Goods and Services Tax (Exclusion of Rates) Amendment Bill — First Reading 
Goods and Services Tax (Exclusion of Rates) Amendment Bill — First Reading 
[Volume:619;Page:14631] 
Goods and Services Tax (Exclusion of Rates) Amendment Bill 
First Reading 
GORDON COPELAND (United Future) 
: 
 I move  
That the Goods and Services Tax (Exclusion of Rates) Amendment Bill be now read a first time. 
 I also give notice that at the appropriate time I will move that the bill be considered by the Finance and Expenditure Committee. 
The goods and services tax (GST) should never have been added to local body rates because it constitutes a tax on a tax. According to the dictionary definition rates are a tax levied on property by a local authority. On the other hand GST is a tax that is levied on the supply of goods and services by central government. Since the introduction of GST in 1986 central government has therefore been levying for its own purposes a tax on a tax imposed by local government for quite separate and distinct purposes. 
My bill to exclude GST from rates was drawn from the ballot on Thursday 24 June 2004. At the time it was drawn I was in Canberra with the Finance and Expenditure Committee of which I am deputy chair meeting with the chair and members of the Standing Committee on Economics Finance and Public Administration of the Australian House of Representatives. Part of our discussion centred on rates and taxes in the context of a study recently undertaken by that committee that concerned the financing of local authorities. I asked whether GST was levied on rates and received the immediate answer from David Hawker chair of the committee: “No because that would constitute a tax on a tax.” 
I have since learnt that the position is the same in Canada so that when each of those nations decided to follow New Zealand’s example in introducing a single-rate broad-based GST unlike us they opted to exclude rates in order to avoid a tax on a tax. It is also relevant that VAT is not charged on rates within the European Union. I am very clear that Australia Canada and the European Union have got that one right and that we in introducing GST in 1986 got it wrong. After 18 years surely it is now time to get it right. 
There may be some in this House who would wish to try to justify the unjustifiable by arguing that rates are not really a tax but rather a payment made by citizens for services rendered to them by the local authority. Well members should try that argument on the 80000 members of Grey Power and in particular on the elderly woman in Takapuna mentioned in the House last year who currently faces an annual tax bill of more than $6000. They should try to convince those people that their rate bills are a fair allocation of the goods and services supplied to them by their local councils. 
That argument should be tried on the business community in New Zealand which is very concerned that it is bearing a disproportionate share of rates. Members should speak to the farmer who came all the way up from Wanaka to tell me personally that the rates bill levied on him by the local council had reached the point where the ongoing viability of his operation was jeopardised. The argument should also be put to Genesis Power a State-owned enterprise whose 2003-04 rates bill has increased fortyfold. Yes that is right. It is 4000 percent based on what it regards as a totally unjust and unreasonable rates assessment. 
In all of those cases the concern being expressed is based on the reality that rates do not reflect the value of goods or services supplied by councils but are calculated on the value of the properties occupied by ratepayers. In other words rates are a tax in all but name. In fact in the United States they are actually called property taxes. 
Treasury has estimated that the loss to Government revenue were this unjustified tax to be removed forthwith would be $160 million per annum or just 0.36 of 1 percent of core Crown expenditure. That is a pittance for the Minister of Finance but it is an average of about $100 per annum in the pocket of every ratepayer in this country. Where there is a will there is a way. 
Dr Michael Cullen voted in the Labour caucus against the introduction of GST on rates and was right to do so. I regret that he has now had a change of mind and I challenge him in this debate to spell out how he has come to the conclusion that it is OK for his Government to continue the imposition of GST on rates. 
The levying of GST on rates was proposed to the Government in 1985 by the Advisory Panel on the Goods and Services Tax chaired by Dr Don Brash. I find the panel’s approach to the question of GST on rates interesting in light of what has subsequently happened. Its members began by saying that they were: “considerably perplexed by the logic of applying GST to one form of taxation (rates) but not to others (central government taxation).” However they decided after lengthy discussion that GST should be applied to rates but not to taxes levied by central government. They do not appear to have specifically considered the possibility of zero-rating GST on rates in spite of stating that a proposal to levy GST on rates had “already invoked considerable resentment from taxpayers”. 
The payment of rates continues to invoke considerable resentment from taxpayers and that political reality means contrary to the position envisaged by the panel that councils in fact have every incentive to apply specific user charges including GST to as many of their activities as is practical—thus shrinking the tax collected through rates. Accordingly councils now routinely charge for parking services rubbish collections entry to swimming pools etc. etc. They have no incentive to subsidise services of those kinds from rates because any increase in rates is universally unpopular and there are elections every 3 years. I have met no one who has said to me that he or she resents paying GST on user-pays services provided by councils. Those realities will not change if rates are zero rated for GST as is proposed in my bill. 
Both as a member of Parliament and as a chartered accountant I would like finally to comment on three technicalities that have been raised in connection with this debate. Firstly under the zero rating mechanism proposed in this bill the revenue position of local authorities will remain unchanged. The bill is neutral in that regard. It is not aimed at relieving local authorities; it is aimed at relieving ratepayers. 
Secondly businesses that now claim back GST on rates will likewise be in a neutral position although they will gain a short-term cash-flow advantage. Nor will any compliance costs arise because the GST return already makes provision for zero-rated transactions including some from territorial authorities. User-pays charges will be billed separately by councils and of course will continue to include GST. 
Thirdly the removal of GST from rates does not establish a precedent for GST to be removed from other goods or services—say foodstuffs. That cannot be so because we are talking here about a unique tax-on-tax situation. I want to emphasise that point because even in question time today the same old “annual grey mare” came out: “Oh yes but if we were to do this then we would have to broaden the base to other things as well.” I say “No”. This tax on a tax is a unique situation not only in New Zealand but in the world and if we remove that tax it is ridiculous in my opinion to assume that we would therefore have to extend its removal to foodstuffs and other things. There is no logic whatever in that position. 
Removal of GST from rates will leave at least $160 million in the pockets of the 1.725 million property owners in New Zealand. It will leave money in the pockets of the 465000 superannuitants in New Zealand many of whom are living on a fixed income and struggling to make ends meet. It will leave money in the pockets of the more than 300000 residential property investors in New Zealand who currently pay GST on rates and who cannot claim them back. 
In truth levying GST on rates is unfair and unjust. Indeed after 18 years it is past the time to bring the practice to an end. I commend this bill to the House and I hope that other parties may see fit to think beyond some of the nitty-gritty technicalities to look at the big picture and to decide to give taxation relief in that way to the 1.725 million ratepayers of this country. 
PANSY WONG (National) 
: 
 First of all I would like to pick up two points that were raised by Gordon Copeland. Firstly he told us that when GST was introduced Dr Michael Cullen actually voted against imposing GST on rates and then changed his mind. We also know that Gordon Copeland’s party leader the Hon Peter Dunne who did support the provision to have GST on rates is now against it. So that leaves the public and me with the clear understanding that our National Party Leader Dr Don Brash is the only clear thinker whose position has not changed since GST was first introduced. 
The second point that Gordon Copeland raised concerned the Finance and Expenditure Committee’s visit to Australia. I do not think that that member should be economical with the facts because an official and also the Ministers over there told the delegation openly how much they envy New Zealand’s comprehensive and simple GST system. I hope Gordon Copeland is not trying to get us to copy the Australians who have a lot of compliance issues relating to their GST system. 
Dr Nick Smith a very effective and hard-working member of Parliament will illustrate and expand on the confusion of the argument raised by Gordon Copeland with regard to the public’s dissatisfaction with the level of rates. That should not be confused with the issue of whether removing GST is the answer to that. I will focus on the definition of payments for what local government provides and whether those are taxes or payment for services. 
If the existence of local government bodies did not relate to providing services then I am sure those bodies would not be in existence now. There will always be debates as to the standard of service the public receives—whether the service is cost-effective and whether local councils carry out effective consultation with ratepayers. But none the less councils must provide services. Some of them might do it via private contractors and others might do it in-house. Ratepayers of course can show their dissatisfaction with the job councillors are doing every 3 years through the ballot box. 
Every now and then the public will also voice dissatisfaction with the existence in effect of some local councils. In 1989 New Zealand went through a massive scale of local government reorganisation where a lot of smaller councils were merged. That was partly to ensure that local government was more cost-effective and that it was not costing taxpayers unnecessarily in terms of the level of rates they had to pay. 
I will use an example to demonstrate that. If the Wellington City Council decided tomorrow that it would not provide any rubbish collection service then each household would either have to deliver its rubbish to the dump itself or contract somebody to do it—and GST would be levied on that service. So rates are a mechanism for local councils to recover the services they provide but whether they do that cost-effectively is quite a different debate. That is the argument that rates are simply collected so that councils can generate a surplus. I am quite sure that every 3 years ratepayers will show that they do not tolerate any local council that simply uses rates as a mechanism to raise itself a surplus instead of to provide its services. 
Hon Dr NICK SMITH (National—Nelson) 
: 
 Members on this side of the House totally sympathise with the bill in the respect that rate increases and rate costs for communities have become too high. That is absolutely true. We note for instance that in the last 12 months rates have gone up by an average of 10.4 percent across New Zealand according to Statistics New Zealand—that is four times the increase in the consumer price index. We also note that since Labour has been in office rates have increased by 30 percent and that is as a direct consequence of some of the dopey legislation that Labour has passed particularly in respect of the new Local Government Act. In the last 12 months—the very first full financial year of that Local Government Act—rates have increased more than in any other year in the preceding 10 years and responsibility for that can be sheeted right back to this Government which ignored the quite legitimate concerns that were raised by farmers homeowners ratepayers associations and business at the time it rammed through in a great rush that local government legislation of 2002. 
I want to challenge United Future. The only reason that Local Government Act was passed was that United Future provided the Government with the numbers. That is the only reason and for United Future members to come to the House now and cry crocodile tears about the poor old ratepayer when they passed the exact law that has led to such huge increases in the rates bill—well there is a word for that and I will not use it. If we are to get local government costs down we do not need to mess around with the goods and services tax but we do need a Government that is committed to reducing the compliance costs for local government. The first thing to do in order to start reducing compliance costs would be to have a substantive review of the Local Government Act the Dog Control Act the gaming legislation the prostitution legislation and amendments to the Building Act etc which have added so much to the costs that the ratepayers of New Zealand have to pick up. 
I confirm and concur with the comments that have been made by Pansy Wong which are so sensible in this regard. The argument that is left out by United Future in promoting this bill is the idea that if one takes GST off rates that will save all of the 12 percent to the ratepayer. That is not true. 
Mike Ward 
: It will. 
Hon Dr NICK SMITH 
: No it will not. Mr Copeland ignores the fact that local government is able to substantially offset the costs of that GST it receives in rates by reclaiming the GST on all the services it purchases—the pipes it buys for our sewerage and water schemes and the people it contracts with to provide lawnmowing services. All that is part of the equation. The real question is of course that local government provides goods and services. Of course the collecting of rubbish is a service. Of course providing a swimming pool is a service. Of course providing sewerage libraries and all those things are services. What Pansy Wong expressed so accurately is this: where do the exceptions stop? Today it is rates. Tomorrow it may be doctors’ fees. Next week it may be school fees. The truth is that the most sensible way in which to have GST is to provide it across the board. We in the National Party stand for lower taxes—not for piecemeal legislation but for getting the overall tax and rate burden down for New Zealanders. It is about reducing the tax level and the company tax rate. It is about reducing income tax rates. It is about controlling expenditure in the area of local government that has led to such huge increases in rates. 
Again I emphasise that we on this side of the House do not believe it is acceptable to have a 30 percent increase in rates which is what has occurred since 1999 under this Government. That is the real issue that needs to be tackled. This Government continues to dump extra responsibilities on to local government in areas like gaming prostitution building and dogs without providing any funding for local government. That is the principal concern that this Parliament needs to focus on and we need to at the very beginning review that Local Government Act which is at the core of the huge rate increases that ordinary New Zealanders are being confronted with. 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 Although the Government will be opposing this bill let me say that I think the member who has just sat down made one significant technical error. This member’s bill does not provide for rates to be GST exempt but to be zero rated. Therefore local authorities would be able to continue with the claim back should the bill be passed because as I say the rates are zero rated not GST exempt. That also means therefore that the fiscal cost to central government is much larger than the member might have thought and that is quite an important consideration to be taken into account. 
I also note the sort of National Party approach to budgeting as usual which as I gathered from that speech is one of cutting all tax rates and increasing Government subsidies to local authorities. We have already had National members calling for more spending on health education and almost everything else. Somewhere along the line we might end up with what one might call an emotionally stressed Budget as a consequence of that with practically nothing in the way of certainty except a blooming great deficit which is not surprising because National parties in Government tend to specialise in deficits most of the time. They just revert to type. More and more this National Party looks like a recreation of Sir Robert Muldoon. One would expect it therefore to be coming up with fiscal policy— 
Hon Dr Nick Smith 
: That’s not credible! 
Hon Dr MICHAEL CULLEN 
: Not credible? Playing on race crime welfare and fiscal irresponsibility sounds an awful lot like Sir Robert Muldoon to me. 
New Zealand’s GST is applied to the widest possible range of goods and services supplied in New Zealand because that is the most efficient and fair means of raising revenue by means of a value-added tax. Indeed New Zealand has the best designed value-added tax in the world. The reason is that we are one of the very few countries that have a single rate applying that single rate across nearly all goods and services. Australia would love to have our GST structure. It ended up with a political mess as a result of compromises in the Senate. Businesses in Australia loathe the GST model compared with the New Zealand - type model. They would much prefer to have the New Zealand - type model of GST with its single rate broad-based system without exemptions. It is best practice. 
In 1985 the Government set up the Advisory Panel on Goods and Services Tax to hear submissions on these matters. It declared that the payment of rates should be viewed as a payment for services provided by local authorities as members have said for public goods and services—such as libraries public amenities flood control sewerage rubbish control and so on and so forth. That argument has become stronger not weaker in the intervening nearly 20 years because more of rates is now clearly tied to specific service provision and less to a general collection of a tax based according to ability to pay—in theory at least. In other words it is much less a progressive payment now than it used to be. That is one of the reasons why rates are creating something of a difficulty in practice for many low-income families particularly elderly low-income families—a matter I hope the Government will be addressing in next year’s Budget. 
So rates by and large do represent a payment for local authority services consumed by citizens and ratepayers of the area. But even if this was a tax I think it is a legitimate question to ask: “So what?” because we have other taxes in New Zealand that GST is levied on top of. Obviously excise duties by way of petrol alcohol and tobacco are the primary example of that. Nobody has ever seriously suggested that GST should somehow be levied part way through the process in that respect so it does not seem to me to be a terribly powerful argument. But it is also because of the GST zero-rating proposal that we would end up with local authorities having an undue competitive advantage over other businesses where there is direct competition. In that situation if the business can reclaim its expenses then so can the local authority by means of GST input. But the business has to charge the GST on the service it is providing. Indeed we could end up with a situation of people living next door to each other where one pays GST on water services and the other does not. 
Gordon Copeland 
: Not true. 
Hon Dr MICHAEL CULLEN 
: It is true I am afraid depending on how the service is provided and how it is funded. Even if it was funded through the local authority by means of direct payment it would end up being GST-able; whereas if it was provided as part of a general rate then it would not be GST-able. This is not a sensible provision. It is one that should be rejected by the House. 
JIM PETERS (NZ First) 
: 
 I am very pleased to see Paul Adams here tonight because surely he must be responsible for that “road to Damascus” experience of his leader who in 1986 voted for the present legislation and now some years later is against it. So I tell Paul Adams that that is good work; it has been a remarkable conversion on the part of Peter Dunne. 
New Zealand First believes that this bill should go to a select committee. The reasons for that have already been covered by both the National Party speakers and by Dr Cullen. The very issues that have been enumerated particularly with regard to the uncertainty as to what local bodies charge for are reasonable grounds in our belief for further discussion by a select committee. 
Secondly I have already pointed out to Mr Baldock—and I am rather surprised that the local government spokesperson from Tauranga is not presenting the case but maybe a council up there does not see things his way—that this bill is incomplete and again for the very reasons that have been advanced by Dr Cullen. There is much more about rates that could be debated. We know that this has been a long-term issue. The Kaipara District Council under Mayor Peter Brown throughout the 1990s strongly advocated that this was an improper impost on his council. In the material that has come from Grey Power which I acknowledge his comments were there year after year. 
 Others councils have felt the same. The Ministers know that Local Government New Zealand has had a very firm stance on the issue as have some major authorities and they have challenged Governments in the past about the issue of adding GST to rates—a tax on tax. By the way it sounds good; it is a slogan but as Dr Cullen has said “It means what?”. Both Governments—the previous one and the current—have taken a very strong line that rates are a charge for goods and services supplied by local authorities. We know that this view was reinforced in the 1996 amendment Act which introduced a new financial management regime that attempted to link strongly the cost of activities for groups of persons who were receiving a specified service. That was really the start an indicator as to where the service lay. 
The amendment Act also added the actual tools—that is the extent to which it was efficient and effective to fund any expenditure needed by a funding mechanism and so on and there was a further development of thinking about rates. 
But throughout that time there was an understanding in the local government arena that rating would be looked at properly. However the Local Government Act 2002 did not do that. It merely looked at the process. The reason New Zealand First strongly supports the referral of this bill to the select committee is that it is entirely appropriate notwithstanding the ill-informed nature of Mr Copeland’s bill that rating be discussed. It was not discussed in 2002 in this House. I have been back over the speeches made then. The legislation was confined to a fine-tuning a tinkering with the process rather than looking at the real nature of rates as a mechanism for local authorities. 
If we are really interested in issues of transport—and we know that many rural authorities spend 60 to 70 percent of their money on roads and transport and communication alone—then that is another reason why rating needs to be examined if we are ever going to get the wider framework of our rural roading structure together rather than just depending upon rates as they are now to provide the main sustenance for that roading network. Those issues need to be fully examined if or when this bill goes to the select committee. 
We know that in the High Court and Court of Appeal cases with regard to the Wellington City Council which took this issue on at a higher level the court stated finally at the end of much legal discussion that a democratic council decision to rate properties in a particular way was a tax and in that way further defined the issue. We are also aware that the Inland Revenue Department has changed its thinking slightly on the issue with regard to rate penalty charges in terms of its refusal to allow councils an input tax claim for the GST previously paid on rates that are omitted or postponed. So they do not quite have the clarity and the intensity with regard to rates that existed hitherto. New Zealand First strongly supports this bill going to the select committee. The time is highly appropriate. We should not just discuss GST on rates but the whole nature of weighting as a mechanism in the community and to that degree we believe that this deserves a further hearing and submissions made by the wider public. 
Hon KEN SHIRLEY (ACT) 
: 
 The United Future member Gordon Copeland who brings this bill to the House today had the courtesy to write to all parties soliciting support and I thank him for that. What I would like to do is read to the House as part of my comments and contribution to the debate my response to him on behalf of the ACT party. Because we did consider his bill as we should in caucus and we had the following view: “Dear Gordon We have received your letter of 1 July and are surprised that you have dredged up this hoary old chestnut particularly in view of the fact that your party leader Peter Dunne is a former Minister of Revenue and indeed voted for the initial legislation including GST on rates. I have no doubt that the advice you have received from economists and tax experts has told you why your proposal is nutty. I know there are elements in Grey Power and other organisations that have long lobbied for the exclusion and zero rating of GST on rates and possibly you are pitching at that market for political reasons. It is obvious that if local authorities were exempt from GST or zero-rated they would be tax-preferred relative to private businesses. The ACT party believes that local bodies generally are engaged in far too many activities that should be left to the private sector and the prevailing situation would only be exacerbated if the council were to be granted an additional 12½ percent competitive advantage on tax. You may argue that GST should apply only to the goods and services of council trading activities but that only begs the question should the council be engaged in commercial activities at all.” 
“I am staggered that the United Future Party believes that your proposal would help businesses. GST is a tax on final consumption. It is consumers who would derive any benefit if rates were zero-rated or exempted. So why did he claim that it would benefit businesses?” 
“The ACT party does share your concern with the impost that ratepayers face. We see no justification for the annual escalation in rates throughout the country way above the rate of inflation. Escalating rates is an issue in themselves but that should best be addressed directly by focusing councils on their core public-good activities and through the elimination of waste and excessive expenditure. Tinkering with GST on rates does not address this basic problem. Hopefully your caucus will re-examine your position on this issue and encourage you to quietly withdraw your bill.” 
That is still the best advice I can give to Mr Copeland in this bill. It is a very nutty proposal. I listened to the speech made by the New Zealand First member and they said they will support it to the select committee solely for the purpose of opening up and having a broad debate on rates. But as we know that is actually beyond the brief of this bill. So that will not be permitted by that committee. So really the New Zealand First position of supporting it to the select committee is being done under a misapprehension and a belief that there could be a general debate on rates when in fact there will not be because this bill is specific to the GST component. So I would invite New Zealand First to rethink its position. 
I think that every member in this Parliament—indeed much of the public—has been staggered. We have seen great big billboards at our airports and great full-page advertisements in the papers with Peter Dunne’s picture. Mr Dunne was the Minister of Revenue in the Bolger Government! We never heard a squeak—not a murmur not a whisper—about this issue when he was the tax collector. He was the Minister of Revenue! It never even entered his head that this could be an issue. At first I thought that perhaps he was just letting Mr Copeland have his head and was not really supporting it but when I saw those hoardings with Mr Dunne backing this nutty proposal I thought there was something very very strange here. Full-page advertisements—it is clearly a full-thrust approach from the United Future Party. My other suspicion was that the Government was going to accede to it and this was a little trophy they were sort of going out campaigning for. But I have heard the Government speaker and the Deputy Prime Minister’s speech but they do not support this bill—and I am pleased about that—so what is the strategy of United Future? It just does not make any sense. It is a nutty proposal. I hope it does not make it to the select committee. 
Hon DAVID CUNLIFFE (Associate Minister of Revenue) 
: 
 I would like to say something nice about Gordon Copeland although I am afraid not to the extent that I can signal support for the bill. Gordon Copeland is a very assiduous member of the Finance and Expenditure Committee and he is a man who does his homework and a man who thinks carefully. It is just that unfortunately on this particular issue he is in a situation where he is his party’s champion for whatever purpose of a bill that flies in the face of well-accepted tax policy and rationales that were formerly accepted by his own leader. So the Government opposes this bill and there are four particular reasons why. They are the “floodgates” arguments the tax policy argument the competitive-neutrality argument and the no-free-lunch argument. Let me try to handle the first two quickly before the tea break. 
Hon Ken Shirley 
: Is there any argument in support? 
Hon DAVID CUNLIFFE 
: There is no argument in support—other than that I feel somewhat uncomfortable being on the same side of an issue as people like Roger Kerr and Ken Shirley. That caused me to pause but other than that I think the logic is in favour of that member of the Opposition—Mr Shirley—on this occasion. 
Let us turn to the “floodgates” argument. The fact is that GST is a broad-based tax and one thing that we have always taken pride in in New Zealand is that it has been a very difficult tax for smart lawyers to dodge. It has been a very difficult tax for people to get around just because they could afford to hire a smart lawyer and it has had relatively low compliance costs because it is not some fancy retrofit with lots of exceptions. 
Sitting suspended from 6 p.m. to 7.30 p.m. 
Hon DAVID CUNLIFFE 
: Prior to the dinner break we noted that there were at least four good reasons why the Government should oppose this bill. The first was the “floodgates” argument. Our GST system is built upon the rationale that we should have a clean system with few exceptions. Having an exception for rates would create a race for other exceptions and we think that is in violation of the key principles of GST. 
The second argument is the tax policy rationale for GST itself. GST represents payments for local authorities’ services consumed by citizens and ratepayers of the area. Local authorities provide goods and services many of which are funded wholly or in part by rates. Those goods and services represent consumption by ratepayers and therefore GST should as a matter of principle apply. 
The third argument is the competitive neutrality argument. The bill would give local authorities particularly their strategic business units an undue competitive advantage over other competing businesses. 
Paul Adams 
: How? 
Hon DAVID CUNLIFFE 
: Some services—to answer the member—for example car parking facilities and rubbish collection are also available from the private sector. Those providers would be at a competitive disadvantage. 
I do find myself in something of a quandary on this point because my notes indicate that such luminaries as Mr Roger Kerr Mr Ken Shirley Mr John Key and Mr Simon Carlaw are all in agreement on this point. As the member said: “It does cause me to reconsider briefly but on this occasion I think we are on the side of principle and there is a fortuitous alignment of stars that are normally in another galaxy.” 
The fourth argument is the “no free lunch” argument. One hundred and sixty-six million dollars per annum is raised by GST on rates. Unless members of the United Future party are going to come up with some other tax that would replace that revenue I think we have to admit that there is a real issue of base maintenance of the fisc. Certainly in my area of town in New Lynn we worked hard to get a new hospital for Waitakere the total cost of which was $70 million. I cannot help but look at a number like $160 million and say that that is 2½ Waitakere hospitals a year. That is revenue that this country sorely needs to fund services for ordinary New Zealanders and it is not ever wasted. 
Hon Ken Shirley 
: Oh! 
Hon DAVID CUNLIFFE 
: That was a bit much for Mr Shirley. I ask Mr Shirley to indulge us here for a moment. I guess I am left with a question. If the logic of the argument is against GST on rates why is Gordon Copeland the member known for his studious and rational approach to economic matters bringing this bill that is pretty much without merit to the floor of the House? I am left thinking perhaps this is an uncharacteristic attempt at populism by the United Future party. I find it difficult to be in the situation of having to draw that kind of conclusion. I am looking forward to the speech from the United Future member to come next and I see that members opposite in the New Zealand First Party are smiling sweetly because they know that nobody does populism like they do and even on this bill the best they can do is have a buck each way support it going to a select committee and kill it thereafter. I rest my case. 
PETER BROWN (Deputy Leader—NZ First) 
: 
 The Hon David Cunliffe is an up-and-coming politician—he has a good career in front of him—but he has clearly proved tonight that he does not understand what people in this country want. As for ACT I listened to the speeches that have gone before and I think the letter that Ken Shirley read out was disgraceful. I hope he never sees fit to send another letter like that. It was absolutely disgraceful. 
Hon Ken Shirley 
: The member didn’t understand it. 
PETER BROWN 
: Let me just say to Mr Shirley that there are thousands of people out there who want to talk and have this issue looked at and examined. For that reason alone New Zealand First will support sending the bill to a select committee. I heard Dr Cullen earlier on. He said that because the GST has a single rate it is simple it is easily administered it is very straightforward and it is easily understood or some such words as that. But that does not make it fair. Those words do not make it fair. If people think something is unfair they are entitled to have it aired viewed and looked at and it is our responsibility to do that. 
Hon David Cunliffe 
: Born-again populist! 
PETER BROWN 
: If a significant number of New Zealanders think something is unfair it is our responsibility to examine it and Mr Cunliffe should take note of those words. 
However it must be acknowledged that New Zealand First had an attempt to deal with this issue in 1996 when we were in coalition with National. We could not get it very far but there is reference to it in the coalition document. I looked it up just before I came to the House. We could not get it very far because it is not a simple issue to solve. It is fairly complex. I am led to believe that United Future knows that. I have read the  
Hansard 
 of Mr Dunne when the bill was passed. I am being selective here but it is a crucial part: “Members opposite”—he was talking about the National Party in those days—“talked a lot of nonsense about the impact on some people. When they were given the opportunity to present examples in the committee they were not able to.” I am told that this issue was raised at the select committee at that time so what was Mr Dunne talking about? Why is he on posters all over the country? One has to conclude that he is trying to play political politics—for want of abetter term. It is a political ploy. I hope not. 
But I would like to see some conviction from United Future. If this bill fails will United Future support a similar New Zealand First policy? Some of us in New Zealand First at this point in time are looking at—I have to say I have not got the support of caucus—GST being removed from the petrol tax. That is a tax on a tax. It is the same principle. [ 
Interruption 
] The member says “No.” yet earlier on this afternoon Mr Baldock was saying in the House—I think it was Mr Baldock; it might have been Mr Adams—that United Future will support another 5c tax on petrol in April or whenever it is next year. [ 
Interruption 
] Well whatever his name is. The GST component of the tax on petrol would be 5c or thereabouts—between 4c and 5c. It would not be a saving for the same people; the ratepayers would not be saving but the motorists would. I say to those members over there that if they want to stand firm on a point of principle they should be consistent and not play politics with New Zealanders. That is what they are doing if they will not go the way of removing all taxes on taxes. 
New Zealand First will support this bill’s referral to the select committee. We know that it will not be easily addressed. 
Dr Wayne Mapp 
: Oh! Where’s your principle? 
PETER BROWN 
: I said that at the onset. We never voted for a tax on rates. We never ever voted for GST on rates. The member will find no record of it. If the member reads the coalition document—he was a new member in this House at the time as I was—he will see that there is reference to that in there. 
Dr Wayne Mapp 
: We are looking at GST on rates. 
PETER BROWN 
: Yes we are looking at removing the GST on rates. The member should look it up. There is reference to that concern. We want the bill to go to the select committee because we want the public to voice their concerns on this issue. We will not deny the public an opportunity to make their views known. We know that this issue will not be easily addressed but we should not be putting things in the too-hard basket. We should not say it is too hard so we will not hear about it and will not look at it. GST has been in this country since 1985 and it is about time this issue was examined. 
PAUL ADAMS (United Future) 
: 
 It is my pleasure to rise on behalf of United Future to support this bill. First of all I would like to pick up on a number of issues. Firstly our leader Mr Dunne did support GST on rates in the first instance and that was for the sole reason that the Government of the day said that the GST collected would be returned to the local authorities—and it was in year 1. In year 2 the Government said it could no longer afford to do that. Therefore as a good leader he is entitled to change his mind. 
Anybody who seriously understands what the zero rating of rates for GST purposes really means would vote for this bill. Unfortunately I discovered during questions to the Minister of Local Government the Hon Chris Carter earlier this year that even the Minister did not understand what it really means. He kindly offered to have me briefed by the Inland Revenue Department in his office where I discovered that I understood what the zero rating meant and he did not. 
I am absolutely amazed that the ACT party is not supporting this bill. I was at a public meeting earlier this year that was attended by the present leader of ACT Rodney Hide and also by Murray McCully. Rodney Hide stood up in front of potential voters and declared that he would move an amendment in the Budget debate to ensure that GST was removed from rates. He challenged me as a United Future MP knowing that we have a confidence and supply agreement with the Government to support it. I say to the ACT party members that their saying something to the public because they are politicking then coming to the House and doing exactly the opposite is the exact type of politics that this country has had enough of. If Mr Hide is listening to his radio now I tell him that I estimate he has about 15 minutes to come and vote for this bill and show some integrity; otherwise I will really enjoy debating every issue with the ACT party during the forthcoming election because it will have shown that it has absolutely no integrity in its processes as far as I am concerned. 
GST on rates is a tax on a tax because rates are funds collected for a local authority. Local authorities also borrow money for their works and they do not pay GST on that. What do they use rates for? They use them for paying salaries and for paying wages—things that are not subject to GST. Many members in this House have clearly not understood that the councils may need to double invoice. Local authorities need to invoice the ratepayer for the proportion of their rates that goes directly on rates. If they are supplying goods and services such as parking and rubbish collection they are well entitled to charge for them and to charge GST on them because GST is a tax paid by the end-user. So if the ratepayers are paying GST are they the end-users? If that is the case why do they pay it to the councils? If the councils are the end-users of a service I ask members to tell me what that service is. GST on rates is nothing other than a tax on a tax. 
This issue my friends will not go away. Most New Zealanders understand that when they are paying GST on rates they are paying a tax on a tax. Most New Zealanders understand that when businesses claim back the GST on their rates those businesses are not paying GST on rates. Those in Grey Power—the pensioners we have heard about; those on fixed incomes—understand that they are paying a tax on a tax. United Future has campaigned hard on this issue because we believe that the people out there—the citizens of New Zealand—want a fair deal. They understand that United Future has heard their cry and we are endeavouring to do our very best to remove GST on rates. Even the Government does not view rates as a user-pays activity; it views them as a tax on the ratepayers to fund local authorities. Therefore rates should be exempt from GST. Local authorities provide facilities for all the people who live in their area and for all the people who use the facilities in that area—whether tourists or persons passing through from another area. It is not just the ratepayers who are the end-users of the facilities provided by the councils. 
I support this bill with everything I have got and members should be assured that all parties will have to deal with this issue at the next election. I will watch which parties vote against this bill and so will the ratepayers of New Zealand. 
JEANETTE FITZSIMONS (Co-Leader—Green) 
: 
 This issue has rankled with the public for many years and many people perceive GST on rates to be unfair. It was hotly debated at the time that GST was introduced and it has been debated ever since. There is also a lot of debate and I have to say public misunderstanding about what rates actually are. 
We have serious reservations about this bill as it stands and we have no commitment to what happens after the select committee process. But we think it is time the public had those concerns addressed and that there was a forum where this could be properly debated where people could bring submissions and where a committee could report back with good reasons for either accepting or rejecting it. For that reason the Greens will support sending this bill to a select committee so that the debate can be had. 
There is a lot of misunderstanding about what rates actually are and that is partly because over the years they have acquired a number of very different components. It is just possible that the select committee might decide that those components ought to be treated in different ways. Uniform annual charges for example—where every property is levied a fixed amount to cover particular services—are clearly a fee for service as are targeted rates. Those components of rates ought to attract GST because they are a commercial service and are directly in competition with other commercial services. 
However rates on land value which are not related to the nature of the service received are in fact a tax. They are actually the only form of property or asset tax that exists in New Zealand unlike most developed countries which have a range of asset-related taxes; whether they be capital gains taxes asset taxes wealth taxes or death duties. New Zealand has none of those but it does have one remaining asset tax which are rates on the land value or the capital value of property. As such that is clearly a tax and that is the component of rates that perhaps should be investigated to see whether it is appropriate to levy a further tax on top of that. We have no fixed opinion on that at present but we would be interested to see what a select committee would do with it. 
It is also not clear to me why GST on rates is any different from GST on other forms of tax such as excise tariffs. Again that is an issue the select committee could sort out. Having said that we will vote for the bill at this stage and we wait with keen interest to see what happens after that. 
GORDON COPELAND (United Future) 
: 
 I am very pleased to have the right of reply and I will address very quickly if I can some of the issues that have been raised by parties speaking to this bill. First of all I sincerely thank New Zealand First and the Greens for at least having the wisdom to say that this matter should go to a select committee. As Jeanette Fitzsimons has just said this issue has been controversial for 18 years and it is about time we gave members of the public of this country the opportunity to discuss it in a rational way. 
I am very very disappointed to see the politicking that has gone on in the House tonight. I will begin with the ACT party. The ACT party has a reputation for wanting to lower taxes on New Zealanders. It had an opportunity tonight to do exactly that and it ducked it and said it was nutty. I rest my case and I look forward to the 2005 election. I will look for a moment at the position of the National Party. The National Party’s position is that Don Brash was in favour of GST on rates in 1985 and he is still in favour of GST on rates in 2004. In other words he was wrong then and is wrong now and that makes it right. It reminds me of the grandmother who when watching thousands of people marching past said very proudly: “My grandson is the only one in step.” There is no other nation in the world that has this form of taxation on a property tax levied by a local government—a point I have already made. 
Let me move to Dr Michael Cullen’s comments. But first I will address two technical issues that are really completely wrong in terms of what has been said in the House tonight. As my colleague Paul Adams pointed out and as Don Brash himself said in a speech the other day we should be encouraging councils in New Zealand to go in for user charges. If councils use user charges they will still put GST on the parking tickets the swimming pool costs and the library costs etc—and I do not know anybody in New Zealand who is complaining about that. No one is. People are complaining about the fact that there is GST on the tax—that is all. As my colleague said there is no compliance-cost issue. Councils should simply bill the thing separately and there will be no problem. That is just a straw man that is put up and can be demolished. Secondly Dr Cullen and others said that GST as a tax on a tax also applies in respect of excise duty. So is the argument: two wrongs make a right? I do not think so. Secondly it can be distinguished from this point of view: GST is collected by Government from excise duty on petrol liquor and tobacco. However the process is completely different. 
When the Government for example decides to put 5c a litre on to petrol prices—which it is doing shortly—Treasury and the Inland Revenue Department tell the Government that it will actually collect 5.625c when it does that—5c in excise duty and 0.625c in GST. The Government receives that advice from Treasury when it makes that decision because both lots of money are going to the same pocket. The point with GST on rates is that these two streams of tax are going into quite different pockets and that is the distinction we need to make between the two. So it is ridiculous to assume that because GST on rates is removed it means we also have to take GST off taxes levied by central government. The whole point I made in my first speech was that nowhere else in the world—Dr Michael Cullen has not been able to give me one example—does a central government impose a tax on a tax levied by a subsidiary government—be it a local authority a state in Australia a state in the United States or a province in Canada. It just does not happen. We are out of step with the rest of the world. 
I believe that we have presented our case logically. I know that the 1.725 million ratepayers of this country want this unjust tax removed. It is unjust it is unfair it is unprincipled and it is wrong. We should take it off. In so far as the Labour Party the National Party and the ACT party are concerned today in terms of their attitude I say: go ahead and make our day because come next year’s election we will make sure—as is already being done through our billboard campaign—that every single ratepayer in this country understands that other parties for various reasons do not want to let that money go. Most of those parties have the attitude: “Well we don’t want to let the money go. We’ve got the money in our pockets so let’s keep it in our pockets.” or other spurious arguments. So people should note carefully tonight how those parties vote on this bill. 
A party vote was called for on the question  
That the Goods and Services Tax (Exclusion of Rates) Amendment Bill be now read a first time. 
Ayes 31 
New Zealand First 13; Green Party 9; United Future 8; Maori Party 1. 
Noes 89 
New Zealand Labour 51; New Zealand National 27; ACT New Zealand 8; Progressive 2; Independent: Awatere Huata. 
Motion not agreed to.