Cullen Michael: Taxation (Urgent Measures and Annual Rates) Bill — First Reading Second ReadingText is incorporated into the Bound VolumeCullen Michael: Taxation (Urgent Measures and Annual Rates) Bill — First Reading Second Reading[Sitting date: 09 December 2008. Volume:651;Page:88. Text is incorporated into the Bound Volume.]Hon Dr MICHAEL CULLEN (Labour): The Taxation (Urgent Measures and Annual Rates) Bill enacts the policy that the National Party released then tried to bury—in terms of the details—as fast as possible. National’s tracking polling would have shown exactly the same result as ours showed. The one point in the campaign when National Party support started to fall was straight after it released its tax policy and that was because the details were so unpopular.This policy is a tax increase for low-income earners and low-income families. It is a reduction in terms of incentives for many people. It is a destruction in terms of savings for many people. It is an undermining of private sector research and development. It is a policy for a dumber society with lower growth lower productivity and marginally lower tax rates—and even those by not very much. It increases tax compared with the current law—not current policy but the current law. It increases tax on all low-income earners earning between $14000 and $24000 a year. I hope ACT votes for those tax increases. It means second-income earners in families. It means all beneficiaries with some additional work income. It means all superannuitants with some additional income whether from savings or from employment. They will all face higher taxes under this bill.Secondly this policy increases tax for all low-income families with children that earn up to $44000 a year and for many middle-income families that earn up to as much as $80000 or more a year. Why? Because they do not qualify for the independent tax credit. The example that Mr Goff gave this afternoon is absolutely right: a two-income family on $55000—one income of $33000 one income of $22000—will lose $14 a week or $730 a year compared with the current tax scales for the next 3 years which have already been legislated for. Indeed a family with a combined income of up to close to $90000 a year may lose under this policy.It reduces incentives. Economists tell us that what is important in terms of incentives is the marginal tax rate—not the average tax rate but the marginal tax rate. I have never agreed with them completely. But what does this bill do? It increases the marginal tax rate for people on between $14000 and $20000 a year and for people on between $20000 and $42500 a year it lowers it by 1 percent. That is going to cause a mass outbreak of productivity increases across the country! For those on between $42500 and $44000 this bill lowers the marginal tax rate by 13 percent. Crafty Kiwi workers will strenuously work hard until they are on between $42500 and $44000 so that they get a 13 percent marginal lower tax rate; then they will suddenly stop working hard. It will have to be very carefully judged to achieve that kind of success. Those on between$44000 and $70000 have the same marginal tax rate those on between $70000 and $80000 have a 4 percent higher marginal tax rate and for those on $80000 - plus it is 2 percent lower. Will Gerry Brownlee suddenly burst into a sweat sprinting to work because his tax rate goes down from 39 percent to 37 percent?It is stupidly complex with the new independent tax credit. Why? Because National members promised the average wage worker that it would be 50 bucks a week on top of—but then they said it would include—what Labour was promising and the only way that they could do that and make it affordable was to invent a new clumsy independent tax credit that was abated out. That daft thing will cost the best part of $10 million a year to administer. And who will do that? Bureaucrats—the very people whose numbers are going to be cut! Some bureaucrats somewhere will get chopped to pay for people to administer the independent tax credit.What happens to KiwiSaver? Well I tell Mr Dunne that this policy does gut that scheme. It cuts the employee contribution from 4 percent to 2 percent and National has not budgeted for any increased uptake. National says that that cut will lead to more people taking up the scheme but it has not budgeted for anybody taking it up. It does not believe that more people will take it up. Why? Because National members are also going to legislate to allow the employers to shift their 2 percent on to the employees. The employers will end up paying 4 percent to get 4 percent instead of paying 4 percent to get 8 percent as they would have done under the current scheme.But it is worse than that because National is also lowering the cap on the employer superannuation contribution tax exemption which I am sure Ms Bennett has never heard of. Contributions up to 4 percent are tax exempt and that is the current KiwiSaver contribution rate by employers. It goes down to 2 percent. If employers choose to pay 4 percent they will be taxed on the remaining 2 percent and that will be a reduction of what goes into the employee’s account. Anybody in this House who is on the post-1993 member superannuation scheme knows about that particular aspect of the scheme. Instead of 4 percent it becomes 3.4 percent but more than that it is a direct incentive to employers to cut their contribution to 2 percent if they are giving 4 percent at the present time.The next point is what is going to happen to portability with Australia. We negotiated it on the basis that the two schemes were comparable. In Australia the employer pays 9 percent and the employee pays nothing. The employer pays 9 percent of a wage or salary into a scheme on behalf of the employee. Our scheme—”4 plus 4” plus the tax credit—equates to about the same level overall. It was on that basis that we were able to negotiate portability between the Australian mandatory scheme and KiwiSaver. Have Government members checked with the Australians? No judging from the smiles on their faces. Are they checking that the Australians are happy to proceed with portability on the basis of a 9 percent scheme versus a 4 percent scheme? I think not. I do not think they will be. I think that portability is running out the window. It was a major policy to encourage high-value Australians in the professional and managerial areas to come here for a period of time because they would not lose their Australian superannuation entitlements and the ability to contribute.We have the abolition of the research and development tax credit—dumber companies. Who welcomed this policy? Briscoes the well-known exporter producer manufacturer and icon of New Zealand business! This is a policy—a bill—about consumption. If the member opposite wants to encourage consumption purely to stimulate the economy then why has he got a new structural tax change which he himself admits will lead to ever-increasing deficits being forecast into the future? He would have been better to follow something like the Māori Party policy and indeedwhat the Australian Government has done in terms of one-off payments to stimulate the economy in the short term.He knows he is in a huge budgetary hole now with no way out. The Speech from the Throne today was simply his throwing in the towel. It basically said “Well as long as we’re the Government there are going to be huge deficits. Somehow or other this policy will stimulate sustainable growth and growth in productivity.” It may stimulate consumption but because the Government will be borrowing more and more it will lead to a structural increase in New Zealand interest rates which will be a cost upon New Zealand business. Companies that want to expand research and development will not be encouraged and productivity will not grow. What is the National Government’s answer to all of this? A tax cut of a maximum of $15 a week for anybody on an ordinary income. That is all it is at its maximum—$15 the value of the famous block of cheese at the time of the Budget this year. Parents will be told by teachers that Johnny may be failing and somehow that is meant to increase productivity in the New Zealand economy. On top of that there are some minor changes or something or other to the Resource Management Act.This is an economic programme? This is about a brighter future? No wonder Anne Tolley is the Minister of Education. She is the personification of the National Party’s brighter future. No wonder Paula Bennett is the Minister of Social Development and Employment and no wonder poor Gerry Brownlee whom I have already had to help hour after hour in this Parliament is the Leader of the House. This policy is not about a brighter future. This is about an obsession with one issue and sacrificing everything else—savings investment research and development incentives—on that one crucible that one anvil of an obsession with trying to lower tax slightly at the margin. If that is an economic policy God help us. This Government we are told is still in the honeymoon period; well as far as I am concerned it is looking like nascent necrophilia over there and I look forward to burying the body sometime in the next 3 years.