English Bill: Taxation (Urgent Measures and Annual Rates) Bill — First Reading Second ReadingText is incorporated into the Bound VolumeEnglish Bill: Taxation (Urgent Measures and Annual Rates) Bill — First Reading Second Reading[Sitting date: 09 December 2008. Volume:651;Page:82. Text is incorporated into the Bound Volume.]Hon BILL ENGLISH (Minister of Finance): I moveThat the Taxation (Urgent Measures and Annual Rates) Bill be now read a first time. This is crucial legislation at a time when New Zealand has elected a new Government the world economy is in turmoil and New Zealand’s economic outlook is more uncertain than it has been for several decades. There has been an extensive debate in New Zealand about taxes tax levels tax rates and tax cuts. What has been clear in election year is that essentially the argument for lower taxes has been won and won to the extent that the former Government introduced its own tax-cut package.This bill will outline the changes in income tax rates and thresholds. The new independent earner credit for low and middle income New Zealanders is aimed at people earning between $24000 and $44000. The bill also includes changes to KiwiSaver which National campaigned on to make KiwiSaver more affordable fair and more durable and I will come back to that. The bill also includes the repeal of the research and development tax credit.I want to deal with one issue regarding the fiscal cost of this package. In the 2008 Budget the previous Government outlined a set of tax cuts. This package including therecent change to KiwiSaver that was announced today is fiscally neutral compared with the 2008 Budget. The cost of extra tax cuts has been offset by the other changes that are included in this bill.I want to pick out a couple of the features of the bill that will be important. The first is the independent earner tax credit. As anyone who has dealt with tax scales will know lower income earners in New Zealand already pay quite a low rate of tax and any shift in those low thresholds costs a lot because a shift in a threshold that is $9500 or $10000 applies to taxpayers who earn $100000 as much as it does to those who earn $20000. The independent earner tax credit is a method by which individuals who earn lower incomes—that is from about the minimum wage of about $24000 to about $44000—will receive an increment to their income equivalent to quite a significant shift in the tax thresholds but in a way that targets the assistance to that group rather than passing it on to income earners at the high end of the income scale. About 630000 people will qualify for this credit in the first year. It covers a group of people who in 9 long and wasted years under Labour received no tax reductions whatsoever primarily because they did not have children. That is what happened in the last decade.The independent earner tax credit will not be paid to people who are receiving benefits pensions Working for Families tax credits or national superannuation. I would point out that as a result of the tax changes national superannuitants will have quite a significant uplift in their income and it will take some time for that particular message to filter through.The other significant change in this bill apart from the tax cuts themselves is related to KiwiSaver. It has been the view of the National Party that a long-term savings programme ought to have broad political support. It needs to be durable it needs to be affordable and it needs to be fair. The reality is that over the next 5 years or so the fiscal capacity of the Government will be significantly less. KiwiSaver and its extensive range of subsidies were introduced when the Government was probably at the peak of the fiscal surpluses that it will see for maybe another decade and certainly for the two decades before that. So those significant incentives were introduced at probably the highest point in Government finances that will be seen in a generation. It was National’s view that they may prove not to be sustainable and I think events in the last 6 months have borne out that judgment.So we have made some changes to KiwiSaver that preserve the incentives that are paid into the savers’ accounts and that make a number of other changes such as the abolition of the employer tax credit and the abolition of the member fee subsidy. The main change has been to reduce the minimum member contribution rate to 2 percent. We believe this will allow a good deal more New Zealanders to be able to stay in the scheme for a start when times are tough and for many others to be able to enter the scheme because of the lower contribution rate. [Interruption] Well Labour members had their chance in the election campaign; as far as I know they made no coherent case in respect of KiwiSaver and that is one of the reasons they lost the election.We are also abolishing the research and development tax credit. This is a decision that has been greeted with a little bit of commentary. The fact is that it was an expensive scheme that in our view was not well targeted because many businesses that are already able to deduct 100 percent of their research and development expenditure were spending a great deal of time reclassifying existing expenditure so that they could get the deduction. [Interruption] I say to Dr Cullen that when he sees the mess that the previous Government has left in our fiscal track this will look like one of the more obvious and simpler decisions that the current Government will make. That is the backdrop against which this tax cut package ought to be seen.The fact is that the fiscal outlook is showing at least a decade of ever-rising deficits and consistently rising public debt and there is a number of reasons for that.Hon Darren Hughes: So why cut taxes?Hon BILL ENGLISH: So the Opposition is now against the stimulus package? Opposition members are against it. They will have to make up their minds because this is part of National’s plan to get New Zealand through a recession and to lift our long-term economic prospects. The combination of the tax cuts that were passed by the previous Government and these tax cuts will over the next 2 years put about $7 billion into the economy. That will certainly help save some jobs it will certainly help to create some more jobs to replace the thousands that are likely to be lost and in combination with our plan to bring forward infrastructure we believe we can protect New Zealanders from the sharpest edge of recession.Despite this plan we cannot avoid the effects of recession but we can make sure that our short-term decisions are consistent with the need to raise our economic prospects in the long term and lower taxes certainly do that. This bill will help to put cash in peoples’ pockets when they need it when they can make their own choices about their own money instead of being told what to do by the Government as to how to spend every dollar they have. It will in the longer term improve incentives productivity investment and job creation in the New Zealand economy. That is why this legislation has such widespread public support.Hon Darren Hughes: Rubbish!Hon BILL ENGLISH: It does. People want to see these tax cuts. Of course there is the challenge to the previous Government to now vote against its own policy because this is a tax package that incorporates significant amounts of the previous Government’s policy. But we made a series of further decisions that take account of the reality of the economic outlook because they are prudent and responsible but give New Zealanders the kind of hand-up they need when they face the most challenging economic outlook in a generation.