Key John: Income Tax Bill — Instruction to Committee In Committee Third Reading 
Key John: Income Tax Bill — Instruction to Committee In Committee Third Reading 
[Volume:616;Page:12072] 
JOHN KEY (National—Helensville) 
: 
 I rise on behalf of the National Party to address the Income Tax Bill which National is supporting. National started the genesis of this work back when it was in Government in the 1990-99 period. I doubt I will be the only speaker to mention the sheer size of this legislation which is thousands— 
Hon Member 
: Over 2000. 
JOHN KEY 
: —over 2000 pages—the largest bill introduced to the House. It is an absolutely enormous bill and an enormous amount of work has gone into it. I want to pay tribute to the advisers who have been helping the Finance and Expenditure Committee and the officials who have worked very hard on it. The simple idea behind the bill of course is a rewrite of the Income Tax Act 1994 and to put into simple language—if there is such a thing—the tax code that operates in New Zealand and the basis under which New Zealand taxpayers will be required to adhere to tax law. 
There are some interesting elements of the bill to which I want to make reference but I want to make one very simple comment. The size of the bill and the huge number of clauses contained within it in some part are of the Labour Government’s own making. I say that because the top personal tax rate was increased when the Labour Government came into office in 1999 from 33c in the dollar—a fair reasonable level of taxation if I do say so myself—to a 39c rate. Why was the top personal rate of taxation increased? It was not because the Crown accounts required it. Last year alone the operating balance excluding revaluations and accounting changes was $5.6 billion; this is truly a Government awash with cash. It was simply because there was a degree of envy—the Labour Government felt it was inappropriate that the entrepreneurs of New Zealand should enjoy such a lower level of taxation so it increased the top personal tax rate. 
 Lo and behold once the Minister had scuttled off to Cabinet with that wonderful idea of increasing the top rate of personal taxation he was then besieged in his office with mountains of paper on how to address that change and we now see it reflected in the Income Tax Bill. There are literally hundreds of clauses that have to reflect all the complexities added to our system by an increase in the top personal tax rate. All sorts of areas will be addressed during the debate this evening no doubt by numerous speakers on the concept of what impact that increase will have—for instance on the split-rate fringe benefit tax and the like. 
I want to draw a reference for the Committee on one point which is that in the 1999 Labour credit card one of the claims made by the Labour Government was that by increasing the top rate of personal taxation only 5 percent of taxpayers would be affected. Well we know that that has proved to be incorrect. Figures now released by the Inland Revenue Department show quite clearly that one in five full-time taxpayers now pay the top rate of personal taxation and bracket creep—or fiscal drag as it is otherwise known; the situation where inflation drags people into a higher level of taxation—has caught out so many New Zealanders who maybe earlier on had not thought they would be affected by it. 
Clayton Cosgrove 
: Where is the member on this bill? 
JOHN KEY 
: I will come to that in a moment but this is a long and drawn-out debate so let us enjoy it while we are in the early stages. That is quite an amazing statistic—that one in five full-time taxpayers will now be caught by the increase in the top rate of personal taxation. 
This is a very wide-ranging debate and I want to spend some time in talking about tax rates in New Zealand. They are applicable because Part B of schedule 1 talks about the basic tax rate. Very interestingly on Friday that wonderful international accountancy firm KPMG listed its world tax survey. It made very interesting reading for those who like to look at that type of data. The first thing I noted from that survey was that at the time the National Government left office in 1999 the average company tax rate paid in the OECD—that is right by the top 30 rich nations of the world—was around 35 percent. Former treasurers in that National Government like Bill Birch and Bill English can look back and reflect on what a wonderful position they left New Zealand corporations in because the company tax rate at that time was 33c in the dollar. We can compare that with the average company tax rate in the OECD as shown in the KPMG survey of 35 percent. 
What was released on Friday in that report was very interesting. The average rate of company taxation in the OECD now is 29.96 percent—that is it is under 30 percent. What is the average rate of company tax in New Zealand? It is still 33 percent. So under a National-led Government business had a competitive advantage with other countries in the OECD; under a Labour-led Government business is at a disadvantage to other OECD countries. It is a pretty simple message and it is one of the reasons Don Brash boldly went out and told the business community a few weeks ago that we would lower the rate of company taxation when we regained the Treasury benches in 2005. That statement was greeted with such a warm response from companies because they know that company tax is a withholding tax they know that company tax pays a significant role in encouraging investment in New Zealand and they know that company tax is a cost on a business. 
Secondly when we look at that rate of company taxation we note a very interesting fact that 87 percent of all companies in New Zealand are small businesses. When those businesses are built the building cannot be done with easy equity issuing on the stock market. They rely on their own capital and their own hard work and on the reinvestment of profits that are earned in the business. So to allow New Zealanders to keep more of that income in their businesses and to grow their businesses we are allowing them to take an entrepreneurial spirit—to take a progressive approach to building a brighter and fresher New Zealand. I for one am quite happy to declare that I would like to see the company rate of taxation in New Zealand even lower than 30c in the dollar. 
Darren Hughes 
: What rate? Give us a number. 
JOHN KEY 
: The lower the better I tell the member. That is what I would like to see for the rate of company taxation in New Zealand; the lower the better. Let us look at Ireland which boldly took the step of reducing the rate of company tax to 12.5 percent and what have we seen? The Irish miracle—the Gaelic miracle! It has been unbelievable. I suggest that in one of Mr Hughes’ long recesses he wanders off to Dublin and has a look at the economic miracle that has taken place through that great and bold step. If New Zealand could look at doing that I suggest that the New Zealand business community would be so much better off so I want to make particular reference to it. 
I further want to make reference to the Minister of Finance’s comment when National declared that it would lower company taxes to 30c in the dollar: he was very scathing. I was quite surprised. Rather than welcome that as a wonderful and progressive idea for building a better New Zealand he told the people of New Zealand that it would simply deliver all the benefits off shore. Of course he was talking about foreign ownership of New Zealand companies. Quite surprisingly when I sent him a couple of parliamentary questions that asked why he thought all the $600 million that would be released into the economy by the reduction of the level of company taxation from 33c to 30c in the dollar would take place off shore he came back to me and told me that less than half would go off shore—and that it is not clear that even half would go off shore because so many foreign owners of businesses in New Zealand want to retain that income in their businesses and want to grow even stronger and better businesses in New Zealand. 
So I think that that is quite a spurious argument. It really just goes on to tell us that the general fundamental belief under a Labour-led administration is that higher taxes are better—they allow more redistribution—and there is no progressive agenda along the line. 
The next point I make is in relation to company taxation and why company taxation rates should be coming down. I know that Mr Hughes is a bit confused about the fact that taxes actually can go down— 
Darren Hughes 
: What number? Give us a number. 
JOHN KEY 
: When one grows up in an environment where taxes only go up of course one will think they can only go up. But we on this side of the Chamber have seen people who have taken the bold step of believing that any form of taxation can be lowered. I know that it has not actually happened on that side of the Chamber but it has certainly happened on this side. We believe in and have demonstrated a lowering of the tax rate. Sixty percent of all New Zealand businesses earn under $38000 and therefore are paying a higher level of taxation by paying the company rate than they would pay if they were taxed on a PAYE basis—and they themselves are over-taxed. That is another very good reason why the rate of company taxation should be lowered in New Zealand. 
When we look across the specifics of this bill and look at the general impact of taxation on New Zealand we see that a very interesting question is raised about whether New Zealanders are over-taxed. I do not think it takes a helluva long time to work out the answer to that when we look at the size of the surpluses the Government is running. Why is the Government running such significantly large surpluses? 
Hon David Carter 
: Greed. 
JOHN KEY 
: That is right.