Groser Tim: Income Tax Bill — In Committee Third Reading 
Groser Tim: Income Tax Bill — In Committee Third Reading 
[Volume:641;Page:11277] 
TIM GROSER (National) 
: 
 This is obviously an issue of major complexity. We have heard people with long experience and long experience of the Finance and Expenditure Committee—I did not participate in the select committee—describe the long genesis of this process going right back to National Government days. The enormous complexity of the task reminds me of a story I once read some years ago about the US tax code which makes this admittedly complex legislation look like a primer on tax policy. Every year the National Society of Accountants the body that represents US tax accountants holds a contest. It picks out a single admittedly fairly complex tax return it excises the name from the tax return it then takes out any personal information that could in any way endanger this person’s privacy and it sends the tax return off to about 300 of its members and asks them to calculate the tax. In the years that this contest has been running there has never been one occasion when the 300 different experts have ever calculated the tax burden to the exact same cent which indicates the enormous complexity of writing tax law when it comes down to this issue. 
 I regard this frankly still as a work in progress. I would be surprised if the experts in the Inland Revenue Department and in other departments who have a major policy interest are not almost literally as we speak starting to develop discussion papers and ideas for the next generation of this bill because this has always to be considered as a work in progress. I remember as a very small boy having been brought up in Perth in Scotland being much impressed with the Forth Bridge over the Firth of Forth which is one of the great monuments to the industrial age in Scotland. What struck me as a small boy was that whenever we went across the bridge on the train people were always painting it. They never stopped painting it. As soon as they got to one end they would start at the other end. So my supposition is that our tax painters are already considering the issues for the next generation of this Income Tax Bill and a future Parliament will be placed in perhaps some 8 to 10 years’ time in the position that the select committee and Parliament as a whole have been placed in today. 
So there is a need to adapt the tax system to the realities of New Zealand’s place in the international economy. That has a technical aspect to it—obviously—which is the focus of this bill and I am very pleased to see that it is being dealt with in a non-contentious way. But—I am sorry to disappoint Mr Swain once again—there is of course a much deeper policy question behind it which is the purpose to which we put tax administration. The role of tax in general economic policy and the overarching question on what Mr English correctly called the stewardship of the tax policy system will remain a very live political question at the heart of the difference between us and the Labour Party in the electoral context and that is where we have a fundamental difference of view. 
The fundamental difference of view—not to be obscured by the reasonably high degree of consensus on the administration issues and the highly technical legal issues—simply comes back to a consideration of first principles around tax policy. They are first that we live in a largely market-driven economy; the incentives drive the allocation of resources; and tax is an absolutely vital aspect of that policy setting. This determines not wholly but very significantly where resources flow where people live and whether people remain in New Zealand or seek their fortunes outside of it. It is all a matter of looking at it in terms of the emerging international economy and the place that New Zealand has. The changing place of New Zealand in the global economy will always require us to come back to tax administration legal issues such as the place of abode. After all it is becoming increasingly redundant to look at the future both in this country and in many other countries of a person as necessarily wholly resident in one country for income-earning purposes and I do not think there is a clear view about where we need to go in this country on that matter. But one thing is absolutely certain: we will have to revisit this question to maintain our position in the international economy. 
But the broader question that is at difference is of course the use of tax policy for general economic purposes and here we have one of the most fundamental difficulties between us and the Labour Party. It has been a difficulty now going back over many years basically for the reasons Mr English put forward—that is the Labour Party’s view that they have a better idea of how to allocate people’s resources than they do so it wants to build up the kitty to build up the policy structures and to direct resources rather than risk trusting New Zealanders to do it for themselves. Right at the start of this phase in the electoral cycle—in 2005 when this Government entered its third term—Treasury advised the Government in unmistakable terms what one of the key issues was that faced it. It said: “…high marginal tax rates on personal and company income are more likely to have a negative impact on growth … by inhibiting the decisions that drive investment and enabling people to make the most of their economic opportunities.” This is hardly complex; it goes right to heart of the incentive-driven nature of our economy. 
So the Labour Party inherited this having created some political fantasy that economic growth started the day it got elected late in 1999 and basically it has not addressed that issue. The fundamental thing for us to consider is of course the competitive nature of tax in the global economy. In the case of Australia there have been I think 13 significant tax cuts since the late 1970s. 
Darren Hughes 
: And what’s their highest rate? 
TIM GROSER 
: I will tell the member what the highest rate is. The highest rate is 45 percent which is higher than 39 percent. But is the member not aware where that cuts in? It cuts in at the equivalent of NZ$180000. Only 2 percent of Australian taxpayers are caught by this largely mythical higher rate. The more important reality is that vast numbers of Australians are sitting in a tax bracket that gives them a 30 percent rate up to the equivalent depending on the exchange rate one chooses of approximately NZ$90000. So Labour members rest their whole case on this largely mythical tax rate in Australia which cuts in at the equivalent of NZ$180000. Two percent of Australian taxpayers—I have seen calculations that would suggest that it is less than 1 percent if people shifted across the Tasman from New Zealand given incomes here—are missing the meat in the middle of the hamburger. The meat in the middle of the hamburger is that if one earns up to NZ$90000 one pays 30 percent in Australia at the marginal tax rate. That is the real tax rate that those opposite should be focusing on. 
The fundamental reason why they have chosen not to do this is that they have failed to address the issue of bracket creep. They know the data. In the last 5 or 6 years there has been roughly a 50 percent increase in the number of taxpayers moving into that crucial $38000 to $60000 bracket. So people earning below $38000 pay 19c in the dollar which is a reasonable tax rate but as soon as they go above that they pay 33c in the dollar. There has been a massive increase under this Government.