member’s level but I say to Dr Lockwood Smith—and I look him in the eye—that if he thinks the communities in New Zealand are stupid and can be conned and hoodwinked by him I would like to be at the businesses he talks to on Monday when he explains why he voted against a corporate tax cut. I will yield to the member right now if he will tell us. 
Dr the Hon Lockwood Smith 
: Yeah because businesses want us in Government not you! 
Hon CLAYTON COSGROVE 
: No. That member said that his policy was to cut corporate taxes. The problem for that member is tonight this Government has brought home the bacon. Sadly that member has flip-flopped on every policy. The only shallow mediocre tactic that those members have is to take every policy this Government has adopted that is popular and nail themselves to it and drop every policy they went to an election with that the public did not like and deep-six it somewhere dark and deep where only Lockwood would know where to go then try to “me too” themselves to the election. 
But the line has been drawn in the sand because tonight Kiwis can judge a Government of consistency a Government that put out a firm platform before the election a Government that then placed on top of it a solid Budget that enhances KiwiSaver a Government that laid out a tax reduction policy for corporates and then they can judge an Opposition member like Dr Lockwood Smith a member of the Finance and Expenditure Committee who got chased out of the room by students and who campaigned in the last election on a corporate tax cut yet tonight his leader and his deputy leader voted against it. There is a word for that. He will use it; I will not. But I challenge him again. I say to that member— 
Dr the Hon Lockwood Smith 
: Why is Mike Moore so embarrassed about this member? 
Hon CLAYTON COSGROVE 
: That member challenges me about Mike Moore. I will say that Mike Moore did not flip-flop. Mike Moore did not promise a tax cut to every business in the country when he was Minister or Prime Minister then turn round and vote against a cut when members opposite proposed it. So I say to the member that he should put that in his pipe and smoke it because there is a word for him. He represents everything that is dark about his party. I challenge him. I will come with him on Monday I will go to the businesses he visits and I will see what explanation he gives to businesses because he will not be able to look them in the eye. 
CRAIG FOSS (National—Tukituki) 
: 
 It is a pleasure to finally stand up to speak to the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill tonight. 
Earlier Mr Shane Jones the chairman of the Finance and Expenditure Committee made a couple of points. It was an outstanding example of why we need more productivity in the public sector. But he also showed he was quite ready to fill the shoes of Parekura Horomia because like Parekura every time he sits down after getting up and speaking—he speaks very powerfully; he is a great orator—one has no idea what he said. One actually has no idea what they said but one knows they got up and said something out loud. 
 I will pick up on a couple of points that Dr Cullen mentioned in his speech to this bill and the earlier bill the Taxation (KiwiSaver and. Company Tax Rate Amendments) Bill and I have to take issue with one point. He claimed the KiwiSaver scheme is one of the keys to today’s Budget and he talked about the amount of savings that will be built up and will be invested in New Zealand. Well that is totally untrue. He has absolutely no idea where the savings in these KiwiSaver accounts will be invested. He has absolutely no idea of the risks that are entailed once these funds are invested from default providers or wherever. So for him to get up and say there are billions of dollars on the plate tonight to be invested in the future of New Zealand is totally wrong. 
Another term Dr Cullen kept using was “paid for by the Government”. That is partially true but the Government is only a conduit. Money is taken by the Government in the first instance and is then transferred out by the Government in the second instance. Today’s Budget has been christened the “money-go-round Budget” and it is hot on the heels of last year’s “chewing gum Budget”. At that time the 67c a week indexation in the “chewing gum Budget” was supposed to be the highlight. Well it was appalling but in contrast with today’s effort where there is zero cash until a person is 65 the “chewing gum Budget” does not actually look too bad in comparison. 
The linchpin of the Budget today and what all the talk has been about is the KiwiSaver scheme. I do not think there has ever been a programme of any Government that has had such a terrible start to its life—a stuttering start with so many changes and amendments. We are here under urgency. Why are we here under urgency when we speak of anything to do with the KiwiSaver scheme? When the specified superannuation contribution withholding tax was announced as the bill was introduced into Parliament for its second reading or perhaps the Committee stage we flew into urgency and Parliament was informed about that about an hour before. The mortgage diversion part of the KiwiSaver scheme was hot on its heels and again had to be pushed through urgency. Why on earth cannot the New Zealand public present to a select committee on these points? The same applies to the specified superannuation contribution withholding tax extensions which were announced in December and were basically an admission of failure in the original design. But I would congratulate the Government on that extension which at least tries to bring private schemes under the same umbrella. 
I feel sorry for the officials who will be dealing with the legislation tonight. There are another 188-odd pages of KiwiSaver legislation with amendments and Supplementary Order Papers to come no doubt. Why can we not just get KiwiSaver right in the first instance? The select committee spent 6 months on the original bill and lo and behold the major changes—things that fundamentally change this bill—were introduced rushed through and bulldozed into the House under urgency. 
It was interesting to watch the Labour backbenchers as Dr Cullen read what is possibly his last or second to last Budget. They were cringing. The good old spontaneous applause was not all that spontaneous; it was less spontaneous than last year which perhaps is a reflection on the polls they had all seen particularly TV3’s polling around tax cuts and Dr Cullen. I think Government members were also cringing because they know—particularly the backbenchers and those who once had electorate seats—that they are going to have to go around the country this week to explain to people who are struggling to get by where the money is. Those people will say: “Show me the money.” Sure Government members can draw wonderful diagrams of money compounding to $200000 $300000 and $400000 in 30 or 40 years’ time; that is what insurance agents do right now when they try to sell funds to people. But when their bill from the State-owned electricity company has gone up another 10 or 15 percent when people have to pay another 10 percent for petrol when their rates go up another 10 percent per annum that is what counts. That will be the shameful legacy of this Budget once the honeymoon is over. 
I heard an earlier speaker talk about how many phone calls are coming through to members opposite about the Budget. They are probably just asking where the money is and asking members to show them the cash. What is Grey Power saying about this Budget? What is in this Budget for the over-65s? What is in this Budget for the 20 to 25-year-olds? Where is the cash for them? What is in this Budget for those people whom the Labour Party members have a propensity to say they care so much about? Actually they do not care for them whatsoever. There is absolutely nothing—no cash—in this Budget for those who have done the hard yards have already retired and will continue to struggle. 
The stinginess of confiscating the “chewing gum tax cut” is outrageous. A lot of New Zealanders have suffered fiscal drag. Fiscal drag is when inflation drags people up into higher and higher tax brackets. There are two ways out of that. The tax brackets can be moved up with inflation or productivity in the economy can be grown to get more bang for our bucks. Inflation in New Zealand has been underpinned by the overtaxation and unproductive spend-up of the current regime. This Budget is not about a snapshot of just today; it is about the series of Budgets of the last 7 or so years. The difficulty that Dr Cullen is facing right now is because of the failure of those seven previous Budgets; it is not about just this one right here today. 
Fourteen percent of New Zealanders are now in the highest tax bracket of 39c. When Labour came into Government one of its pledge card promises was that 5 percent of New Zealanders would be in that sector. There is now a 200-odd percent increase; it is absolutely absurd. Once this Budget’s honeymoon is over once the hundreds and thousands of dollars have been talked about on TV and on the chat shows etc. New Zealanders will start to wonder why on earth they are struggling to make ends meet and how on earth they will find the cash to pay the bills to pay the increasing floating interest rate on their mortgage which is now near double figures and to pay for some of the items I mentioned before—quite simply how they will get by to live and perhaps to put a little bit together to save. Apparently saving is so important. 
They will finally realise after about 6 months of this policy that Labour has cut their real wages. It has cut their real wages and cut their purchasing power. As my colleague Bill English said earlier that is exactly what this Budget is about—Labour is essentially announcing a wage cut to New Zealanders tonight. That is an absolute disgrace. It will start to hit home once those bills start to be paid in a few weeks’ time. Under this scheme Labour will take cash off workers now today instead of giving them a pay rise and will put it at risk in a fund perhaps until those workers are 65. Well what happened to the party that used to talk about a decent wage for a decent job for a decent living to get by? 
What will be the result of this Budget? Quite simply it will result in the battlers and those who are unfortunately at the bottom of the socio-economic heap having more debt. They will be stuck with more debt. They cannot afford to participate in this programme as it is announced. Because someone would have enrolled them in the KiwiSaver scheme and they would have forgotten about it they will be down at the dodgy shop of the guy on the corner borrowing at interest of 20-odd percent. 
What will happen to the over-65s—the retired people? They will do more reverse mortgages because they will have no more cash to pay the bills. They will start to eat their equity which is exactly the opposite of what Dr Cullen presumably was intending. 
Finally Dr Cullen also spoke about the current account deficit and what a big deal that is. Well I just took a moment to look up the 2000 Budget and in that Budget Dr Cullen was particularly concerned about the current account deficit and the impact it was having on New Zealand’s economy—this was at about the time that the New Zealand dollar was at about 54-odd US cents. At the time Dr Cullen said the current account deficit of 5 percent was much too high and that it would be heading to 2 percent over the next 2 years—oh really? In 2007 the current account deficit is at 9 percent—about $14 billion—and that is the core of the problem. There has been a series of failed Budgets which is why we have these problems today. No Finance and Expenditure Committee inquiries will get Dr Cullen out of the hole he has been digging for himself for 7 years. 
SHANE JONES (Labour) 
: 
 It is an absolute pleasure to stand again and applaud the work that Dr Cullen has done. I look forward to the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill being referred to the committee that I chair the Finance and Expenditure Committee. I have no doubt that after the hyperbole and after irrelevant flights into economic fantasy have faded away from the walls of this House my friends on the other side of the Chamber will see there is much of great worth in this bill and they will ensure that the select committee delivers the finest product it is capable of delivering for the benefit of Aotearoa. 
We have just heard from that person Mr Foss who is colloquially known as “Granny Smith”. He makes the point that workers are not getting a decent or reasonable level of recompense yet when he had the chance to vote to support an increase in their wages the hand above his slightly balding head was the first one we saw opposing it. So one cannot have it both ways—no. But I am prepared to make allowances because that speech reminded me of a third-former in the biology lab pulling off the legs of a great big taniwha. The taniwha is the public and the more he pulls the legs the more the public will demand to know what the newish guys on the other side of the House stand for. What are their remedies? 
We do not want to hear stories about flash levels of incomes from money-changing rooms. We do not want any more tedious renditions of trade discussions which have long since put listeners out there in Aotearoa to sleep. We want a clear distillation of what it is that they propose to do to address the three things that this Budget takes care of. 
No. 1 is the savings deficit. No. 2 is the ongoing investment in physical and human capital. When people do not possess either a vision or a coherent set of ideas that might comprise something of a narrative they are reduced to looking through the ever-diminishing eye of an needle—which is actually like a scratched record in terms of how National members speak. They see nothing. They see only these tiny little parts of the story. That is not what the public is looking for which is why I took a phone call before I came back to the House. Someone asked me: “Shane Jones is it true at long last that the tax system is going to actually improve the savings of our mokopuna and our kids?”. I said: “Absolutely.” He asked: “And do you mean to say the firms of Kaitaia Whangarei Auckland Hamilton—[ 
Interruption 
]—and even of Epsom—are going to wake up tomorrow with lower tax rates and are going to receive a host of incentives? Is this what we are going to receive Shane?”. I said to him: “At least. And the next time you go to catch a cab and you find National guys elbowing you out of the way as they race to the cab in front of you ask them what it is they are proposing to do.” 
I said a rather charitable thing about John Key before but there is an additional thing I will say about him. We have watched the Opposition—like a team that loses to NgatiPorou East Coast—try to come on to the field and play against a far more match-fit superior and stronger team. At least this time the Opposition has put someone on the field who in order to win is prepared to completely disrobe and to grab his opposition’s clothes: he is trying to avoid being hit by us through pinching our ideas. So now we know that strategy. 
But the reality is that we will fight anyone who wants to stand in our way because without a sliver of ambiguity this bill is what we stand for. This bill is what we will take to every firm community and household. We will say to them that stand or fall ebb or flow this is where they will find the Labour-led Government standing for the next 12 months. We will be able to say: “OK adversarialism is very strong but why would you want to deny the firms investors and entrepreneurs the opportunity to grow businesses through some very sensible and progressive tax changes?”. I accept—as Bill English said—that there is a certain amount of adversarialism but this actually shows that the Maori proverb is correct—kei runga te korero kei raro te rahurahu; the lips are saying something but the rest of the anatomy is doing the opposite. That is what this rhetoric shows—make no mistake about that. 
Of course with this bill not only have we gone on with our social investment and been committed to raising and enriching our sense of identity but we have very much focused on an issue that will stand as the legacy of our treasurer—the day that we boldly agreed to put aside the gains that are currently available and inject them into a future focus strategy. That takes a lot of courage and boldness. I will tell members something else. We did not succumb to the flirtatiousness which we see on the other side of the House in promising people that they will spread goods like confetti as at a false wedding. What will that confetti give them? A momentary fix. Yet what people are really telling us is: “OK you’ve invested in social capital; the health services housing and other key elements of the socially progressive State are intact. Now you are coming back to address those issues that lie in private enterprise.” In fact I can see us possibly having to sell tickets as firms race to address our select committee. I look forward to what will be in the Budget next year because ours is a step-by-step approach. 
I omitted something in my earlier speech and it relates to what we are doing in Maori matters. I heard Dr Pita Sharples make yet another foolish statement—as he sought to do last week over Treaty matters. I say to Mr Parekura Horomia that if there was ever a reason why we need to invest more in numeracy and literacy then Dr Sharples evidenced it this evening on television. He said that no there was nothing distinctive for Maori in the Budget. Well Maori will be big winners in the KiwiSaver scheme. At the moment far too many of our people die before they actually gain access to superannuation. I remember Sir Graham Latimer saying that it is actually a case of equity. So many of our people do not live long enough to enjoy the pension in their latter years. The KiwiSaver scheme will enable them to address that problem. Secondly the KiwiSaver scheme will allow them to improve homeownership stakes. You see not everything needs to wear either a moko or a korowai in order for the scheme to be useful to Maori. Maori are an integral part of the rank and file and within the full meaning and breadth of the term “Aotearoa”. 
We are going to expedite the settlement of claims despite the best efforts of the Maori Party to spread misinformation and confuse people. Fortunately for people that confusion will last only 18 more months; then it will be all over. That party will go the way of Tuku Morgan Tau Henare—and just wander around. Of course that party is losing enormous amounts of support at the moment. Its members are holding emergency meetings up and down the country on marae where they meet with the caretaker and a couple of stray animals but those days will soon be disappearing. 
Just to show how wide and how insightful our investment in education is we are going to invest in kura kaupapa wharekura and wananga. Of course National does not believe in wananga—no. Bill English tried to have his mock press interview with Don Brash ambushed by National Party members from the Te Wananga o Aotearoa. They had to go in and participate in a mihi but they were actually there to pour scorn on the wananga. They went to a mihi but they had to ring up the Maori Language Commission to get a translation over the phone. No we are not having any more of that. We are investing in wananga kura kaupapa and wharekura and despite the politics of discord that unfortunately for Aotearoa have been poured out throughout the country over the last few years we have moved on beyond that. 
Of course the great puzzle for Maori voters is why our friends from the Maori Party are busily conjuring up policy with National wandering around trying to meet with NgaiTahu and Tainui to buy out relativity clauses and at the same time saying that the State is spending too much money. Therein lies the tragedy of what these two groups put out together—one is locked in victimhood; the other is locked in falsehood. Goodnight Irene; kia ora tatou. 
TIM GROSER (National) 
: 
 There have been documents consisting of many pages tabled tonight. There has been a deluge of words some less useful than others and in them have been matters of some complexity and also some quite simple matters. Generally as in life the more important things are the quite simple things. 
Amidst the many complexities I am still puzzling over one thing and that is that in the Budget speech under “National Identity” the keynote statement says that giving $245 million or $246 million more to people who live outside New Zealand in the form of development assistance will help our national identity. When one tries to explain to Aucklanders why they feel aggrieved about the mix of policies in this Budget and then tries to explain why they should be positive in terms of their national identity one has some hard yards ahead. 
While on this matter I note that it is symptomatic of the general spending problem. There is nothing wrong with trying to make progress towards our higher overseas development assistance targets. There is absolutely nothing wrong with that but the fundamental speed wobbles involved in the expansion of the existing programme as identified in 2005 by the Marilyn Waring report have not even started to be addressed. That is just one small example of one of the fundamental things that are wrong with the Budget strategy tabled tonight. It is about more spending. More billions of dollars are going down delivery mechanisms that are seriously flawed and no serious attempt has been made to fix them. 
But in respect of the simple things the simple truths what strikes me is that if we try to analyse the two centrepiece issues in this bill which are the Working for Families additional elements and the KiwiSaver elements we see that one simple truth comes through. When we ask ourselves why the Government has gone down these complex routes why has it not gone for simple solutions such as comprehensive tax reform over the years why has it gone down these bureaucratic targeted approaches routes I think there is a simple truth staring us in the face. They do not trust New Zealanders. 
Debate interrupted. 
Sitting suspended from 10 p.m. to 9 a.m. (Friday)