Norman Russel William: Taxation (Budget Measures) Bill — First Reading Second Reading In Committee 
Norman Russel William: Taxation (Budget Measures) Bill — First Reading Second Reading In Committee 
[Volume:663;Page:11075] 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I stand to speak on the first reading of the Taxation (Budget Measures) Bill. This bill is part of the Government’s overall Budget package and part of the Government’s overall fiscal strategy. I said earlier today in reference to the Budget that in many ways this Budget is a triple-deficit Budget. It runs a fiscal deficit it adds to the social deficit and it adds to the environmental deficit. I appreciate that the Government inherited some deficits; there is no question about it. It inherited a fiscal deficit and with this Budget it is making it worse. It inherited a social deficit and with this Budget it is making it worse; and it inherited an environmental deficit and with this Budget and this bill the Government is making it worse. But it is worth examining some of the particular measures that are being proposed in this combination of tax changes. 
I think that when the Minister of Finance said we should look at the tax changes as a whole he has a point. We should look at the tax changes as a whole. When we look at the impact of the income tax changes which lower the tax rates very significantly and combine that impact with the impact of a GST change we see that the two tax changes together are doubly regressive. When the two elements of them are incorporated—one of which lowers the top tax rates and the other of which increases GST—we get a doubly regressive tax policy and the tax changes announced in this bill will be doubly regressive for that reason. 
We know that GST is a regressive tax because those on the bottom decile spend about 14 percent of their incomes on GST whereas those at the top spend about 4 percent. So GST acts as a regressive tax because it punishes the poor more than the rich. At the same time we know that the changes to income tax will make the tax scale flatter and not as progressive as it currently is. So when we combine the two elements together—the changes to GST and the changes to income tax—we end up with a more regressive tax system. 
That might not be the worst thing in the world if New Zealand did not already start from a position of being one of the most unequal countries in the whole OECD. If we started from a position of massive equity from a very flat income scale then it would not necessarily be a big deal that we flatten the progressivity of the tax system and that we increase GST. It would be a problem but it would not be a big deal. But when our starting point is that New Zealand is one of the most grossly unequal countries within all of the advanced industrialised countries on the planet it does not make any sense to introduce a combined tax package that put together is highly regressive. It is hard to fathom why a Government that is governing a country that is already grossly unequal would introduce a package that increases inequality. 
It is important to understand just how grossly unequal our country is. For example we know that the top 50 percent of income earners earn 84 percent of all the income and the bottom half of income earners earn 16 percent of all the income. Eighty-four percent of all income goes to the top half and 16 percent of all income goes to the bottom half. When we look at those numbers we get a sense of how out of touch the people in this Chamber are. Almost all the people in this Chamber are paid well above the average wage. They have no idea that half of the country earns 16 percent of the income. How else could we pass a tax package that adds to inequality? How could we possibly pass that tax package which National ACT and the Maori Party are proposing to do today? How could those three parties support a tax package that will increase inequality in New Zealand when we already start from a position of being one of the most grossly unequal countries in the OECD? Why would we add to that inequality? 
One of the justifications the Government gives is that it will increase GDP growth. The Green Party is a bit sceptical about GDP growth. We recognise that we live on a finite planet and we cannot continue to grow the use of resources and the use of pollution when we live on a finite planet. There is that small issue that there is only one planet which pretty much every other party in the House struggles to come to terms with. Let us put that to one side in order to just indulge the Government’s argument that it will grow GDP. 
We know that in 1986 the last time there were very significant tax cuts the New Zealand economy in terms of GDP per capita absolutely flat-lined. It flat-lined straight after the biggest tax cut package this country has ever seen. It was a huge cut. We cut it from I think 66 percent down to 33 percent or something like that. We went from a very high percentage down to 33 percent. That was during Labour’s term when Roger Douglas introduced the package. I know that colleagues in the Labour Party do not agree with that any more and recognise the wrongs of their ways back then when Roger Douglas was in charge. What happened after Labour cut the taxes so significantly? GDP flat-lined; it absolutely flat-lined. That was the impact. I am not saying there is cause and effect because there are so many more complicated factors—the relationship between GDP change and income tax rates is very complicated—but we certainly cannot walk away from that and say that if we cut personal income tax rates it results in an increase in GDP because the exact opposite happened. 
Of course the other thing that happened in 2000 was that we increased tax rates. The top tax rate went from 33 percent to 39 percent and what happened? Did the economy in terms of GDP flat-line? No it grew. We had the situation that after the increase in income tax rates the economy grew and after the drop in income tax rates overseen by Roger Douglas who is sitting to my left the economy flat-lined. The evidence is compellingly against the argument that the Government is putting forward. 
The second argument that is put forward is the one around tax avoidance. That is a really interesting argument. The tax avoidance argument says that there are all these people who are using the loopholes in the tax system to avoid tax. Did it never occur to the Government that maybe it should close the loopholes? If there are loopholes in the tax system maybe the Government should close the loopholes. Let us take the example of people avoiding other laws such as the laws around shoplifting. If a whole bunch of people are coming into a shop and shoplifting all the time does the proprietor say: “Well that’s a bit of problem. What we need to do is to drop all the prices and put a fixed charge on everyone who comes into the shop in order to cover the difference.”? Instead of saying we will enforce the rules against shoplifting the opposite is that we say no obviously our prices are too high so we will cut the top prices and because there will be less income every person now coming into the shop will have to pay a little fee at the door. That is effectively what the Government is doing. That is the Government’s argument around tax avoidance. The Government’s argument is that there are people avoiding the tax so what it needs to do is to cut the top tax rate rather than enforce the rules. There was another option here. The Government—the National Party the ACT Party and the Maori Party—had an option other than making our tax system more regressive. The option was to enforce the tax rules as they currently exist. That is an option the Government has chosen not to take. 
I would like to talk briefly about the property tax changes. The Green Party obviously has been a supporter of trying to direct a lot of our savings away from investment property because we have had a speculative boom in investment property. The obvious solution to it is a capital gains tax excluding the family home—we all know that—even though the Government does not have the political courage to do what it knows should be done. There are two parts to the problem with the way the Government has addressed investment property. It is far too weak and will not have the effect we are talking about. David Cunliffe said earlier that loss attributing qualifying companies will be only marginally affected. The other part is that to the extent it puts an impact on rent—and to the extent that it is effective it will have some upward pressure on rent prices—what we have to do is make sure there is a supply of affordable rental properties to account for that. 
The Green Party has a programme for example of massively increasing the number of affordable State houses so that we can deal with the fact that the Government is putting upward pressure on rents which is what this package will do and make sure that there is more affordable housing available through State housing through non-governmental organisation housing and through council housing. Unfortunately in this Budget the Government has slashed to almost zero the amount of money that is going towards new State housing. At the time that the Government is proposing to put upward pressure on rents it has cut all new building of or acquiring of affordable State rental housing. That is just damn wrong. The Government cannot do that. At the one time that upward pressure is going to be put on people’s rental prices to the extent that the Government’s changes in property will do that we should make sure that affordable rental properties are available. This Budget is inequitable. It leaves a social deficit an environmental deficit and a fiscal deficit and this bill is part of the problem.