Nash Stuart: Taxation (Budget Measures) Bill — In Committee 
Text is incorporated into the Bound Volume 
Nash Stuart: Taxation (Budget Measures) Bill — In Committee 
[Sitting date: 20 May 2010. Volume:663;Page:11154. Text is incorporated into the Bound Volume.] 
STUART NASH (Labour) 
: 
 Sorry Mr Chairman; I did not hear you at first. I was dreaming a little bit about what I would do if I were Paul Reynolds and I was about to receive $1700 a week extra in the hand. That is about $7300 a month. I could go first-class home once a month I suppose—or I could buy a rental property. Here was a classic opportunity to change the structure and balance the economy around rental property investment but that opportunity was not taken. But with about $88000 in the hand every year thanks to these tax cuts I think Paul Reynolds will be smiling. 
The thing is as my colleague Trevor Mallard pointed out inflation will really eat into the majority of New Zealanders’ tax cuts. The Minister will know better than I do but I think that about 0.89 percent of people earn over $150000. Those people who earn over $150000 will do very very well out of this Budget. They can do exceptionally well. But then again if I were on the median income I would be getting about $5 a week in the hand. I would be getting about $250 a year. What can a person do with $5 a week in the hand? Simon Bridges said this Budget was about all New Zealanders. He said the Government was providing opportunities for street sweepers—those were his words. Well the Government has taken away community education but anyway that is another story. 
One thing that has not been factored into this which I think really has to be is the inflation rate of 5.9 percent. I do not think that that inflation figure is right. I think it is too low and the reason I point that out is that there is an overlying assumption that prices will increase by about 2.5 percent because that is the rate of the increase of GST. What will happen—and I started to talk about this before but I ran out of time—is that businesses will price strategically. Let us consider an item priced at $49.95. We do not pay $50; we pay $49.95. The reason is that it sounds lower than $50. We know there is only a 5c difference but it sounds lower. It is a feel-good factor. So if we take off GST of 12.5 percent and put on GST of 15 percent the price comes up to $51.06. No retailer will price something at $51.06c. It does not sound good; it does not sound like a bargain. The next strategic price point on that item is actually $54.95 which represents about a 10 percent increase. We will see this practice on a lot of goods. 
Now there is an argument that the market will not allow that—it will allow only $49.95 and therefore the increase will not happen. The problem with that is that the retailer’s margins will be really squeezed and he or she will look for other ways to claw back that margin. So we will get a completely uneven distortion of prices. Here is my real concern for a lot of New Zealanders and I include superannuitants in this. They believe or have been told it is only 2.5 percent which will raise $2 billion a year but it will be a lot more than that. 
The other thing is I did a radio interview this morning and I talked about inflation at 5.9 percent. That is not a Labour figure; we are not scaremongering. That figure is in the official Budget documents. I said inflation was going up to 5.9 percent but the guy said it was dropping down to about 2.4 percent again. I said it would but that does not mean that prices drop down. I think there is a perception out there that if inflation increases then prices go up and if inflation drops from 5.9 percent to 2.4 percent then prices drop. That is not the case. It means that everything being equal prices increase by 5.9 percent then increase by only 2.4 percent. The real value of savings tax cuts and all that money people put away is eroded right down to the point where it is worth nothing. Anyone on the median income or anything below $70000—and people on that income are not wealthy—is worse off than before the Budget. 
I want to talk about something that the Minister of Revenue Peter Dunne talked about on which I am in total agreement with him; that is aligning the trust and the top marginal tax rates. I do not agree with dropping the top marginal tax rate down to 33 percent; I think we could get away with increasing the trust rate. As the Minister alluded to people were channelling profit through trusts. When people get dividends from a company they pay tax on that at their marginal tax rate. Before this Budget people were paying tax on their dividends their profits from a company at 38 percent if that was their correct marginal tax rate.