Copeland Gordon: Debate on Budget Policy Statement 
Copeland Gordon: Debate on Budget Policy Statement 
[Volume:623;Page:18894] 
GORDON COPELAND (United Future) 
: 
 The Budget Policy Statement for 2005 although it has a few positive points is generally seen in a negative light by United Future. The first point I want to make is that the statement forecasts additional revenue from higher-than-expected tax receipts and other sources of more than $5676000 million for the period 2005 to 2008 in comparison with the May 2004 Budget which was completed just 6 months earlier. Let us be clear about the matter. That is $5.68 billion over and above the amount that Treasury and therefore the Minister of Finance and the Minister of Revenue had expected to be collected just in May of last year. So between May and December the Government forecast an additional increase in revenue of $5.68 billion. Put another way when compared with the last Budget the Budget Policy Statement represents a $5.68 billion windfall to the Government—money it did not expect to receive. 
Given those realities I find Dr Cullen’s response to the new forecasts quite extraordinary. The Budget Policy Statement was released on 14 December 2004 and was accompanied by a press release from the Minister which stated in reference to that windfall that his intention was to bank some of it and to spend the rest on new initiatives. There is no evidence at all that the Minister gave even one second’s consideration to the possibility that the windfall which must have been in excess of his spending needs—even in excess of his wish list; those initiatives that he had foreseen at the time of the Budget—should therefore really be left in the pockets and purses of New Zealand taxpayers. It would have then been the hard-working Kiwi battlers rather than the Minister who were empowered to make the decision to bank some of it and to spend the rest. That is exactly what the Minister of Finance should have done with regard to the windfall. 
The Minister is after all—as I have consistently pointed out—collecting a great deal more tax than he was in 1999. His failure to index the taxation brackets for the 13 percent inflation that has occurred since 1999 means that in real terms he is now collecting around $900 million per year by way of an increase in the rate of taxation itself. That is hardly the kind of outcome that the people who had read in Helen Clark’s credit card commitments in 1999 that Labour was not going to increase the taxation rates would have expected. A further $900 million as a result of an increase in the rate of taxation was not in any way foreshadowed by the credit card. My interpretation is that it is actually a broken promise. 
I do not believe for one moment given the overall strength of this Budget that New Zealand should accept the Budget Policy Statement. When Dr Cullen presented evidence to the Finance and Expenditure Committee I asked him directly whether he gave any consideration at all to the possibility of tax cuts. His answer was no. Why not? Surely any Minister having set a Budget that covered both income and expenditure on receiving a $5.68 billion forecast windfall over the next 4 years would and indeed should have given detailed consideration to the possibility of a tax cut. But let us wait; it gets worse. I then asked Dr Cullen if he were to continue as Minister of Revenue beyond this coming election when New Zealanders may expect to see a tax reduction even to offset the effects of inflation—in other words to return taxation levels in real terms to where they were when he assumed office in 1999. The Minister essentially dodged the question and he refused to set any kind of date. Instead he just said that it would depend upon his judgment around fiscal circumstances and priorities in 2006 and beyond. 
 We are left in the unenviable position as a nation of wondering whether if Dr Cullen continues as the Minister of Revenue after this year’s election we will ever see a tax cut. Are we to wait until inflation hits 20 percent more than the 1999 level? Are we to wait until it hits 30 percent? When it has moved by 30 percent since 1999 will we still see people paying 33c in the dollar at $38000 a year and 39c in the dollar at $65000 a year? At that point in time the average wage in this country will probably be $65000 a year and those earning it will be paying tax at 39c in the dollar because that is the inevitable outcome of the Minister’s attitude towards these matters. I guess to give Dr Cullen credit he is at least being honest. He is clearly signalling to the people of this country that he does not have tax cuts on his horizon does not think about them and does not give them a moment’s consideration. I hope that at some point the media will pick up on that reality and will begin to fulfil their responsibility to ensure that the voters of New Zealand are fully informed in relation to Dr Cullen’s attitude. 
Also at a macroeconomic level the monetary policy effects as between banking and spending by the Government and banking and spending of an equivalent amount by the long-suffering taxpayers are neutral. We on the Finance and Expenditure Committee have asked detailed questions of Dr Bollard the Governor of the Reserve Bank of New Zealand in that regard. It is possible for tax cuts to be made at this point in time without putting pressure on inflation and hence interest rates provided that they are accompanied by a strong message to New Zealanders to use the extra money to pay down their debt—something that households at this point are in fact very keen to do. People have very high levels of mortgages hire purchase payments credit card payments and debts of all kinds. Many households are really now stretched almost beyond breaking point. It does not help incidentally that from 1 April people will have to fork out another 5c a litre for gasoline. I think that if we were to cut taxes at this point in time households would therefore reduce their debt levels and that that would be very very positive for the New Zealand economy in every way. I see no negatives whatsoever flowing from that. But no the Government does not intend to do that. It has decided that it knows best and it will therefore bank and spend the $5.68 billion windfall. Accordingly in regard to the big-ticket items of tax cuts United Future finds itself in fundamental disagreement with the Government. 
There is another reality that I need to draw to the attention of the House. Let us suppose for a moment that in addition to the Minister refusing to actually cut tax there is also a fundamental unfairness in the existing taxation system. Should not the Minister in those circumstances ensure first that the taxation system is fair? After all for Kiwis fairness is a fundamental value. Let us take a sole-income family on $60000 a year as an example. Under the current system that family pays tax of $14670 per annum. But under income splitting which is United Future’s policy that would be reduced to $11700—a saving of $2970 per annum or $57 a week. Such an option is not presently available to couples under the New Zealand taxation system but it should be. 
The status quo is grossly unfair for a number of reasons. Firstly a family with dependent children on a single income of $60000 is as illustrated in the figures above paying almost $3000 a year more than an equivalent family where each partner earns $30000 per annum. That is unfair because those families’ needs are essentially the same. Secondly the present taxation system means that people who have no dependants pay exactly the same amount of tax as people with dependants. Obviously the sole breadwinner in say a family of four—2 adults and 2 children—has an income need that is greater than that of a single individual. In addition couples who are self-employed in farming or in business and retired couples are already able to split their income for taxation purposes. So it is fundamentally unfair therefore that the only people who are not able to do that are working families with children whose income is derived from salary or wages. They are the only ones who are unable to split their income and that is fundamentally unfair. 
Income splitting for couples with dependent children would rectify and correct a fundamental anomaly in the present taxation system. Income splitting should permit a couple with dependent children to allocate their income for taxation purposes on a fifty-fifty basis. Each partner would then be taxed as if he or she had personally earned a 50 percent share with a significant reduction in income tax. That would be fair.