Norman Russel William: Taxation (Annual Rates Trans-Tasman Savings Portability KiwiSaver and Remedial Matters) Bill — In Committee 
Norman Russel William: Taxation (Annual Rates Trans-Tasman Savings Portability KiwiSaver and Remedial Matters) Bill — In Committee 
[Volume:666;Page:13448] 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 This debate has I think become quite sensibly focused on issues of tax policy and savings policy. The Taxation (Annual Rates Trans-Tasman Savings Portability KiwiSaver and Remedial Matters) Bill addresses both issues so I think it is quite a good opportunity to have that debate on the issues surrounding this bill. 
Often overlooked in the debate is the fact that Part 1 applies to annual rates. Clause 3 sets the annual rates for the 2010-11 tax year and basically it implements the income tax cuts that the Government has introduced. These cuts involve borrowing to give tax cuts for upper income earners. Even when we look at the Government’s Budget overall in the net position of looking at all of the Government’s tax changes put together we see that the Government will still have to borrow about $1 billion over 4 years in order to fund its tax changes. But the cuts to income tax will cost considerably more than that although they are balanced to some degree by the increase in GST and by some other smaller changes. 
The Government’s tax strategy has been to cut taxes for those at the upper end of the income scale and to borrow from future generations in order to fund those tax cuts. The Green Party thinks that borrowing in order to fund tax cuts for upper income earners is not a very clever economic strategy. The reason we think that it is not a very clever economic strategy is that it will increase inequality in our country a country that already has major problems with inequality and that it will add enormous levels of debt to future generations. By adding debt to future generations we are increasing the interest payments they will have to pay so we are simply kidding ourselves to think that we can somehow give tax cuts to upper income earners—in order to get votes I guess which is part of the Government’s strategy—and that future taxpayers can pay the bill. It seems to me that that is a fiscally irresponsible strategy. 
The Green Party does not support an increase in borrowing in order to pay for tax cuts for upper income earners and I am very surprised that the Minister of Finance and the Minister of Revenue have taken us in the direction that is implemented through both this bill and the Budget legislation. I wonder why we are heading in that direction when it seems to me it is such a fiscally irresponsible approach for a country in which there has been high levels of private debt and in which currently there is increasing public debt because we have had to borrow more heavily during the global financial crisis in order to fund the economic stimulus package. Yet we are now increasing levels of public debt to fund tax cuts for upper income earners. 
We also know that in terms of a stimulus package tax cuts for upper income earners are not a very good way to produce jobs or stimulate the economy. We know that if we deliver tax cuts to low income earners they tend to spend most of the money because they simply cannot afford to save it whereas if we deliver tax cuts to upper income earners they are able to save the money because that is the position they are in. Although that is fine for those people and makes perfect sense for them at an individual level in terms of delivering a stimulus to the New Zealand economy it is extremely ineffective. Whether we read the papers of the OECD or of any other body those papers will tell us that tax cuts particularly tax cuts for upper income earners are not a good way to deliver a stimulus package. When we realise that we are funding those tax cuts through increased public borrowing it seems to me that the strategy is a tremendously irresponsible economic and fiscal strategy. 
When the Minister of Revenue spoke previously he criticised the Labour Party over the capital gains tax. The Green Party is on the record as being in support of a capital gains tax that excludes the family home. We think it is a very sensible strategy. It has been used overseas and would raise roughly $4.5 billion a year once it was in place; it would take a number of years to raise that much money. We think a capital gains tax that excludes the family home is both a very good revenue-raising measure and a very fair tax. It is a very progressive form of taxation because it tends to fall mostly on those who have the most wealth and the higher incomes. It would also have some positive beneficial effects in terms of trying to dampen demand for investment housing which has been a big problem for New Zealand over the last decade. There has been a big increase in the price of housing which has been driven in part by the treatment of tax. In response to the Minister of Revenue’s comments on this issue then the Green Party thinks yes a capital gains tax excluding the family home is quite a good idea. 
Looking at the savings side of this legislation the Green Party agrees that some of the changes for KiwiSaver are very positive and we support them. We think that the trans-Tasman portability of savings is a positive move and that some of the new rules about under-18-year-olds needing guardians’ or parents’ permission to enrol make sense. 
I think though that the debate we are having today on savings raises the broader issues about what we are doing with savings in New Zealand. This bill addresses those issues partially but it is obviously a broader debate. We face two simultaneous problems when it comes to savings one of which is the issue of the baby-boomers bubble coming through the system: how to afford the superannuation payments for those people from the public purse and the ratio between those who are retired and those who are of working age. That is one significant challenge for us. 
The other part of the challenge is national savings. The fact that as a nation we have been dissaving for so long has resulted in us running a very large current account deficit and we have been funding the current account deficit through two mechanisms. On the one hand we have been borrowing large amounts of money and on the other hand we have been selling off New Zealand - owned assets into overseas ownership. The effect of our poor level of savings over such a long time and the fact that we have had to increase borrowing and sell off assets in order to cover the current account deficit mean that only about 93 percent of GDP now stays in New Zealand. Back in the 1970s about 100 percent of GDP on a net basis stayed in New Zealand and was distributed to New Zealanders in the form of profits wages or investment. Now the percentage is down to about 93 percent. We are losing about 7 percent of GDP every year which is going to overseas owners either through debt—on money we have borrowed from overseas and on which we have to pay interest payments—or through dividends and profits that get paid back to overseas owners because of overseas ownership of productive assets within New Zealand. 
So our problem about savings has long-term implications for how wealthy and prosperous New Zealanders will be. If we are measuring GDP as a record of turnover currently only 93 percent of that turnover stays in New Zealand to be distributed as wages profits and investment. That is because we have had that savings problem. So the Green Party supports increasing savings in New Zealand but we recognise there will have to be contributions from employees—from individuals—and there will have to be employer contributions and Government contributions. They all need to come together. Those three parts are the three necessary parts of the savings puzzle so although this bill makes some positive changes to KiwiSaver there are much bigger issues particularly in light of the ongoing discussion on compulsion in superannuation. Those three components will have to be part of the solution if we are to improve our savings record using the KiwiSaver mechanism but it was very disappointing to hear the Government opposed to any kind of increase in Government contributions and it has also been disappointing to hear opposition from some employer groups about employer contributions because that is an essential part of the package of savings if we are to extend the KiwiSaver system further. 
On this bill and on savings issues more generally the Greens have had a lot of concerns about the way the Government is taking advice on this kind of legislation. We have been concerned about the role of banks and in particular of PricewaterhouseCoopers which provides some of the key advice on tax and savings in New Zealand. PricewaterhouseCoopers was of course the key adviser to banks that avoided unlawfully $2 billion worth of tax. So we are concerned about the constant use of these kinds of advisers becoming involved in the debate around tax and savings when they have had a track record of providing advice to banks about how to avoid tax. I really do recommend to the Government that it needs to go to someone else for advice rather than to continue going back to that particular source because we all know the record of that source. 
In finishing I say there are some good changes on savings; we support those. But we do not support the direction of the Government around income tax policy and for that reason we will not be supporting the bill. Thank you.