Prebble Richard: Budget Debate 
Prebble Richard: Budget Debate 
[Volume:617;Page:13415] 
Hon RICHARD PREBBLE (Leader—ACT) 
: 
 We in the ACT party urge Parliament to reject the Labour Government’s Budget and we do so because we believe that this Budget will come to be seen as a turning point where the New Zealand economy instead of taking the upward road to economic prosperity and growth turned away to a path of tax spend and bust. This Budget fails on a number of grounds. It is unfair. Socially it traps New Zealanders into a low-growth low-income Third World future. Economically it is unsound. The Budget is a return to the tax spend and bust policies of the Muldoon years which eventually took this country to the edge of bankruptcy. The Budget will not make us a Third World nation immediately but over time that will be the consequence. 
This is a tax Budget not because of what it does but because of what it does not do. The Budget does not repeal any of the stealth taxes the Labour Government has imposed. The biggest were the two increases in fuel prices but the most insidious tax is fiscal creep. The refusal of the Minister of Finance to change the taxation thresholds has meant that inflation has pushed people into higher and higher taxation brackets and the 39c in the dollar taxation bracket illustrates my point. The Labour Government was elected with the credit card promise. That is the one where Helen Clark—with her digitally perfect teeth—stated: “No rise in income tax for … 95 percent of taxpayers …”. That is the Labour Government’s taxation pledge. This year 20 percent of all full-time workers will pay the 39c in the dollar taxation rate. In the year Labour came into power the total raised from personal income tax was $15.8 billion. This year’s Budget plans to raise $21.25 billion. That is the biggest increase in taxation in New Zealand’s history; it is an increase in income tax of $5 billion or one-third. Taxation from all sources has also risen thanks to the stealth taxes by a third. That is an extra $11 billion in taxation—an increase from $33 billion a year to $44 billion. 
The Minister of Finance himself boasts that this is a spending Budget—tax and spend. According to Statistics New Zealand there are 540000 families in New Zealand with dependants. Around 150000 of those families are benefit-led families. That leaves 400000 working families. The Budget is unfair because although eventually 300000 families will benefit only 150000 of them are working families. One does not have to be an accountant to work out that the majority of working families in New Zealand—some 250000 working families—will get nothing from this Budget. Most households have no dependent children so they are just bystanders in this Budget. Their only role is to pay Labour’s taxes so that the Government can bribe the electorate at the coming election. There are around 1.5 million households in New Zealand; 1.2 million households will receive nothing from this Budget. That is simply unfair. 
Dr Cullen boasts in the Budget that: “Great care has been taken in assembling this package to identify any possible individual losers and to ensure there are none.” Well he cannot have looked very hard. A family on $60000 a year with one child gets nothing. Treasury says that in this country the average two-parent working family with two children earns $72000 a year. Under this Budget average New Zealand working families are the losers; they get nothing and they get nothing next year. They have to wait for the following year for the election of ACT into Government to get a break. This Budget discriminates against hard work and enterprise. It is actually a welfare Budget—welfare wins taxpayers lose. Welfare wins because welfare beneficiaries will get an increase in April next year. Working families for reasons not explained by the Labour Government have to wait until April 2006—it is a wait of 1 year if one is a social welfare beneficiary but of 2 years if one is working to get the new family tax credit. 
I predict that this Budget will have many unintended consequences on our society. The unintended consequence of the new family tax credits and accommodation supplement is—as Green Party members themselves can work out—that it subsidises employers. This measure will encourage employers to pay low wages. It will encourage people who are in work to keep on receiving low wages because they will lose so much if they get a pay increase. The Labour Government is subsidising a low-wage economy. Another unintended consequence of this tax-and-spend Budget is that the Government is encouraging low-income families to have more children. The Budget discourages work because the effect of increasing one’s income is to lose very valuable subsidies. If people are poor the way to increase their income is to have more children. Why is Labour being so socially irresponsible? The reason is simple: the Government’s motivation is not Future Directions; it is future elections. Labour’s own polling shows that the new Maori Party will devastate its electoral base. It is a fact that most Maori families will benefit substantially from this Budget if only because the average number of dependants in Maori families is higher than in the average New Zealand family. But the average New Zealand family of European descent will receive nothing from this Budget. 
The future for both Maori and non-Maori is not in welfare and dependency. It is in having the independence that comes from a strong economy. This Budget will do absolutely nothing to stop the alarming trend of large numbers of skilled New Zealanders migrating. We already know that this year 70 percent of the doctors graduating from Otago University will leave New Zealand. This Budget will encourage that trend. Economically the Budget is unsound. It will not encourage investment growth or jobs. Treasury’s own forecast of the effect of this Budget is that future growth will slow from today’s 2.8 percent rate to just 1.6 percent next year and then to 1.57 percent in the year following. That is the Government’s own forecast. Then we have Dr Cullen saying that there is no evidence that taxation cuts promote prosperity. He can produce no research to support that assertion. When Dr Cullen was out wooing business he said—and he is on record as saying—he would lower the taxation rates when “fiscal conditions permit”. Well we have a $6 billion surplus. 
Dr Cullen is wrong to say that taxation cuts do not work by claiming that when the top personal tax rate was reduced from 66c in the dollar to 33c in the dollar it did not produce an overnight economic boom. The fact is that that cut did work. Despite making the move from being one of the most regulated nations in the OECD—from a system of massive Government subsidies—the New Zealand economy bounced back. Dr Cullen was a junior finance Minister in the then Labour Government and I am sure he was as astonished as the rest of us when we discovered that we were collecting as much income tax from the 33c in the dollar rate as we had been collecting from the 66c in the dollar rate. That is why Roger Douglas recommended the income tax rate be lowered to 24c in the dollar. 
I ask whether Treasury agrees with Dr Cullen’s analysis of the effect of taxation cuts on the New Zealand economy over the last 20 years. We know that Treasury does not. On 22 April of this year the Secretary to the Treasury John Whitehead released a paper titled  
New Zealand Economic Growth: An Analysis of Performance and Policy 
. While it is somewhat dry I recommend that MPs read that document. Treasury in that report states: “Since the early 1990s New Zealand's average per capita GDP growth has increased relative to the OECD mean.” So much for the claims about the failure of the policies of the 1990s! Treasury puts New Zealand's superior economic growth down to a range of policies including such things as labour market reform but it also includes the taxation cuts. With regard to taxation the report states: “A foundational principle for a taxation system that seeks to support economic growth is that it should be ‘broad based - low rate’”. Paragraph 175 of that report states: “… moving to a flat tax rate for both personal and corporate tax rates is likely to have the greatest impact on economic growth”. 
That is precisely the position that the ACT party has been advocating for more than a decade now. The fastest and biggest impact on growth is a low flat rate of taxation. The McLeod Tax Review was set up by Dr Cullen who handpicked its members and wrote the terms of reference. It had the best experts the Government could find in New Zealand and overseas. What did the McLeod report state? Did it agree with any of Dr Cullen’s statements? No it did not. It concluded that a low flat rate of taxation was the best option for New Zealand. 
Hon David Cunliffe 
: They had been smoking. 
Hon RICHARD PREBBLE 
: In that case the member should not have paid them $2 million for the report. In this Parliament the ACT party has always been the voice for sound economics. 
A $6 billion surplus represents a once-in-a-lifetime opportunity to put New Zealand on to a growth path towards becoming one of the most prosperous nations on earth. That is the opportunity that Dr Cullen has today—not because of any actions he has taken but because of the actions of Governments and New Zealanders over the last 20 years that have put this country into a position where the Minister of Finance now actually has an opportunity to take a new direction and path for New Zealand. And what does he choose? He decides to go back to the failed policies of tax and spend of the past. Let us just consider this. Answers to written questions from Dr Cullen have stated that the cost of going to a flat rate of taxation of just 20c in the dollar for both companies and individuals would be $5.45 billion a year. That is $500 million less than the surplus and it is a figure that assumes no change in economic activity. 
As Government members often like to point out I am a director of a number of companies. We directors look at investment opportunities and we look at the rate of return after tax taking into account the risks that are involved in any new project. I am looking at an export opportunity at the moment that in the business plan would pay for the total investment in 3 years. Yet we are very reluctant to give it the green light because there are always risks. A 20c in the dollar flat taxation rate would mean that that project would pay for itself in 2 years and we would certainly give it the green light. There are thousands of projects like that sitting on the boardroom tables of New Zealand—or more accurately sitting on the kitchen tables of New Zealand because that is where most business decisions are made. At a 20c in the dollar taxation rate thousands of projects would get the green light. Just as important it would encourage New Zealand entrepreneurs who have been driven overseas by a high taxation rate to return. In its rich list the  
National Business Review  
has to include New Zealanders who are overseas because there are just not enough rich New Zealanders left in this country. I say to the socialists on the Government benches opposite me that those who returned would then spend their GST and invest in this country and that would have a huge impact on New Zealand. 
We could implement a 20c in the dollar flat rate of taxation without making any cuts to any Government expenditure and we could do that tomorrow. None of those figures take into account the dynamic effects of doing that. Our own New Zealand experience is that cutting the top rate of income tax from 66c in the dollar to 33c in the dollar resulted in more income tax being paid within 3 years. I tell this House that if the top rate of personal tax was reduced from 39c in the dollar to 20c in the dollar and if the company rate of tax was also reduced to 20c in the dollar within 3 years we would be receiving the same taxation revenue that we get today. However New Zealand would be a very different country and a much more prosperous nation than it is currently. 
The real security for New Zealand families comes not from tax spend and bust Budgets. It comes from the prosperity hard work and enterprise of our people. New Zealand did not need a tax-and-spend Budget. New Zealand does not need more welfare. We certainly do not need a “welfare wins taxpayer loses” Budget. This Budget is not a Future Directions package. We all know that this Budget is a future elections bribe package. A $6 billion surplus is a once-in-a-lifetime chance for a prosperity-creating taxation cut that would put New Zealand back into the First World where we belong. That is why the ACT party will support the amendment moved by the National Party and that is why we urge the Government’s minority partners to turn down this Budget. Why do we not turn down the Budget and have an election? Let us find out whether New Zealanders want to spend the taxpayers’ $6 billion surplus on yet more welfare or whether the taxpayers of New Zealander want to see a prosperity-creating taxation cut. That is the challenge and the ACT party is quite prepared to take it up.