Taxation (Budget Measures) Bill — In Committee 
Text is incorporated into the Bound Volume 
Taxation (Budget Measures) Bill — In Committee 
[Sitting date: 20 May 2010. Volume:663;Page:11119. Text is incorporated into the Bound Volume.] 
Thursday 20 May 2010 
( 
continued on Friday 21 May 2010 
) 
Taxation (Budget Measures) Bill 
In Committee 
Debate resumed. 
Part 1 Personal tax cuts company tax cuts and GST rate increase: 1 October 2010 start ( 
continued 
)  
STUART NASH (Labour) 
: 
 We heard some interesting speeches in the Chamber last night. One of the most interesting speeches was the one from Simon Bridges who stood up and said this Budget was not about the wealthy lawyers—and obviously he is one—but about the street sweepers and the cleaners. Mr Bridges said this Budget allowed the street sweepers to actually get ahead and advance themselves. He thought that an extra $5 a week would allow that to occur. Well I would argue of course that the street sweepers had a chance to get ahead because they had adult and community education. But I can tell members that in Hawke’s Bay there are no more courses going on at the moment. Of course cutting the education budget in real terms cutting community education even further and cutting tertiary education means that this Budget is not about getting ahead at all; this Budget is about going backwards. But I digress. 
I will talk about the GST increases. I will give members a real-world example that Mr Quinn could well learn something from; I think that his mother who lives in Napier will be very interested in this. We are talking about the elderly sector. In Napier about 10000 people rely on superannuation and that number will increase by another 12000 in 15 years’ time. That does not mean we will get 10000 plus another 12000 because obviously some will fall out of that group. But I am saying a significant number of New Zealanders— 
Paul Quinn 
: They’ll be well looked after and they’ll do better than most. 
STUART NASH 
: —and again I think Mr Quinn would agree with this and he must be nearly there because I think he is going a little senile—rely on national superannuation to get through. 
These New Zealanders have worked hard for their whole lives. They have worked they have strived and by and large they have paid their taxes no matter what the amount was. We heard that they used to pay 66 percent tax then they paid 33 percent and then it went to 38 percent. They have paid tax all their lives and they do not ask for much. We must admit that our elderly do not actually ask for much but they know when they are being had. 
Lynne Pillay 
: Just dignity. 
STUART NASH 
: That is right Lynne; they just ask for dignity—they want to retire with dignity. When people have worked all their lives and reach 65 they want to be able to enjoy life. It does not cost much. These people do not receive much income from their superannuation but they do not complain. They want to go out with their mates and enjoy their bowls. 
Of course when adult and community education was cut the elderly were concerned because that actually took away a lot of the support networks and friendships and clubs that they belonged to. But that was OK—they grumbled but they lived with that. With this increase in GST though they are really concerned because the increase in GST erodes their spending power. What is worse than that is that we have inflation coming in in 2011 of 5.9 percent. That is not a Labour figure. Someone said to me last night that that is just scaremongering. Well I can tell members that that figure of 5.9 percent is not a Labour figure; it is a Government figure. If members look at page 3 of the Minister’s Executive Summary which is in volume B.2 and B.3 of the Budget documents they will see that it refers to the figure of 5.9 percent inflation. 
A lot of the elderly in our community rely on interest earned from their savings and investments to top up their national superannuation in order to live a life of dignity and have a decent standard of living. That inflation rate will erode the real spending power and the real value of these investments. We all know examples of this. We all know people who live in big homes and who say that they bought them in 1950 for only £20000 and we think: “Goodness me that was cheap.” But of course those people would have earned only £2000 a year then. That is what inflation does: it erodes real value; it erodes the value of investments. An elderly person on superannuation who put away $100000 and is living off the interest—and the resident withholding tax will have already gone up on that—will find that high inflation erodes those savings. I did a radio interview this morning and I mentioned this. The guy said: “Yeah but inflation is coming down after that. It’s a one-off hit.” It is a one-off hit; we admit that. But that does not mean that prices will drop; it just means that prices will increase by 5.9 percent then increase by 2.4 percent again. It does not mean that prices will drop again. So the reduced value of investments created by the one-off hit of the GST increase will hit superannuitants a lot harder than I think the vast majority of people think. That is why I have a major concern about this increase. 
PAUL QUINN (National) 
: 
 It is important to realise that the genesis of yesterday’s tax announcements lies in the changes made by that chappie called Cullen in 1999 when driven by his fantasy of what he called “rich pricks” he introduced an envy tax. All this bill does is remove the envy tax that Cullen brought in in 1999. That enables people the true professional people in this country such as doctors and hard-working New Zealanders— 
Chris Tremain 
: Teachers. 
PAUL QUINN 
: Exactly. It enables those people to get on. They are the people whom that shameful former Minister of Finance hit when he was trying to get at what he called ‘rich pricks”. The fact of the matter as we know now is that none of the real rich people— 
Stuart Nash 
: I raise a point of order Mr Chairperson. I take personal offence at the member calling Dr Cullen shameful. I think that is a slur on his character and I take offence at it. 
The CHAIRPERSON (Eric Roy) 
: There are two measures here. The first is that members can take offence and register that to the Chair. The second test whether the offence is in fact one that should be accorded some response from the Chair. The kind of test of that—and I think the member should look at Speaker’s ruling 45/1—is whether the House itself is offended. Otherwise members would be jumping up and down the whole time. But having said that to that member I say to the other member that when we start getting into what we might call “on the verge debate” the House itself descends to a level that is not productive. This is early in the day so can we just have a bit of generosity. 
PAUL QUINN 
: You mean I should go soft on the Opposition Mr Chairman. I am happy to go very soft on the Opposition. One has only to look at the straw polls that have flowed across the country to see that 80 percent of the populace 80 percent of the people whom Labour alleges it represents are actually in favour of this Budget. It is about time the Opposition benches conceded they are out of touch not only with ordinary New Zealanders across the board across every career group including professionals but with ordinary working people whom Labour alleges it represents in the House. 
The polls on this Budget demonstrate that people support this Government. That is why they voted us in—to undertake measures like this. I know that that will be hard for Labour members to accept but my advice during the course of this debate is that they concede the Budget is an outstanding one and quickly move on through this debate. They will then be able to go home early this afternoon and actually get re-engaged with their constituents—and find that those constituents support this Budget. That is my advice to the Opposition. 
MOANA MACKEY (Labour) 
: 
 It is always an honour to follow on from Paul Quinn who apparently overnight has spoken to every person in New Zealand and is testament to the old adage that ignorance never sleeps. Mr Quinn talked about Labour’s “envy tax” in 1999 when we raised the top tax threshold. At least we went out on the election campaign trail and were honest about what we were going to do. Mr Quinn’s party the National Party went out on the election campaign and promised that it would not increase GST. In 1999 Labour did exactly what it promised. We did not hide anything during the election campaign and I think that is an important distinction. Mr Quinn might not think so; he might think it is OK to say one thing to the voters of New Zealand before the election and do the exact opposite afterwards as National said before the election that it would not increase GST but has increased it afterwards. The people of New Zealand will see that for what it is which is a tax swindle. 
Mr Quinn referred to the  
Close Up 
 poll last night where he said 80 percent of people are for this Budget. I tell Mr Quinn that that is because the people who are opposed to it could not afford 75c a text to phone in like his rich mates can. The National research unit would have been sending emails around telling people to text in and make sure they say that they are for the Budget. 
Paul Quinn 
: What about the  
Dominion Post 
? 
MOANA MACKEY 
: I tell Mr Quinn that thanks to the Budget of the National Party that was put up yesterday most people cannot afford 75c to text in and say what they think about the National Government’s Budget. I suggest he stops listening to unscientific polls and goes out and talks to people. I think he stood in Hutt South; I cannot remember how well he did. But he should go out and talk to people in that electorate. 
Paul Quinn 
: Read the  
Dominion Post 
; the  
Dominion Post 
 rang them. 
MOANA MACKEY 
: I ask Mr Quinn why he does not go out and talk to people rather than read the  
Dominion Post 
. He should ask those families who will have their early childhood education subsidies cut whether they think it was a good Budget. He should go and talk to those people who are having their home help services cut about whether they think this is a good Budget. He should go and talk to those schools that are having their budgets cut and ask them whether they think this is a good Budget. This bill is a tax swindle and Part 1 is one of the worst parts of this swindle. It locks into place the broken promises of the National-led Government. 
National promised there would not be an increase in GST as I said. Mr Tremain might think this is boring but the fact is that he went out on the campaign trail and promised that he would not increase GST. He promised that. Is this a broken promise? 
Chris Tremain 
: No way. 
MOANA MACKEY 
: Apparently looking down the barrel of a TV camera and saying: “I will not increase GST.” then increasing GST is not a broken promise according to the National Government. That explains a lot about this Budget. 
How is this being paid for? It is being paid for by borrowing for tax cuts. That was the other thing that National when in Opposition promised it would not do. The National Government has to now borrow half a billion dollars a year to pay for these unaffordable tax cuts for the people who funded them during the election campaign. The people who funded them during the election campaign are the people who get the biggest benefit from Part 1 of this legislation. 
I want to talk about the removal of the 20 percent depreciation loading on new plant and equipment for assets purchased after Budget day. This Government has been terrible for innovation. This Government took away everything Labour did when we were in Government then brought back less than half what we did and proclaimed it to be a great day for science for research and development and for innovation. Lo and behold in the Budget we have another whack on innovation. It is something else that will stop our most innovative companies from being able to get ahead and compete in this crucial area. This shows how hollow National’s words are when it comes to supporting innovative businesses. The fact that National put Wayne Mapp in charge of the portfolio is another thing. He is the man who went out after the election and kept saying to people that he never wanted the portfolio. 
Chris Hipkins 
: The political correctness eradicator. 
MOANA MACKEY 
: Wayne Mapp the political correctness eradicator has also become the innovation eradicator in this Government. I ask how someone can stand up with a straight face and say that this is a Government that supports research and development when the measures that have been lauded and brought back in Part 1 of this Budget are less than half of what Labour put in place when we were in Government. 
Hon MARYAN STREET (Labour) 
: 
 I wish to speak to Part 1 of the Taxation (Budget Measures) Bill. There is only one part I wish to speak to which is the increase in GST. I would like to unpack that a little bit in so far as the way it will impact on students. It seems to me that in this Budget tertiary education is the big loser—tertiary education across the board is the big loser. 
It does not matter how the Government chooses to spin this. Let us have a look at some of the facts and the details. There will be a GST increase which all students will feel on their rent their food and their books. We have not heard anything about any compensation; we have not heard any specifics but let us assume that it is the same compensation that the Government says it intends for superannuitants and beneficiaries—for example a 2 percent increase on student allowances. First of all it will not compensate adequately for the GST increase and secondly the 4 percent annual maximum fee movement that the Budget provides for tertiary institutions is GST exclusive. So now students will have to pay not only the increase in GST in everything they purchase in order to live—so that will cut their spending power even further in the supermarket as they search for the cheapest items they can find and for things that are on special—but it will also mean that they will face a 4 percent increase in fees across their institutions and their courses. They will then have to pay GST on top of that. 
But let us look more closely because the 4 percent annual maximum fee movement is effectively a cut for most tertiary institutions. I do not know whether the members opposite grasp this point. Previously there was a spectrum up to 5 percent for institutions under the fee maxima policy—they could raise their fees on courses by up to 5 percent. Now Auckland University is probably the only institution that is sitting at its fee maxima on its courses. Other institutions—universities and polytechs—are sitting somewhat beneath their fee maxima. Auckland University may do quite well because it is allowed to increase things by 4 percent although it might have wished to be able to increase things by 5 percent. The 4 percent that it is getting now means that that was rather unexpected and will be useful given that it is sitting at its fee maxima. However other institutions whose courses are not sitting at their fee maxima may have wanted to go to their 5 percent in order to recover the costs that this Government is not putting into tertiary education. So they are getting a 1 percent cut. That is a cut to the institutions and I want to know how the members opposite justify that. 
It is clear that this Government is shifting the cost of tertiary education away from the Government and into the institutions on to the institutions themselves and further than that on to students. So not only do students have to wear the 2.5 percent increase—the 15 percent GST which is in Part 1—on everything they buy but also they have to wear that on top of a 4 percent course fee increase. 
I am not sure that members opposite have grasped this but further to that there are cuts in this Budget to adult and community education which indicate that this Government has learnt nothing from the intense protests last year about cuts to adult and community education. It has taken $3.4 million out of schools and community groups. I think that was about all that was left last year in the adult and community education budget which went to schools and the community groups that they fund. I need the Minister to clarify what is left for night classes. These are the night classes that Mr English so praised previously because he said his mother was able to take advantage of night classes in secondary schools. 
CHRIS HIPKINS (Labour—Rimutaka) 
: 
 This Budget demonstrates very clearly what a cruel hoax the National Party played on New Zealanders at the last election. National members went up and down the country and said that New Zealanders could have significant tax cuts with no cuts to public services and no increase in borrowing. They could still have big tax cuts. Did they get that yesterday? No they did not. They got both of those things: they got cuts to public services and they got an increase in borrowing to pay for tax cuts. That is exactly what the National Party said it would not do. This is a Budget of broken promises—be very clear about that. National broke so many of the promises made in its manifesto it is almost impossible to count them all. 
John Key stared down the barrel of a TV camera and said that if he did a halfway decent job of managing the economy National would not need to increase GST. Here we are only 18 months into National’s management of the economy and what has it done? National has increased GST in order to pay for tax cuts that will disproportionately go to those on the highest incomes. 
A full third of the money that was dished out in tax cuts yesterday goes to the top 5 percent of income earners. People like Mr Key and me even who are in the top 5 percent of income earners will get the lion’s share of the tax cuts that are being dished out while those on the lowest incomes will continue to scrape by in order to meet the increased cost of living that this Budget will impose through increased GST and increased inflation. Every time hard-working Kiwis go to the supermarket they will pay more. Every time they fill up their cars at the petrol station they will pay more. Every time they pay their rates bill they will pay more. For every bill they pay that has GST on it they will pay more. New Zealanders will pay more. People on average and lower incomes will be given only modest very small tax cuts that will not compensate for the extra money that average hard-working New Zealanders will be paying in order to fund the tax cuts that disproportionately go to those on the highest incomes. Broken promises are what this Budget is all about. 
There were going to be no cuts to early childhood education under National but that is exactly what it has done. Not only has National made cuts to early childhood education but it has made cuts to the highest-quality early childhood education. Those parents who send their kids to early childhood centres that made the effort to get 100 percent of their staff qualified are having their funding cut. They are going to pay more; if they have 2 kids they will have to potentially pay 50 bucks extra a week—50 bucks extra a week—for their early childhood education. It will not be compensated for by the tax cuts that the Government has offered. Those families will get clobbered. That is a broken promise. 
National said that it would keep student loans interest-free. Well the Government has not introduced a market interest rate: it has introduced a new annual fee instead. That is another broken promise. It said that it would not introduce interest-free student loans and instead it has introduced a new annual fee. 
National said it would focus resources on the front line and would deliver tax cuts. National has not focused on the front line in respect of accident compensation. In fact it has doubled the policy advice budget for the Accident Compensation Corporation. Why has National done that? Because Nick Smith wants more advice on how to privatise accident compensation. National says that in the Budget document. National has another $2 million going into policy advice on how it can privatise the accident compensation scheme. This is another broken promise from the National Government. 
The biggest hoax of all though was that National would not increase borrowing to pay for its tax cuts because that is exactly what it is doing in this Budget. I say to all of the baby boomers in particular who will retire in the next 10 years that there will be a significant increase in the cost to the Crown of their retirement. Where will the money to pay for their superannuation come from? Where will the money to pay for their health care come from? The Government has not been contributing to the Superannuation Fund and it is still not contributing to the fund. Instead it is giving out tax cuts to those on the highest incomes. What does that mean for the baby boomers who will be retiring in the next 10 to 15 years? John Key said that he will resign if their superannuation is cut. He will not be here in 10 to 15 years’ time when the baby boomers retire but he will have left a strategic deficit a massive deficit. Borrowing to pay for tax cuts will be his legacy. In 10 years’ time we will have increased debt and a baby-boomer population wanting to retire and wanting their superannuation and the cupboard will be bare. There will be no money left to pay for it because John Key and Bill English dished it all out in unaffordable tax cuts in this year’s Budget. 
Hon CLAYTON COSGROVE (Labour—Waimakariri) 
: 
 People have called this Budget a “borrow and hope Budget”. In fact Ganesh Nana on  
Morning Report 
 this morning when asked—[ 
Interruption 
] Shirley Temple in the corner over there laughs as she is wont to do. She laughs at everything. She laughs when a rapist is on the run laughs when a corrections officer gets his bones broken laughs laughs and continues to laugh. But here is the thing that Ganesh Nana said— 
Hon Judith Collins 
: I raise a point of order Mr Chairperson. The member is now becoming extremely unparliamentary in his language. If he wants to call me by my correct name Judith Collins he can but to refer to me as Shirley Temple is frankly just ridiculous and is just another example of his behaviour in this Chamber. 
The CHAIRPERSON (Eric Roy) 
: There is a longstanding convention that members are addressed by their correct names and titles. The member should contain his remarks just to the bill and I advise him to do that. 
Hon CLAYTON COSGROVE 
: Absolutely. I note for the record that my friend Charles Chauvel who is a bit of a movie historian I am told noted that the actress Shirley Temple was a far better diplomat than some around here. 
But Ganesh Nana the economist said that this is a Budget where the Government has borrowed for tax cuts. He is a learned economist and said it has borrowed. It is very interesting because Judith Collins could be described as a bit of a cappuccino politician: if one gets rid of the froth there ain’t a lot of coffee left in the cup. It is interesting. I did not call her that Mr Chairman; I was making an analogy. This is a “borrow and hope Budget”. It is “borrow” for tax cuts for millionaires and “hope” that the inflation rate does not hit Treasury’s forecast of 5.9 percent. That is what it is so let the old cappuccino politician over there suck that one up. 
Indeed I invite Judith Collins to go to the people of her electorate which I believe is Papakura. She is not keen on having public meetings in her electorate but I challenge her to have a public meeting and invite the 67 percent of her constituents—she does not like this of course—who are earning under $40000 per year. She is the great tough Minister. She is going to get tough on everybody right? I invite her to have a public meeting and get tough with those 67 percent of her constituents who are earning under $40000 a year and get a tax cut that is negated absolutely by GST which is then negated absolutely by the 5.9 percent inflation increase—and we have not even started on accident compensation levy increases car registration increases and the list goes on. So I invite that gutsy Minister of Police that gutsy Minister of Corrections who is so tough who wears a grin bigger than a Cheshire cat around this Chamber who is tough with everybody to continue to show her enormous intestinal fortitude and have a public meeting in her electorate with the 67 percent of her constituents who have missed out—or worse—and who are worse off thanks to her. 
I do not hear the cappuccino machine bubbling away. No Judith Collins is not so tough now of course because she will not do that. I invite Judith Collins at her next police executive meeting to say to Howard Broad: “Look commissioner I know that everything your department purchases will go up by 2.5 percent. I know that I have not compensated your department for the Budget cut that I have effectively put in place. But don’t worry commissioner because I as Minister of Police will swagger around and be tough and that will compensate you.” Every Government department every school every church every organisation and non-governmental organisation that purchases goods and services gets a 2.5 percent cut to their budget as of this legislation going through and commencing. But no we do not hear anything from the corner stall over there do we? No she is not so tough now. There are not so many grins coming from over there. 
I say to Mr Sharples that in his electorate 64 percent of his constituents earn under $40000 per year and our “weekend warriors” from the Maori Party stood up one after each other last night to say how proud they were of this Budget and how they had delivered for their constituents. 
Hon Judith Collins 
: Yep! 
Hon CLAYTON COSGROVE 
: The tough Minister says “Yep!”. I tell members that that will be a great quote for Labour members who are or soon will be clustered around her electorate to take to the 67-odd percent of her electorate whom she has sold out and the 64 percent of Mr Sharples’ electorate whom he has sold out. Those people are worse off and the froth is starting to come off. But those members will not get up and justify that. I will make a bet with anyone in this Chamber that Judith Collins and Pita Sharples and all the old relics over there will not have a public meeting in their electorates. 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 This Budget is a payback Budget. It delivers to people who have supported this Government in the past. It is a business-class Budget. It is moving people in business class up to first class while those down in cattle class start paying for their lunch. This Government sometimes attempts to portray Labour as a party that wants to spend money. Well the Government is borrowing to cut the top tax rate for those at the top end. We have seen that in the past. It is the sort of policy that Ronald Reagan introduced in the United States. It was called a strategic deficit and all it did was rob the poor to pay the rich. It is voodoo economics. 
Supposedly the economy will recover to pay for this but let us look at the Budget tables. The balance of payments has not been in surplus in this country since 1973 since we were last as a nation in the black. This Government says it wants to see export-led growth. Well the balance of payments deficit goes from $4.9 billion this year to $8.9 billion next year to $13.1 billion the following year to $15.7 billion the year after that and to $17.2 billion the year after that according to Treasury projections. So where is the export-led growth that will reduce our balance of payments deficit? The balance of payments is the measure of what we as a nation export as opposed to what we import. 
List MP Nicky Wagner said last night that this Budget was a cracker. Well she should explain that comment to the 76 percent of people in my electorate of Christchurch Central who earn less than $40000 a year. They will not be calling this Budget a cracker. She should explain that comment to the Manufacturers and Exporters Association based in my electorate of Christchurch Central who issued a press release about the Budget. It was headed: “Rhetoric does not match the reality.” Chief executive John Walley said: “The changes to property taxation the corporate tax rate and GST go some way … but they fall a long way short” of what the Tax Working Group recommended. He said: “The removal of accelerated depreciation loading for plant and equipment will be detrimental to business investment.” That is why we are seeing that balance of payments gap deteriorate hugely under this Budget. 
We were told that there was a need to cut the top tax rate from 38 percent to 33 percent because that kind of gap encouraged people to move their tax into company structures to avoid the top tax rate. So what does this Budget do? It cuts the company tax rate back to 28 percent so the differential between the top tax rate and the business tax rate is still the same—5 percent. Obviously there is still every incentive for people to move their tax into a company where that is possible. 
We are told that this Budget is supposedly about driving down the issues of tax shelters. The real impact of this Budget relates to GST and what is yet to come. As Treasury forecasts note we will see inflation nudging 6 percent in the year ahead which will simply erode the benefits of the tax cuts being introduced at the middle and lower end of the income scale. 
I noted that a housing commentator on  
Campbell Live 
 last night asked where the stimulus was in this Budget for building new homes. Of course GST will apply to new homes so they will cost an extra 2.5 percent. Already the housing market is less than buoyant; in fact it is dead flat. The projections are that this Budget will see an 8 to 10 percent depreciation of the existing housing market which will fall most heavily on the new housing market. This Budget has done nothing to stimulate the building sector—in fact it is taking it backwards—and we will see much fewer new houses built. 
Nothing in this Budget encourages younger New Zealanders who are first-time home buyers into their first home. In fact it does absolutely the opposite. Before members opposite attempt to suggest that tax cuts will stimulate this I ask them what $1000 or $2000 of tax cuts will do for a young couple trying to buy their first home. It will be absolutely eroded by the GST increase but if there is anything left what will that contribute to their ability to service a mortgage or to put down a first-home deposit? It will contribute absolutely nothing. Meanwhile the Budget supposedly trumpets the increases in health and GST but those are worth nothing with inflation of 6 percent. 
CAROL BEAUMONT (Labour) 
: 
 I rise too to speak about the great tax swindle. This Budget is meant to be delivering a taxation system that will better reward work and savings and that will make the system fairer. That is what is explicitly stated in the Government’s rhetoric about this tax swindle. It goes on to say that the Government is delivering a package that not only is fair but is seen to be fair. The Taxation (Budget Measures) Bill has a number of aspects. I will talk about two of them and those are the lifting of GST and the reducing of personal income tax. 
Last night I thought that I would look at the word “fair” given that much has been made of fairness. We on this side of the House are certainly very committed to the concept of fairness. The Government has used the word “fair” in its Budget statement and all its Budget documentation so let us look at what it means. According to the  
Oxford Dictionary  
the word “fair” is about concepts like justice equity and reasonableness. I want to know whether in all honesty those people across the other side of the Chamber can consider their actions to date to be fair. The Salvation Army earlier this year when it reviewed the first year of this Government in its document  
A Road to Recovery  
noted very strongly that in the last 12 months: “ … gains that have been made over the past 5 years in reducing child poverty have probably been lost and there are signs of a widening income gap between the well paid and poorly paid.” One could ask whether that is fair. 
One could also ask whether the actions in this Budget will address issues like child poverty and widening inequality in New Zealand. I thought that I would look at some of the figures that were given out as part of the Budget package. What will people actually get? Well if someone earns $16000 per year the tax cut will give that person a certain amount extra but then of course he or she will be paying extra GST so the person will supposedly be $1.36 better off a week. That is before the implications of inflation and other cost rises like the increases to accident compensation levies and other costs that have not been factored into that table are taken into account. So people who earn $16000 a year will be better off by $1.36 per week. I went on to a supermarket website last night to look at what that would get them. I found that they could buy—probably appropriately—a four-pack of Home Brand toilet paper with what they will receive. The $1.36 will buy a four-pack of toilet paper—that is great! 
People on $22000 per year will also have a tax cut and pay extra GST. As I said I am not counting in all the other costs associated with rising inflation accident compensation levy lifts petrol lifts and all of those things; I am counting only the straight figures. Those people will receive an extra $3.56 per week. What can they buy with it? Well on the supermarket website I saw that they could buy themselves 2 litres of milk. That is pretty good! If people are on $30000 per year they will receive an extra $6.28 per week and that would get them 2 kilos of apples. The supermarket website shows that people on $38000 per year could buy a bit more than that. They will receive an extra $9.21 so they will be able to buy a loaf of Vogel’s bread and 2 dozen eggs. They will be able to have poached eggs on toast—fantastic! 
If people are on $100000 per year—let us jump to the other end of the income scale—they will be $41.66 better off a week without including all the other costs that I have parked. At $120000 per year they will be $56 better off a week. On an income of $300000 a year which is the average salary of the chief executive officer of a large company people will receive $178 more a week. Of course the chief executive officer of Telecom will receive an extra $4845.44 a week. I did not work out what that would get him at the supermarket but obviously it would get him quite a lot. 
How can that be just—being able to buy toilet paper versus receiving an extra $4000-odd a week? How can that be just for those on the lowest incomes who cannot make ends meet and who really are struggling? I do not know whether members opposite are talking to their local budgeting advice services but I have been doing so all around New Zealand in relation to my member’s bill which deals with the issue of loan sharks. I can tell members that those services know how hard families are struggling. They know that most of the people whom they see have to resort to things like high - interest rate loans. I do not think that this Budget delivers for those New Zealanders yet they are the New Zealanders who need to be given a helping hand. They need to receive something from the Government. 
Hon DARREN HUGHES (Labour) 
: 
 Part 1 of the Taxation (Budget Measures) Bill is the “robbing Peter to pay Paul” part. This is the part of the bill where tax rates are changed on the one hand and on the other hand Government fees the cost of Government services and the goods and services tax go up to wipe out all of the gains that most people in New Zealand will receive by way of the first change that the Government is making. The National Government is robbing Peter to pay Paul and when people work out in a few months’ time that their financial situation has not changed enormously I think it will rebound on National in quite a big way. 
Here is the point. My colleagues have already pointed out that the Budget documents show that inflation will be 6 percent in the coming year. That is hardly a model of economic stability and orthodox management on the part of the National Government. A 6 percent inflation rate will immediately flow through to the cost of living because higher inflation will erode people’s purchasing power. When people pick goods off the supermarket shelves they will find that prices are higher. When they go through the checkout and get their bill they will find that the taxes on the products they have bought are also higher. So not only will inflation erode the cost of living of people but the GST changes will put a 15 percent fee on the final price of the product. 
That is hardly what people thought they were getting when they voted for the National Party at the last election. I do not remember the National Party campaigning at the last election on a policy of increasing GST. John Key in that complicated way he has of explaining himself said: “Oh well I said we wouldn’t put up GST to fund a deficit.” I looked at the Budget documents and in the next financial year we as a country will be in deficit so GST will be put up at a time when we are in deficit even though National said first of all that there would be no rise in GST and we then had the complicated explanation from John Key that in his head he was trying to say that if there was a deficit he would not put up GST. National has failed on that test as well. 
This measure affects hard-working New Zealanders and that is people who work hard full stop. Of course in the eyes of National members one is a hard worker only if one earns a lot of money. We hear all the time from members opposite about hard-working New Zealanders who earn over $100000 a year. Sure there are probably some hard-working people who earn over $100000 but lots of people who earn over $100000 do not work very hard and I can see quite a few of them this morning as I look across the Chamber. As I look across the Chamber I see plenty of people who earn over $100000 whom I would never describe as hard-working New Zealanders. 
Paul Quinn 
: Look in the mirror Darren! 
Hon DARREN HUGHES 
: I would describe Mr Quinn as a loud New Zealander but from the exchequer’s point of view I would describe him as a rip-off because we pay $100000 a year for him yet for 600 bucks one can get a better sound out of a flat-screen TV. So I do not think we need to waste any time on him. 
Let us look at those people who earn over $100000 a year. The people in New Zealand who earn over $100000 have had tax cuts for 3 years in a row. In October 2008 people earning over $100000 a year received a tax cut from the Labour Government. In April 2009 people earning over 100 grand a year got a tax cut from the National Government. Now in October this year the National Government will give those same people a third tax cut. That is tax cuts for 3 years in a row for the highest-paid New Zealanders. Given that I think most members of the House agree that we have a wages problem rather than a tax problem in New Zealand it seems to me that giving that 5 percent of people tax cuts for 3 years in a row has hardly resulted in economic nirvana when we look at what the opportunity cost for our country means. 
I live in the Horowhenua district where just over 1 percent of people earn over $100000. So 99 percent of the people in the community in which I live do not get— 
Paul Quinn 
: You’re one of them paid by the taxpayer as you have been all your life! 
Hon DARREN HUGHES 
: Paul Quinn that great civic contributor in our country has made an interjection. Paul Quinn is the man whom I think should be the quietest person. He should get the least amount of money for his contribution in Parliament. If we were paid by value of contribution that man would be returning money to the taxpayer every week. So let us not hear anything from that rip-off artist in that sense at all. 
In our community we have a problem with the number of hospital beds because the Government wants to downgrade the number of hospital beds at the Horowhenua Health Centre. The Government says there is not enough money from taxes to fund our health services yet there is money to give people who earn over $100000 their third tax cut in 3 years. 
The tax system today is radically different from what it was 3 or 4 years ago because we already have had a reduction in revenue. Now the Government has to try to convince the country why we should have fewer services higher inflation and higher interest rates because of that higher inflation as the Reserve Bank will inevitably have to make changes to compensate for the fact that this Government is putting $15 billion in tax cuts out into the economy over the next period. Then of course we have the changes to accident compensation levies and the increase in GST. All these things mean that we are robbing Peter to pay Paul and from a long-term point of view—looking at the future of our country—the biggest concern is that we are borrowing to give away those tax cuts. This is hardly bold; we are borrowing for it. 
MICHAEL WOODHOUSE (National) 
: 
 I want to pick up on Ms Beaumont’s analogy of the four-pack of toilet paper and perhaps remind her in case her memory is a little bit short about what we saw under 9 years of a Labour Government. Does the member recall Dr Cullen’s “chewing gum Budget”? What happened to the chewing gum? He took it back. In those 9 years he said: “I’m going to give you a pack of chewing gum and then I’m going to take it back.” But we then we had the pièce de résistance: after several days the top tax rate was raised by 9 percent. We waited 9 years and what did we get? We got a block of cheese. 
I want to go through some inconvenient truths for our friends on the other side. Under this Budget 73 percent of income earners will have a top tax rate of just 17.5 percent. That is nearly half what it was under the previous Labour Government. That is not the top income earners but the middle and lower income earners. These people will be far far better off under this Government than they ever were under the Labour Government. People who earn the average income of $48000 a year will pay a total tax rate of just 15.3 percent. A family with two children does not start paying income tax until its income exceeds $50000. [ 
Interruption 
] The member mentioned GST. I find it astounding that the members Hipkins and Street—the latter has been a Crown Minister and sat around the table considering revenue bills—did not know that GST is not payable on rents. It simply is not. There is no GST on residential rents. Those members both mentioned it in their calls. I think those comments continue the ignorance around the sorts of effects that the tax arbitrage frameworks that Labour put in place after 9 years had on hard-working New Zealanders. 
Mr Burns talks about continuing the gap between the top personal income tax rate and the company tax rate. That was not the problem. The main problem was the large gap between the top personal income tax rate and the trust rate because that was the vehicle that top income earners were using to protect their income. The company tax rate is ultimately paid by individuals and they get imputation credits attached to them. Whatever that company tax rate is their personal income tax rate will be what it is. So the really important gap is the one between the trust rate and the top personal tax rate. I am very pleased to see that that has been lined up. 
Mr Cunliffe was very confused about loss attributing qualifying companies and in an astounding comment he made in his call in the first reading he said that Labour had put in place loss attributing qualifying companies but Labour had no idea they would be used for the purpose to which they were eventually used. God forbid loss attribution would be used to attribute losses! That just does not make sense. But it became worse with Dr Norman’s analogy of shoplifting I think it was. Does any member recall that comment in the first reading? He said that instead of controlling the shoplifting what National has done is lowered the price of goods and applied a fixed charge across all the goods. But here is the thing: using legitimate tax vehicles to manage one’s income tax liability is not shoplifting; it was perfectly legal and it was legal because it was put in place by the Labour Government with the full support of the Greens. 
But here is what the Greens really want to do: to have equity what they really want but do not say is to put all of the rates up to the top personal tax rate of 38 percent. If we want equity they say we should raise the trust rate raise the company rate—raise raise raise. Well that is what will drive our best and brightest New Zealanders across the ditch. That is what has been done over the last few years. It is the one thing we are No. 1 in the OECD on—the export of our best and brightest. I am very impressed to see that whereas a person needed to earn $228000 in New Zealand to pay less tax than in Australia that has just gone down to as low as $55000. My prediction is that those best and brightest will start coming back across the Ditch. I am absolutely delighted to see that the rot is stopping in respect of those very talented New Zealanders. 
I will go on and touch on the tilt because this Budget has support for what New Zealanders were already doing. The consumption and debt-fuelled growth that we saw after the last 10 years has stopped. People are not borrowing any more. 
CARMEL SEPULONI (Labour) 
: 
 I go back to something that the Hon Lianne Dalziel brought up last night. A taxi driver had pointed out something to her. It was the fact that John Key with regard to this Budget was basically saying to New Zealanders: “Let them eat cake. They can’t afford bread but let them eat cake.” We have heard from Mr Key that he does not value people who are on low incomes. He does not value those who earn the least amount of money even though they are hard-working New Zealanders. We have heard him say in the House that those people do not contribute because they do not pay tax. Because they get Working for Families they are not contributing members of our society. He does not value them. Whom does he value? He values those who are just like him those who are earning high incomes in this country. 
Carol Beaumont 
: Money traders. 
CARMEL SEPULONI 
: Money traders. When we look at what these tax cuts mean for New Zealand we see that we new backbench MPs will get an extra $120 a fortnight. Quite frankly when I watched TV last night and saw the struggling family on  
Tagata Pasifika 
 trying to raise four kids and feed them on $80 a week—to feed a family of six on $80 a week—I felt embarrassed by the fact that our New Zealand Government has just given us a tax cut of $120 a fortnight. 
David Bennett 
: Well give him your money then. Give him your money. Let’s see you give your money away eh? Give your money to them. 
CARMEL SEPULONI 
: Mr David Bennett over there is screaming out because he thinks he deserves an extra $120 a fortnight. His attitude to people who feed a family of six on $80 a week is who cares about them; it is all about him and making sure that he has an extra $120 a fortnight in his pocket. We on this side of the House are about fairness and we do not agree with what this Government has done with regard to tax. We do not agree with the fact that the only people who will profit from those tax cuts are the people on high incomes. We have had to sit here and listen to Mr Key and the others on that side of the House say that it is all about rebalancing the economy. Well actually there is no balance in these tax cuts because they are all in favour of the people who already have money and all they do is make a bigger divide between people in New Zealand—between the haves and the have-nots. 
Paul Quinn 
: Get past the rhetoric. 
CARMEL SEPULONI 
: There goes Mr Quinn again shooting off and yelling out very loudly. He does not care about poor people. He does not care about the people who are struggling to feed their family of six on $80 a week. Mr Quinn does not care. He just wants to make sure that his wallet is better lined. 
We have been told by Mr Key—and it has been repeated in the media over and over again—that we should not be envious of those who receive high tax cuts from this Budget. Quite frankly from all of the things that I have seen in the papers and online most New Zealanders think that is quite offensive. One person said: “John Key the Overlord says: ‘Don’t be jealous you poor peasants.’ ” That is basically the impression that the Government is giving. It still relies on the trickle-down effect. National members still think that if they give all the money to the rich people it will somehow trickle down. But what will it mean? It will not necessarily mean the creation of new jobs. All it will mean is that a millionaire who is already getting a lot of money can go on an even more expensive holiday than he or she would have done otherwise. It will not mean that the people he or she employs will get better wages—it will not mean that at all. All it will mean is that the millionaire will be able to afford to buy another property. 
So quite frankly this country has a right to be angry at the Government. New Zealanders will realise as the detail comes out how this Budget will hurt their families and how it will hurt our country. In the meantime the Government will have probably a 2 to 3-day honeymoon period over this Budget. But it will not last because alongside the tax cuts New Zealanders will realise that the cuts to early childhood education will affect them they will realise that the increase in GST will affect them they will realise that the increase in inflation will affect them and very quickly they will realise that actually these tax cuts mean nothing and they will get nothing extra in their pockets—and in fact they will be paying more. 
JOHN BOSCAWEN (ACT) 
: 
 I congratulate Carmel Sepuloni on her speech because I think she is absolutely right. She said that we may have a honeymoon period for this Budget. Certainly the commentators are saying that it is a good Budget and I think that most New Zealanders perceive it to be a good Budget. But she said that people will eventually wake up to the increases in GST and they will eventually wake up to the increases in accident compensation levies. I have heard the words GST and accident compensation mentioned time and time again over the last 12 hours—time and time again. The tragedy for the Labour Party is that it could actually make that criticism stick if it told the truth. There is another elephant in the room and it is the emissions trading scheme. 
Hon Members 
: Oh! 
JOHN BOSCAWEN 
: Yes. Let me direct my comments particularly to National. I heard Darren Hughes having a crack at the Minister of Police Judith Collins about the proportion of people in her electorate who earn under $40000. I ask Judith Collins and the other National members to look at the 550000 people in their electorates who earn between $40000 and $85000 a year. Page 9 of the Budget 2010 Minister’s Executive Summary presented by Mr English yesterday shows that people earning between $40000 and $85000 can expect an average increase in income of 0.4 percent—0.4 percent. The Reserve Bank tells us that the emissions trading scheme will increase the cost of living by 0.4 percent from 1 July. So the people earning between $40000 and $85000 get absolutely nothing—absolutely nothing. 
People listening to this debate on the radio and people watching it on television right now will hear a constant reference to the emissions trading scheme from the ACT Party and the reason for that is that no other party in this Parliament wants to raise it. So yes there has been positive coverage of the Budget but in my view some of the most interesting coverage came this morning from Paul Henry on television’s  
Breakfast  
programme. Paul Henry seems to be the only commentator who picked up on the fact that the emissions trading scheme will add 0.4 percent to the cost of living from 1 July. That will actually reduce the net benefits to people who earn between $40000 to $85000 to zero—absolutely zero. I say to members of the National Government that they need to start challenging their Ministers and start challenging their Prime Minister. If those members look at the appropriations they will see that the allocation of New Zealand units has gone from $139 million worth of units in the last year to over $1 billion—an increase of $900 million. 
Carmel Sepuloni can talk about millionaires buying properties—and she may try to create some envy—but I say to her that her criticisms would be far more effective if she acknowledged that the money is going not to the millionaires but to the foresters not so that they can buy more buildings but so that they can buy more forests. That is it: we have $1 billion—$1 billion—going to people who plant forests. People who planted forests are in two categories. The first category consists of people who planted trees before 1990. If they chop those trees down harvest them and do not replant them they will incur a significant loss of value but only I suspect if the Kyoto Protocol is extended beyond 2012. The second category consists of those who planted forests from 1990 onwards. They will not harvest those forests until some time in the 2020s. They will be given an allocation of units—officials tell me that it will be something like $700 million worth of units—for trees planted in the early 1990s when there was no expectation of taxpayer subsidies. 
I say to Labour members that if they really want to make an impact on this Budget they should go out there and acknowledge that Labour would have had its own emissions trading scheme from 1 January and that it would have increased electricity prices by 10 percent. But the world environment has changed and National can respond to this because it can suspend the emissions trading scheme. It can leave in place the incentives to ensure that trees planted from 1982-85 are not harvested so that we can meet our Kyoto Protocol obligations. 
Hon DAVID PARKER (Labour) 
: 
 I want to comment on what I think is the greatest misrepresentation of this Budget and that is the myth that it rebalances the New Zealand economy. I will not deal with the issue as to whether the tax switch as the Government has called it is the right tax switch or whether it is weighted unfairly to the higher-income earners. I think other speakers have dealt with that well. But I will deal with the myth being pushed by the Minister of Finance that this is the greatest change in tax policy for 20 or 30 years. Plainly it is not. Plainly it does not rebalance the economy away from speculative investment in property towards the tradable sector and exports. That is plain from the forecasts that are included in the Budget. 
If we look at this Budget we see that it does not redistribute investment between property and the tradable sector; it redistributes the amount of income and consumption tax that is paid by different people in society. It states that overall less of those taxes as a proportion is paid by high-income earners and more of them is paid by low and middle income earners. It does very little to change the balance between taxing capital and labour because it does not do much to tax capital. 
Indeed it is interesting that in terms of picking up the recommendations of the Tax Working Group it goes a little way in respect of investment in property. It does not catch the kernel of the problem which is over-investment in residential property. This Budget could have done that through ring-fencing losses but instead it has done away with the ability to claim depreciation on buildings which has as much effect in the commercial property sector as it does in the residential property sector. The Budget does not curb the largest of the problems which is over-investment in the residential property sector with people incurring large losses in respect of their mortgages on residential borrowing which they offset against their other income. 
Why can I say with absolute confidence that this Budget has not rebalanced the economy? Because we see it in what happens with the current account deficit. If this Budget was going to improve the current account deficit we would see the current account deficit going down but we do not. We actually see the current account deficit going up year on year to 7 percent of GDP. I think that the best commentary on this so far from the commentators has come from Business and Economic Research. Business and Economic Research is not overcome by the somewhat surprising amounts of the Government’s tax switch; it looks at the effects on the fundamentals of the New Zealand economy. Business and Economic Research says—and I think it is right—that at least it is good to see the Minister of Finance acknowledge that New Zealand’s largest single vulnerability is now its large and growing net external liabilities. New Zealand now owes $168 billion which is about 90 percent of GDP. So overall New Zealand’s net asset position in the world is that we owe more than we own. We owe so much that if we total it up and compare it to the size of our economy we already owe the equivalent of 90 percent of GDP. Under this Budget that situation gets worse at the equivalent of 7 percent of GDP per annum. So by 2014 New Zealand’s net asset position in the world is that our debt will be 100 percent of GDP. 
So if our growth is not coming from export growth and if we have an increasing current account deficit as is shown by the projections in this Budget where is the growth in this economy to pay for the borrowings and to overcome the increase in borrowings that is needed to fund the tax cuts? It is actually coming from internal growth in the property sector. It is not coming from export growth; it is coming from exactly the problems that the Prime Minister and the Deputy Prime Minister said they were trying to overcome in this Budget. It is actually coming from those imbalances in the economy getting worse again. I think the Business and Economic Research analysis of this Budget is very interesting. This is a quote; it states: “If the net external sector is not the lead driver of Treasury’s growth forecast what is? Our reading indicates the growth forecast relies heavily on a noticeable rebound’’— 
Dr CAM CALDER (National) 
: 
 I compliment the previous speaker David Parker on his sartorial elegance. This Budget is the Budget of a Government that is committed to creating a strong economy that is built on and led by sustainable growth and value-added exports which will underpin jobs and create opportunities for all New Zealanders to realise their hopes dreams and aspirations. This is a Budget of a strong and courageous Government that believes in acknowledging and rewarding the pursuit of hard work and excellence. This Government is a perceptive Government. It understands that the positive can-do attitudes of every New Zealander are our edge in competing and ensuring our country’s future success on the highly competitive global stage. 
This Government is a standard-bearer for unlocking the potential that lies within the heart of every New Zealander. We are working relentlessly for every New Zealander to share a sense of purpose and a feeling of belonging. We have no time for the politics of envy. We will not rob Peter to pay Paul. What good is there for any of us if Peter or Petra is a neurosurgeon a skilled sparky a committed effective teacher a nurturing nurse or a competent carpenter who decamps to Australia or further afield in pursuit of greener pastures? John Key’s National-led Government is principled and pragmatic and it believes in creating a brighter future with all New Zealanders for all New Zealanders and of all New Zealanders right here in our homeland of Aotearoa New Zealand. 
This Budget with its across-the-board tax cuts to help families get ahead and more money for education and health will lift long-term economic growth responsibly reign in past fiscal profligacy and massive public debt and encourage better front-line public services. This Government’s resolute decisiveness is a stark contrast to the looseness of the last late unlamented Labour administration. It was an administration that has turned into a group of loquacious lobbyists whose only concern is legislative languor listlessness lassitude and lethargy. This Government is a stark contrast to that cavilling caucus where the words “hope” “enterprise” and “ambition” are heard as rarely as “Mine’s a Laphroaig” at a temperance conference. However one must give Labour members their due. In some respects they were virtual prestidigitators of fiscal policy and conjurors of economic underperformance. 
The maladministration of the previous administration managed to parlay the best economic conditions since World War II into year after year of decline in the performance of our tradable sectors—our exports which are the drivers of our economy. They managed to turn the longest spell of global economic golden weather in modern memory into years of localised thunderstorms hail rain and sleet over the whole of New Zealand. They hamstrung our economy. It is our economy that underpins the quality of life for all New Zealanders. It allows us to educate our young people to provide world-class medical care for our sick and injured and to protect the most vulnerable. That dance of the desperate and dateless dispensed fiscal doom and despondency because of blind adherence to a borrow-and-spend dogma. There was a remarkable record of failure by the last Government. I ask how effective Labour’s illiterate economic policies were. They were as effective as a papier mâché demolition ball a one-legged man dancing the cha-cha or an empty can of air freshener in an abattoir. 
The global economic framework is still fragile and there may be some bumps ahead but here in New Zealand this Government’s effort over the short time we have held the levers of power has seen the right sort of recovery. It is one that is export led rather than based on the previous model. 
GRANT ROBERTSON (Labour—Wellington Central) 
: 
 It is always a pleasure to follow on from the president of the North Shore Toastmasters. Members know that they are in trouble when Paul Quinn is nodding and saying: “That’s right.” beside them—it is terrible. Part 1 of the Taxation (Budget Measures) Bill is about choices and priorities. National made it very very clear to the country yesterday where its priority lies. Its priority does not lie in looking to the future and having a plan or a strategy. This Budget was given two out of 10 for its strategy yesterday because no long-term plan is present in it. 
Yesterday’s Budget speech by Bill English was remarkable in a number of ways. One of them was the complete absence of any plan for how to grow this economy. There is an obsession with tax cuts delivered to the rich and of avoiding talking about the Government’s plan or strategy. Apparently we have to cut the top tax rate in order to keep people in New Zealand and stop them going to Australia. The message for the National Government is that it is not the tax rates that will send people to Australia; it is the wages and the jobs that need to be created as part of a long-term plan to grow a sustainable economy. Taxes in Australia and the headline rate of tax there are only one thing. Under the Kevin Rudd Government Australia has been planning and investing in skills and training to try to get people into work. This Budget is devoid of a strategy or a plan for the future. It is a short-term-thinking Budget that will not deliver to New Zealanders the increased well-being and the standard of living that we all want. 
An obsession with tax and with tax cuts for the wealthy is not a path that will deliver a sustainable economy. The priorities that the Government is putting out here show that yes we have to borrow money. What should we use that borrowed money for? Should we use it for tax cuts for the wealthy few or should we use it to invest in something that will be good for our long-term future like early childhood education? Why would a Government cut $400 million from early childhood education? Is that not a priority for this Government? That is the message that the public of New Zealand is getting as 25 percent of the money that is being cut—the so-called low-value spending—is from early childhood education. The message that this Government is sending is that early childhood education is low-priority spending. That message will not be good for the future of New Zealand. 
The National Government is doing a “hit and hope” Budget. National is lining up to take its shot—and Mr Woodhouse plays a bit of golf—on the first tee but it has no idea where the hole is. National is just hitting the ball up in the air to see whether the tax cuts work and deliver growth. There is no real plan or idea of where exactly National wants the ball to go—it is just hitting and hoping. From the international experience we know that tax cuts do not deliver a sustainable economy. Tax cuts will not— 
Paul Quinn 
: When you go down the middle it doesn’t matter. 
GRANT ROBERTSON 
: There is Paul Quinn John Key’s chief policy adviser out there telling us what to do. Tax cuts do not deliver sustainable growth internationally. Sustainable growth comes from investing in people and starting in the earliest years to invest in people. But apparently that is not a priority. Apparently it is OK for early childhood educators to have to run cake stalls in order to buy crayons but for Paul Reynolds to receive over $1000 a week in a tax cut. Early childhood education cuts will mean that parents will pay more or that early childhood education centres will have to fund-raise just to be able to keep going and at the same time the richest 1 percent of people in our country will receive 15 percent of the value of the tax cuts. That is not fair. 
We heard yesterday a whole lot of rhetoric about fairness. There is nothing fair in a Budget that takes away hundreds of millions of dollars from early childhood education and millions of dollars from health and delivers that money to the richest people in New Zealand. That is not a recipe for a fair and equitable New Zealand. That is not a recipe for a country with a long-term plan. This is a short-term Budget that is designed to deliver a bit of money in the pocket that will make people feel good but the value of that becomes eroded over time with the increased rate of GST. This Budget breaks promises. It breaks the promises around GST increases; it breaks the promises about not cutting public services. This Budget will not deliver a future for New Zealanders that will make people decide to stay here. Where is the work in this Budget around ensuring that we have an economy that brings together the environment and the economy? Where is that? The environment was not actually mentioned in the Budget speech yesterday. 
DARIEN FENTON (Labour) 
: 
 Mr Chairperson— 
Paul Quinn 
: It’s a very nice blue jacket. 
DARIEN FENTON 
: I thank Mr Quinn for the compliment; I know he will keep it up all the way through my speech. 
I am pleased to take a call on Part 1 of the Taxation (Budget Measures) Bill. I will talk also as my colleague Grant Robertson just did about the priorities that this Budget has demonstrated. I think that one of the saddest things we saw yesterday—and we will see it as time goes on and we start to examine the Budget in more detail—is that this Government thinks that spending $70 million on building a prison is more of a priority than early childhood education. There is $400 million gone from the funding for early childhood education. Early childhood education gets our children off to the best possible start and invests in our future. 
I look at the other priorities too and I see that this is a tax cut a tax swindle where the richest are getting most of the money. I will talk about Paul Reynolds. He may be feeling a little bit picked on but he is the “Seven Million Dollar Man”. He is the chief executive of Telecom. What has he done as the chief executive of Telecom? Well during his tenure he has sacked 12000 Kiwi workers—that is what he contributed to the New Zealand economy. What is more they did not get redundancy. But National thinks it needs to keep Paul Reynolds in New Zealand with this huge tax bribe using the money of ordinary working Kiwis. National has given him another $290000 a year which is coming from higher GST higher rent bills and the hard work of ordinary New Zealanders. 
If Paul Reynolds was not getting this tax cut with that money we could hire six more nurses or six more teachers. We could pay for 400 hours of early childhood education or 400 workers would not have to pay the added GST bill. When I compare that amount to what someone on minimum wage will be getting I think it is a disgrace. It is so unfair for $290000 a week in a tax cut to be going to one of the richest people in New Zealand when someone on minimum wage on $26000 will end up with $4.82 a week. That is before accident compensation levies—it is after GST but it is before accident compensation levies—and with petrol going up and 5.9 percent inflation — 
Carmel Sepuloni 
: And childcare. 
DARIEN FENTON 
: —and childcare of course. They will end up worse off. In fact they are already worse off with the lowest pay increases we have seen in a decade. 
One of the things that I spotted in the Budget document yesterday was a miserable little sentence on page 69: “The redundancy tax credit will be removed…”. What are the tax credits for redundancies? It is when people get compensation when through no fault of their own they lose their job and they get paid a lump sum payment that pushes them into a higher tax bracket. Labour fixed that by making sure that could not happen and that they could apply for a tax rebate to not pay extra tax on their compensation. So not only is this Government kicking low-paid workers but it is also kicking in the guts those workers who lose their jobs through no fault of their own. 
Chris Hipkins 
: Kicking them while they are down. 
DARIEN FENTON 
: Kicking them while they are down through not supporting them getting redundancy compensation; the few who do are made to pay more tax. I think that is incredibly unfair. 
The other thing in this Budget is the education cuts. There are huge cuts to education throughout this Budget and as my colleagues have said there is nothing in here about skills development. Where are the skills going to come from if this economy recovers as the Government says it will? Where will the jobs come from? Where are the job creation packages? 
One other little miserable cut that I have noticed is in the Department of Labour where it has cut the employment-related contestable fund—the education fund for workers and for employers. It has cut that. That is workers’ opportunity to learn how they can make a contribution in the workplace to growing productivity to productive employment relationships and to helping grow our economy. I think the problem with this Government is it does not think that people who do the work are part of the economy. It thinks that only big business is part of the economy. Actually the economy is people doing work and that is where the changes have to happen: in the workplace with productive employment relationships. 
Hon Sir ROGER DOUGLAS (ACT) 
: 
 It does not matter what side of the Chamber one is on the fact is that this Budget to date has gone down particularly well. The next point I make to the Labour Opposition is that there are sound grounds to criticise this Budget but when members opposite are using any story at all to criticise it then they do not do themselves any good. Let us take Grant Robinson. He suggested— 
Hon Trevor Mallard 
: Robertson! 
Hon Sir ROGER DOUGLAS 
: Robertson sorry my apologies. He made the point that this Budget was not doing enough in the area of redistribution and wanted more of the sorts of policies that the previous Labour Government followed over the last 9 years. I remind the member that during that period of time New Zealand workers probably lost relative to Australian workers about $100 in wages. Our wages over the last 30 or 40 years relative to Australian wages have dropped by $300 to $400 in relative terms. It is about time we had policy to deal with that. 
The only Opposition speaker I have heard come close to criticising this Budget on a sound basis was David Parker. I thought he made some points we should take up. He pointed to the risks that relate to the high level of overseas borrowing that New Zealand has already and the fact that it will expand and I thought that was a criticism worth making. 
I think the Minister in the chair Peter Dunne and the Minister of Finance given what they have proposed have done a pretty good job on the tax package. I personally have some problem with it. I believe that the 12.5 percent tax rate should not have gone down to 10.5 percent. I think they should have rounded the rates to 30 percent rather than having the discrepancy that they will have with 28 percent for companies and 33 percent for the personal tax rate. I think the Minister in the chair if he could have done that may well have wanted to do that. 
My main criticism however is in the area of GST. I do not believe it was necessary to raise GST. It would have meant of course that the Government would have had to make some tough decisions in the expenditure field. But if we look through the Budget there is about $2.5 billion there that I would classify as corporate welfare—a lot of it unnecessary. That is about double the net benefit from GST. If we look at Government expenditure this Budget is providing for a 9 percent increase in Government spending. It is just about as bad as Labour used to do during its time in office. Frankly 9 percent increases in Government expenditure year on year are totally unsustainable. We have seen Government expenditure increase by approximately $6 billion or 9 percent and that is four times the rate of inflation. 
I grant that the Minister would probably point out to me that 2 percent of that 9 percent is compensation for GST and I accept that but it is still an increase in Government expenditure at three times the rate of inflation. Had we not had to increase GST instead of someone on $40000 getting $10 a week that person would have received $23 a week and instead of a $500 benefit he or she would have received a $1300 benefit a year. Instead of someone on $52000 receiving $745 a year that person would have received over $1600 in benefit—in other words a $31 benefit per week rather than $14. But the die has been cast. I think in future the Government will have to pay a lot more attention to Government expenditure particularly the Government expenditure that is not returning to the nation as much as it would have returned had it been left in the private sector. 
Hon TREVOR MALLARD (Labour—Hutt South) 
: 
 That speech was a bit rich coming from that member Sir Roger Douglas. He talked about the gap opening up between Australia and New Zealand. When did that gap open up? It was when his policies and those of his acolytes especially Ruth Richardson were biting. It was at the very end of the 1980s and through the 1990s that that gap opened up and it was when his policies and his approach were at their height. It was especially in the early 1990s when Ruth Richardson was implementing the things that Roger Douglas wanted to do but was not allowed to. That is when the gap opened up between New Zealand and Australia and he should take some responsibility for it rather than trying to develop again the policies that would make it worse. 
“Rip Van Winkle” went to sleep for about a decade and when he woke up he found that unemployment was down he found that early childhood education was working well and he found that Working for Families meant that a number of families that had been below the poverty line were now above the poverty line. He woke up and said that he did not like it and that there was not enough pressure on the poor. He wanted to put some more pressure on the poor. That was the approach of Sir Roger Douglas when he woke up from his decade of sleep away from the political world. 
This is a disgraceful Budget. I invite people to have a very good look at the table on page A2 of today’s  
Dominion Post 
. Forget the headline; look at the numbers. I ask people to think carefully about what happens when we apply 5.9 percent instead of 2.2 percent. 
Louise Upston 
: What about the headline? It’s a great headline. 
Hon TREVOR MALLARD 
: The member wants someone to read her the headline. The member for Taupo would like someone to read her the headline in the paper. I will do better than that. I will tell her that people on $120000— 
Paul Quinn 
: That’s Trevor Mallard. 
Hon TREVOR MALLARD 
: No I am on significantly more than that I say to Mr Quinn. 
Louise Upston 
: How much more Trevor? 
Hon TREVOR MALLARD 
: Enough—that is the answer to that. When we apply 5.9 percent instead of 2 percent—because 5.9 percent will be the inflation rate—people who are on $120000 a year are no better off. They are no better off at $120000 a year when we apply the 5.9 percent inflation rate that Treasury says will happen. What does that mean? That is a cut-off point. What does that mean? Does that mean all the people below are better off? No it does not. It means all the people below are worse off. So every family in New Zealand earning $120000 or less is going to be poorer in 12 months than they are now. 
I ask members opposite how they will feel about that in November or August next year when they go to the election and we have the chance of inflation being higher than it has been at any time since Roger Douglas was the Minister of Finance. There is no debate about it; they are Treasury figures. It has never been so close. Roger Douglas has the record for inflation in recent times in New Zealand and it will not be broken. We will not get to Sir Roger’s level but it will be the highest level of inflation since the mid-1980s—since GST first came in—at 5.9 percent which is slightly more than double the rate of inflation that the Government inherited and with unemployment at about three times the level that it was. I ask members opposite what they will think about that and how they will explain to their constituents that they have done a big tax deal but their constituents will be worse off. 
DAVID SHEARER (Labour—Mt Albert) 
: 
 I want to touch on a point that was brought up by Michael Woodhouse about the differential between Australia and New Zealand: the fact that our taxes have gone down will somehow attract back here in floods people from Australia. The reality is I say to Mr Woodhouse that in Australia GST is at 10 percent not at 15 percent and if he thinks that people will come running back for the 3 or 4 or 5 dollars they have got as a result of this Budget he should think again. Inflation is at 6 percent and the Government has not factored in accident compensation levies going up the tobacco tax the power price rises and—for people unfortunate enough to live in Auckland—the funding of the debacle that is the super-city. Nobody will be killed in the rush of people coming through Auckland Airport back from Australia. They will come back for better wages when we lift our productivity but this Budget does not do anything to lift our productivity. 
The way we lift productivity is to encourage companies to invest and to be innovative. Look at what Australia has done in innovation in the past year. It has increased its research and development spend by 25 percent. It upped its tax credits for innovative companies by giving a tax credit of 40 percent. What did the Government here do for innovation in this Budget? I am really pleased the Minister of Research Science and Technology is here in the Chamber to hear this. This part of the Budget was announced early because of its importance according to the Prime Minister. It increased our Budget in research and development by $56 million a year. Most of that goes into grants and vouchers to business. 
So what do businesses have to do? They have to get on their hands and knees and go to the Government to say: “Please give me a grant for R and D.” And a bureaucrat sits there and says yes to this person and no to that person. Who benefits? Not the small innovative companies that are out there. I happen to believe—[ 
Interruption 
]—I say to Mr Mapp that those people who put their butts on the line who mortgage their houses and who borrow from their friends and their family in order to get a good idea out there to market deserve a break. That is what the Labour Government did in its term of office. It gave them a 15 percent tax credit. Under this Government businesses have to go on their knees to a bureaucrat who will assess their case and then possibly give them a grant at that point. Imagine the bureaucracy the transaction costs and the sheer frustration of small companies having to go through that ordeal. Our business research and development is one-third of the OECD average. What does this Government do to lift that? It is zip zero. It increases the State contribution to research and development by 3 percent but it does not do anything to our business research and development shift. 
Hon Dr Wayne Mapp 
: Yes it will. 
DAVID SHEARER 
: If the tax credit is put back I say to Mr Mapp if the Government acknowledges that that is the best way to do things we would have doubled the research and development in business that businesses are doing. This is the biggest scam for businesses and it really upsets me. John Walley said that this Budget’s contribution to research and development is a pale shadow of what the former Government put in place. It is not only that it is half of what the Labour Government had in place and it is also half of what that Government promised in 2008. So after all the “good news” around announcing this early it is ultimately only half of what it promised in 2008 it was going to contribute. It is another broken promise I say to Mr Mapp. He must sit there and feel dreadfully uncomfortable about the fact that he has given only half of what he promised. 
METIRIA TUREI (Co-Leader—Green) 
: 
 This part of the bill deals with the tax cuts that will significantly benefit the rich and leave the poorest of our most vulnerable families and particularly their children with the least. It is considered by this Government to be fair that the children of the wealthiest families get more than the children of the most vulnerable and poor. National calls that progress and it calls that fair; the Greens call it a national disgrace. There are alternatives of course. These tax cuts do not have to be so utterly regressive that our poorest children will suffer the most; they could be progressive tax cuts. I would like to outline a proposal that the Green Party presented on Monday in our Mind the Gap package which is a set of solutions designed precisely to deal with the rising gap between rich and poor in terms of inequality and income disparity which is one of the most significant social and economic problems in this country—and a growing problem in this country. 
One of our proposals is that there should be a tax-free band of $10000 whereby all people who earn income including beneficiaries would not pay tax on the first $10000 of their income. That is a truly fair and truly progressive personal tax cut option. It is a choice that John Key could have made which would make a significant difference to the children of the poorest families. We know that the children of the poorest families in New Zealand go without. It is not because their parents do not care; it is because there simply is not enough money. Children go without shoes raincoats breakfast lunch school trips and after-school programmes. Those children go without their basic rights to good health and a good education. Some members on the National side of the Chamber who believe in the deserving poor charity model might suggest that those people go to budgeting services. In fact that is what Paula Bennett suggests as part of her reforms in social welfare. But there is no budgeting advice in the world that can make up the difference if there is simply not enough money to care for the needs of those children. The children who are in the worst poverty require more support. 
The choice which John Key could have made but did not make of providing a tax-free band of $10000 would provide—we estimate without Government resources—something like $15 or $17 a week in the back pockets of every earner. That means that every person would receive the same amount which is fair in the context of a progressive tax. But because $15 or $17 is proportionately much more significant for those on $10000 a year as opposed to those on $150000 a year it is a fairer tax cut for the country for earners and for the children who are the most disadvantaged. This measure I say again was a choice that this Government could have made. It is a cheaper tax cut option than National’s package. It does not cost $4.5 billion; it costs around $3 billion. Any kind of tax cut that is imposed will cost the country money. There will always be a question of whom we choose to benefit the most from any tax cut. The Green Party would choose families who are on the lowest incomes. The Green Party would choose children who are living in the worst poverty. We would choose them to benefit the most from a personal tax cut. But this Government did not do that. This Government chose instead to benefit the most wealthy some of our highest-income earners by thousands of dollars a week while those on the lowest incomes are arguably much worst off than they were previously. 
At a best estimate someone who earns $10000 a year might get 85c a week. That is a very best generous estimate. But why should the families who are on the very lowest incomes and the children who suffer from the worst possible poverty in this country be the ones who pay? Why should they be the ones who subsidise the wealthy? Why should they be the ones who enable the most wealthy New Zealanders to get thousands of dollars a week in their back pocket when they got nothing? There is no justification for that. John Key’s Government is increasing inequality in this country. 
Carol Beaumont 
: That’s right. Continuing to increase it. 
METIRIA TUREI 
: John Key’s Government is continuing to increase inequality widening the gap between the rich and the poor. 
Hon Trevor Mallard 
: Deliberately. 
METIRIA TUREI 
: He is sucking the resources—deliberately I agree—out of our families away from our children. The children who go to school without shoes and raincoats and proper food are the children who are paying for John Key’s tax cuts. 
JOHN BOSCAWEN (ACT) 
: 
 We often have banter in the Chamber and when members with the call pick up on the comments of other members it is recorded in  
Hansard 
. One particular comment was made this morning that was not picked up in  
Hansard 
 but I think it is very important that it goes on the record. My colleague Sir Roger Douglas said that no matter what one thought of the Budget the reality is that the media are reporting it in a good light. If I heard correctly I heard Steve Chadwick say: “Wait and see.” I think that Steve Chadwick is absolutely right just like I think her colleague Carmel Sepuloni is right. She said that all the hype will die down in 2 or 3 days and then people will be faced with reality. People will not have to wait until 1 October for the increase in GST because the cost of living is going up from 1 July. That is when the emissions trading scheme is coming in that is when Treasury has forecast that electricity will go up by 5 percent per year and that is when Treasury has forecast that petrol will go up by 4c a litre. 
We are debating Part 1 of the Taxation (Budget Measures) Bill today. This part increases the rate of GST. Trevor Mallard proudly got up and showed to the Committee the increases in GST that people will pay on various incomes. My message this morning is to National members. Steve Chadwick is absolutely right when she says: “Wait and see.” There is no reference to the impact of the emissions trading scheme in people’s average incomes. 
I come back to page 9 of the Budget document. We have just heard from the co-leader of the Green Party who said that this is actually a subsidy from the poor to the rich. Well I say to Metiria Turei that at least those people earning less than $40000 a year get something. The Budget talks about an increase of 0.7 percent and they will have to give back only 0.4 percent. So although they will not get much at least they will get something. But we should look also at the big group of people in the income bracket of $40000 to $85000. The Budget forecasts here in black and white that they stand to get a net 0.4 percent out of it. Treasury forecasts that that whole benefit will be wiped out by the emissions trading scheme. It is no wonder that members of the National Party’s grassroots are revolting against the emissions trading scheme. It is no wonder that a resolution was put at the central North Island conference of the National Party last week calling on the Prime Minister and the Minister of Finance to suspend the emissions trading scheme. It is no wonder that the Tamaki electorate where I live—Allan Peachey is my local MP—have a remit before the National Party’s Auckland conference in a fortnight’s time. 
I say to Labour that Steve Chadwick is right and that Carmel Sepuloni is right. But Labour members should get out and criticise the emissions trading scheme. They talk about inflation of 5.9 percent. They should go out and tell the people that electricity is forecast to go up by 5 percent. They should go out and tell people that the price of petrol will go up. People will see those things soon. Carmel Sepuloni is right: people will not be fooled for ever. I say to members of the National Party that people will see it a lot earlier than some people think they might. 
I will explain to Louise Upston—who represents the electorate of Taupo which is an area that has huge amounts of forestry—why GST is going up. Well the reason it is going up is that there is an allocation of an extra $1 billion to people who planted trees in the 1990s and early 2000s and also in the 1970s and 1980s. Those people planted trees and are now retrospectively being given over $1 billion of credits for those trees. It is a tragedy because there is no guarantee that the Kyoto Protocol will be extended. There is no guarantee that New Zealand will have any commitment beyond 2012. 
In this measure we have a wealth transfer. It is not necessarily to rich people; it is to people who planted trees in the 1990s and early 2000s without any expectation of this massive subsidy. Although the National MPs in this House may want to put their heads in the sand the members of National Party are not dumb. They see it Paul Henry on  
Breakfast 
 this morning sees it and Steve Chadwick sees it. She says that we should wait and see. Time will tell and people will realise that there is no net gain to them. Yes there is redistribution. 
Hon CHRIS CARTER (Labour—Te Atatu) 
: 
 I rise in the Committee in an unusual circumstance in that I agree with John Boscawen. It is not often that I do that but I certainly agree with the comments he just made about this Budget. 
Moana Mackey 
: Not on the ETS. 
Hon CHRIS CARTER 
: Not all of it but most of it. 
Essentially this Budget is a fraud. It is a fraud because it is about transferring wealth from the poorest New Zealanders to the richest. You know one of the myths of this country perpetuated by conservative politicians led by John Key is that somehow we are an overtaxed country. It is a case of “Never let the facts stand in the way of a good story.” The reality is that in the OECD New Zealand has the third-lowest rate of personal taxation among developed countries. Where will this transfer of wealth impact? It will impact on the delivery of services in this country. 
National and its coalition partners are saying that for having $90 in the pocket of a rich New Zealander we will third-rate social services and Government services. Education is an excellent example. Four-hundred million dollars has been taken out of early childhood education. How will that cut impact? It is saying to early childhood education centres where they have qualified teachers that it does not matter who is working with those children and it does not matter how well educated or how lacking in skills the teachers are. The Government is saying that that does not count. 
As a former teacher and as a former Minister of Education I know that a child’s education journey—his or her success in education—begins with quality early childhood education. One of the great crocodile tears presented by the current National Government is about underachievement in our country. It is about the tail of unsuccessful students in our schools the 18 to 20 percent. Actually that is the standard percentage in all developed countries but we will not explore that. 
How will this Budget help them? In Manukau City 23 percent of children at the moment go to early childhood education and that might include one afternoon at the local church so there is very variable quality but 23 percent of new entrants going into primary schools have been to early childhood education. The statistics from Manukau City and the failure of many students there in their educational achievement rests on that poor basis. How will a cut to early childhood education of $400 million—the $400 million being taken out of early childhood education to pay for tax cuts for the richest New Zealanders—impact on underachievement in our schools? It will make it worse not better and the same is true with the so-called 4 percent operations grant that has gone into schools. Actually with the GST rise and the projected 5.9 percent inflation rate schools are effectively getting a cut. They will get less in their operations grant than they currently have because of the changed economic circumstances. 
So the nonsense we heard yesterday from Mr Key—that there is an increase in funding for education—is just that. It is a fraud. Schools will have fewer resources to spend on lifting educational achievement in New Zealand. I wonder how the Maori Party will address that question because it will impact particularly on those students who figure largely in our underachievement statistics—that is Maori and Pasifika children. The very kids we want to lift up are being disadvantaged because wealthy New Zealanders are getting a tax cut. 
I read in the media the other day that this tax cut and the changes in our tax system will take $16 billion out of the New Zealand economy over the next 4 years. We are currently borrowing $250 million a week to bridge the deficit. We are borrowing while at the same time we are cutting $16 billion out of our Government’s resources. What madness! Can members imagine any other developed country doing that? Why is it happening? Because National is catering to the constituency that put it into power. 
The swing voters in the middle will see over the next year—and I think my colleague Steve Chadwick from Rotorua talked about this—what these cuts actually mean. The  
New Zealand Herald 
 I think this morning referred to it as a thousand little cuts. Well it could be a death by a thousand cuts. I ask members to go into the education system to see what cuts are being made there. 
Hon DAMIEN O’CONNOR (Labour) 
: 
 This Budget is a disgrace. It is a very dumb Budget if one wants to run a smart economy. It is a regressive Budget if one wants to run a progressive economy. I will quote from Bill English something that most people in this Parliament would accept: “This lacklustre performance from the export sector lies at the heart of our growing vulnerability.” I ask what this Budget did for the export sector and for the primary drivers of that sector the farmers and horticulturalists. Well not once in the Budget statement did Bill English whose brother is the chief executive officer of Federated Farmers mention agriculture or horticulture—not once. In fact he made only a brief reference to exports or exporters. So how will this Budget grow our economy? 
We should look at a few reports on our economy because we would see that there are some challenges going ahead. We accept that we need to have better performance from the export sector. New Zealand’s largest single vulnerability is now the large and growing net external liabilities. But having identified this vulnerability what does this Budget do about it? Well to quote Bill: “Very very little.” If we do not grow our earnings no amount of shuffling around of tax rates and tax benefits will get us out of the hole we are in because we need to be driven by greater exports up and down this country. 
Not once was agriculture mentioned. That is a disgrace. But worse than that if we had a productive sector wanting to invest in higher levels of productivity new technology and better machinery the Government cut the depreciation allowance right out from under its feet—right out from under its feet. I was talking with one of the largest exporters in this country less than 2 weeks ago. He said we needed a higher level of depreciation allowance for new plant and equipment to lift the level of productivity in this country. John Key has said a lot about productivity but he thinks productivity is paying less to workers to give more to the people at the top. Well he did that I guess—I guess he did that in the Budget. Yes he has given crumbs to the people at the bottom and given a bigger slice of the cake to the very wealthy of this country. That is immoral. It is absolutely immoral and it is dumb dumb thinking if we are trying to develop a smart economy. 
People will be packing their bags and going to Australia because no amount of tinkering with the tax rates will make up for the huge gap between what we can pay workers in this country and what Australia can pay workers and its higher savings rate and its better superannuation benefits. But what did this Budget do to address that? Nothing—absolutely nothing. It is a pathetic Budget from a mean Government that does not understand the terms “fair” or “equitable”. It has driven this economy further behind. There is nothing for the export sector and nothing for the farmers. In fact if there were farmers earning over $70000 a year they might have benefited more. But Federated Farmers reluctant as they may be to criticise the Government admitted that very few farmers pay tax. So they will face higher levels of GST. I say to them that if they are bleating about the emissions trading scheme’s cost to their business they should sit down and do a calculation about the increased cost from the rise in GST. It is about time they did that and Connor English should get off his chuff as a chief executive challenge his brother and say: “You Mr English my brother have imposed huge costs on the farming and export sector and offered us nothing by way of your Budget.” They do not have a vision— 
Jo Goodhew 
: Look at what your emissions trading scheme has done to farmers. 
Hon DAMIEN O’CONNOR 
: Neither does that member from Timaru. She will find that the people who drive her local economy will be absolutely disappointed with this pathetic Budget except if they earn over $70000 per year. If one earns over $70000 per year one has the highest level of tax cuts. That member Jo Goodhew will be happy because she earns over $70000 per year. So does the person beside her Chris Auchinvole. This is a pathetic Budget for the export sector. 
CHRIS HIPKINS (Labour—Rimutaka) 
: 
 I am looking forward to the contributions from the Maori Party to this debate. Driving home last night I had to stop for petrol. The Maori woman behind the counter asked me “Is the Maori Party really going to vote to increase GST for me? Is it really going to vote to increase my GST? I have checked it out on the website and I do not get much of a tax cut. I am on a reasonably low income. I am working behind the counter at a petrol station.” She told me that she had voted for the Maori Party and that she was pretty surprised that given all of its rhetoric before the election its members were now coming into this House to vote in favour of increasing GST. 
She had seen Hone Harawira’s comments in the paper yesterday. I told her not to worry because I knew that Hone Harawira was a man of great courage. I do not think Hone Harawira would ever say outside Parliament something that he was not willing to come down and stand eyeball to eyeball with the National Government to say in this Chamber. I think he has a lot of courage and he will come down he will be in the Chamber he will take a call he will speak against a rise in GST and then he will cross the floor and vote against it. I do not think Hone Harawira would be a lion out in public and then be a pussycat curled up in John Key’s lap here in the House. I do not think Hone Harawira would do that. I look forward to his joining us in the Noes lobby when it comes time to vote against this increase in GST which will hit Maori particularly hard. 
The people in my electorate ask me what is in this Budget for them. I say to them that for the 69 percent of people in my electorate who earn under $40000 a year the answer is not very much. Most of the people who earn under $40000 a year according to the tax table that was produced with the Budget will get less than 25 bucks a week in their tax cut. They will pay at least another 13 bucks a week in increased GST so that is less than 10 bucks a week in the pocket. If they have children in early childhood education they will be looking at about another 25 bucks a week per child for early childhood education. They will be worse off. If they are superannuitants who have had their home help cut they will be worse off. If they are tertiary students who now have to pay extra on their student loans they will be worse off. Even worse if they want to be tertiary students but find they cannot get into a university or a polytechnic they will be worse off. They may get an extra 10 bucks a week—that is if they are at the highest end of that 70 percent who earn under $40000. If they are on that $40000 mark they will get about $9.94 a week according to Bill English. But for those people down at the bottom end at the minimum wage level who earn around $28000 a year it is about five bucks a week. That is worth about two or three packets of chewing gum to the people on the lowest incomes. The tax cuts from the National Government are certainly not enough for a block of cheese or even half a block of cheese for those people on the lowest incomes. National is interested only in those who are at the top of the heap. 
I am really looking forward to hearing the contributions from the Maori Party members who campaigned before the election about removing GST from food altogether. I am looking forward to hearing their justification for voting in favour of a 2.5 percent increase in GST—hiking up the food and grocery prices for every working family in New Zealand. And it will not be just food and grocery prices that will be going up either; it will be rates insurance and all the other services that will go up as a result of the extra 2.5 percent on GST which will go up to 15 percent. It is a tax swindle not a tax switch as the Government has talked about. 
The hollow rhetoric from the hollow men in the National Government is simply misleading. It shows that their promises before the election were simply a hoax. They promised that everyone could have a tax cut that they would not increase borrowing to pay for it and that they would not cut public services. Well they are giving tax cuts to the people on the highest incomes while those on the lowest incomes face a tax increase through higher GST. They are increasing borrowing and cutting spending on public services. They are cutting spending on health. They are not allowing health spending to keep up with the growing population or the growing demand. Health spending will not keep up with the demands of an ageing population so people will be paying more. 
I heard Ganesh Nana from Business and Economic Research Ltd on Radio New Zealand National this morning saying that in the short term this Budget is affordable but in the long term the tax cuts the Government has delivered are not affordable. The National Government is mortgaging up the nation’s children and grandchildren to pay for the tax cuts it is dishing out today. 
STUART NASH (Labour) 
: 
 I heard the most amazing thing in the Chamber when my colleague the Hon Damien O’Connor was speaking a few moments ago. He asked what this Government had done to increase the growth of this economy and Dr Wayne Mapp who is the Minister of Research Science and Technology said it had cut taxes. That was what the Minister of Research Science and Technology said about how to grow the economy. He said the Government had cut personal taxes. My colleague David Shearer stood up here and asked what had happened to the funding for research and development which we need in order to drive the economy forward. The best answer that the Minister could come up with was to cut personal taxes. 
I can picture National Ministers sitting around the Cabinet table and Bill English asking what the Government could do to drive the economy. Dr Wayne Mapp would have had his head down and Bill English would have asked Dr Mapp what he thought the Government should do to drive economic growth. His reply would have been that National should cut personal taxes. Why did he not stand up and say the research and development spend needed to be increased or that we should at least go back to what Labour did? Did he stand up and say that? Did he stand up and fight for those companies in this country that require research and development funding in order to drive this economy forward? That is what is needed. We have the smart men and women of this country saying we need to invest in research and development and develop a high-class highly educated economy. We need companies that can take things to the global market. The Government has done nothing about that. It has cut research and development spending to half of what Labour provided. It is one of the more ridiculous things that I have heard in this House and I think it is a crying shame. Quite frankly it astounds me because I really thought Dr Mapp was better than that. 
I would like to talk about another thing that astounds me— 
Craig Foss 
: Satisfaction! 
STUART NASH 
: —because we cannot get any satisfaction from this Budget. The vast majority of Kiwis have got no satisfaction. A speaker stood in this Chamber and talked about the shameful Dr Cullen. I will not hear a bad word said about that man in this Chamber. Do members know why? It is because under his management we halved gross Crown debt and when he left office there was no debt. Dr Cullen had to listen to John Key and Don Brash baying for tax cuts. They said New Zealanders must have tax cuts. If Dr Cullen had listened to them then we would be in the same situation as Greece. Dr Cullen paid down debt. In fact the Governor of the Reserve Bank in his latest  
Financial Stability Report 
 
said the reason that the New Zealand economy is doing as well as it has in this recession is the state that Dr Cullen left the books in. He did brilliantly and his legacy is sound. 
This Government is destroying Dr Cullen’s legacy. Dr Cullen refused to borrow for tax cuts. Dr Cullen knew that an economy has to be managed prudently. He knew that tax cuts are inflationary. I will tell members one thing that Dr Cullen never did: he never looked at the camera and said he would not increase tax then increased tax. That is what John Key did. He stood in front of the camera in front of every New Zealander and said he would not increase GST. Well he has done that; he has increased GST. He also said he would not borrow in order to fund tax cuts. Well he has done that. 
I turn to clause 45 of this bill which deals with increasing the rate of GST. The GST rate is increasing from 12.5 percent to 15 percent so one assumes that everything will increase by 2.5 percent. I have news from this side of the Chamber: that will not happen and I will give members an example of why it will not. Retailers price things with psychological considerations in mind. That is why we pay $49.95 not $50 for goods. The GST increase on that amount means that the price should go up to $51.06 but no retailer will price anything at $51.06. The next level is actually $54.95 which is a 10 percent increase. This also comes back to the poll done in the  
New Zealand Herald  
where 33 percent of small to medium sized businesses— 
METIRIA TUREI (Co-Leader—Green) 
: 
 It is a shame that we do not have the pleasure of John Boscawen’s company. In his earlier contribution he said that those on the very lowest incomes should be terribly grateful that they got 85c or some such in the Budget because they could have got nothing. He is quite right. John Key’s Government had a choice about who would benefit the most from this Budget and who would benefit the most from the personal tax cuts in the Taxation (Budget Measures) Bill. His decision was that those on the lowest incomes would not benefit the most and certainly that we should not have a progressive and fair tax system or progressive and fair tax cuts in this Budget. John Key’s choice was that the richest people in this country—the richest New Zealanders—should benefit the most. We certainly see that that is the case. Of course John Key could have chosen differently but he did not. He has chosen to increase the gap between rich and poor. 
Earlier I talked about an alternative—and I see that John Boscawen is now here—to this tax cut regime that would be progressive and fair which is having a zero tax rate for the first $10000 of income earned. I mention in relation to that alternative that not only is it progressive fair and cheaper than the current tax cuts proposed in this Budget and in this bill but also it is used in many other OECD countries. In Australia the zero tax threshold is $16000 in Canada it is $10000 in France it is $5600 and in Germany it is $7800. We certainly would not be leading the charge on a tax-free band of income that is progressive and benefits those on the lowest incomes. Of course in those countries too they have much higher tax rates at the top. In Australia for example there is a 45 percent tax rate for those who earn over $180000. So it is a more progressive system of tax than we have here. 
One of the other provisions in this part of the bill is the increase in GST. That is an additional regressive tax on top of the regressive personal tax cuts that are being proposed. The increase in GST is not fair because it will hurt the poor more. We know that those on the lowest percentile or 10th percentile pay 14 percent of their income in GST and those on the very top percentile pay only 4 percent. So proportionally those on the very bottom percentile will pay more GST in proportion to their income than those at the very top. Therefore any increase in GST is grossly unfair. 
That is why the Green Party continues to propose the much fairer system of a capital gains tax excluding the family home. In the long term that system would return some $4.5 billion to the income sector. It would also broaden the tax base across the community and provide significant incentives for a shift in investment away from the property sector into more productive investments. The John Key Government says it wants to do that but it has done nothing to make sure that it happens. It has no kind of strategy to ensure a genuine shift of productive investment away from a property boom into more productive areas. 
The Government had another choice with tax cuts whereby people on the lowest incomes could benefit. Inequality is one of the bigger issues that this country faces. The Greens released the Mind the Gap package on Monday and in it we proposed that the in-work payment which replaced the child tax credit and applies only to some families should be extended to apply to families at the very bottom of the income sector. Those families are beneficiary families; 140000 families do not qualify for the in-work payment because they are beneficiaries or they do not meet the working hours criteria. The children in those families live in the worst poverty in this country. Some 200000 children live in the worst poverty and they are the children of these families. Why are these children suffering just because John Key wants to put thousands of dollars in the back pockets of some very very rich people? 
It would cost around $300 million a year to extend this payment so there is a cost. 
LYNNE PILLAY (Labour) 
: 
 First I commend Metiria Turei for a great speech. I totally agree with all the points that were raised. We all know on this side of the Chamber— 
Hon Dr Wayne Mapp 
: When is Labour going to start to decrease the deficit? It didn’t do it in 9 years. 
LYNNE PILLAY 
: I hear Wayne Mapp and see that he is feeling embarrassed about this tax swindle which is based on total self-interest. How do we know that these tax cuts are based on self-interest? We know because the big winners are the people who earn high incomes. The tax cuts are for the privileged few. They are really really unfair. 
If we look at people on low incomes those who need tax cuts the most we see that they are hit by the rise in GST. That is very unfair in terms of the distribution and liability on people on low incomes. The effect on them is very disproportionate. Then there are the tax cuts. If we look at people on low incomes—those on 20 grand or 40 grand a year; people with families—we see that they get next to nothing out of the tax cuts yet this Government is borrowing big time and cutting public services in order to fund them. 
When we look at people on high incomes like those that members of Parliament are privileged enough to earn we see that is where the big gains are. If we look at even higher incomes the tax cuts are so much higher. That action has been taken by a Government led by a Prime Minister who categorically said that National would not raise GST. I ask Mr Mapp whether that is correct because he is not interjecting very much now. Did John Key say that National would not raise GST—yes or no? Did John Key say that? The members opposite know very very well that John Key said that but it has all changed. That promise was broken so that one-third of the tax cuts goes to the top 5 percent of income earners. The top 1 percent of earners will get 15 percent of the tax cuts—15 percent of the tax cuts goes to the top 1 percent of earners. 
Does that sit alongside the funding that was reintroduced by the Government such as the big funding boost for private schools? That was done at the cost of the most disabled children in New Zealand. We know there has been some increase in funding for disabilities but when we look at it we see that the Budget has a paltry amount for people living with disabilities. If we compare that funding with the extra $1.4 billion we see a big hole in health spending. That is what this Budget is about. This Budget is about a great big hole in health spending because a huge amount is going in tax cuts to the wealthy in New Zealand. Members on this side think that that is grossly unfair. It is actually immoral. 
Where else do we see casualties? 
Hon Steve Chadwick 
: Casualties in State housing. 
LYNNE PILLAY 
: I ask my colleague who has been a strong advocate for State housing for our most vulnerable families whether it is correct that $18 million— 
Hon Steve Chadwick 
: $80 million. 
LYNNE PILLAY 
: How much has been cut? 
Darien Fenton 
: Nearly $100 million has been cut from housing. 
LYNNE PILLAY 
: Nearly $100 million has been cut from housing and that is by a Government that says that it cares about people. We all know that one of the key things that families need is safe and affordable housing. We know that in cutting that area the real casualties will be the families most in need in New Zealand. 
Let us talk about early childhood education. When Labour brought in its early childhood policies the National Opposition vehemently opposed them. In this Budget the Government did not have the guts to cut the funding but by stealth it is cutting away all of that really good investment. Those building blocks for our children’s future are being cut. It is absolutely reprehensible that the members of this Government will take money away from families from children and from those who need it most in order to fund tax cuts for themselves. 
CAROL BEAUMONT (Labour) 
: 
 One of the most annoying things I have heard in this debate so far is that every time members on this side—Green or Labour—outline the absolute unfairness of the tax changes that are being made by the Government we have levelled at us that our comments are about the politics of envy. I can only conclude that the reason that little Crosby/Textor line no doubt about the politics of envy is being trotted out is that those members know that what we are saying is true. They know that the small tax cuts that people on low and middle incomes will get will be completely offset by increases in GST and other inflationary pressures. 
That is unfair. How just is it that those on the lowest incomes who cannot make ends meet at the moment will get a paltry increase in income while those with more than enough will get huge increases? How just is that? How just is it that they will face significantly higher costs as a result of inflation peaking at 5.9 percent which will wipe out their tax cuts? How just is that? How just are these changes when they follow on from the previous unfair tax cuts made by this Government? In the electorate of Maungakiekie where I am working 64 percent of people earn $40000 or less and they received no tax cut in 2009 or 2010. Now they will get a paltry tax cut which will be offset by increased costs. How just and how fair is that? Members opposite can call my comments the politics of envy if they like but they know that that position is not fair. 
I want to talk about the economy. The rhetoric of the Budget—and we heard it leading up to the Budget and we hear it in the Budget-speak—is all about rebalancing the economy. The Government says that we will have a smart economy and that it values education. Actually the only measure to appear in the Budget is the waving of the magic wand of tax cuts. Suddenly the economy will be rebalanced! Suddenly there will be the growth in productivity that there is a lot of rhetoric about! There is a lot of rhetoric about lifting productivity. Nobody in this House would disagree about the need to lift productivity but talking about it is not sufficient. Where is the investment in people? What is going on in terms of tertiary education funding is social and economic vandalism. 
I will talk particularly about investment in people who are already in the workplace. There are further cuts to adult and community education which will affect those who want second-chance learning. Where is the money for industry training? Where is the money that would actually lift us in terms of the technical skills we need? We have a structural skills problem in New Zealand. Where are the initiatives in the Budget to deal with that? I ask that somebody opposite stands up and answers that question. Eighty percent of the people who will be in the workplace in 10 years’ time are already in the workplace so to change our skills deficit we cannot just invest in people entering the workforce; the Government also has to focus on investing in those who are already in the workforce. People who in their own time want a second chance at education through adult and community education are out of luck in many parts of New Zealand and I am sure that position will get worse. What about those who want to learn when they are in the workplace? Where is the extra funding for that kind of learning? There is a lot of talk about productivity but without the skills to change how work is undertaken without the skills to implement and utilise new strategies and new technology we will not go forward as a country. 
When we look at the reduced increase in funding for research and development the complete absence of initiatives in terms of skills and the absolutely minuscule funding for tertiary education we have to ask ourselves how serious the Government is about lifting productivity. The answer I am afraid to say is it is not serious at all. Cutting taxes will not lift productivity. Other measures have to be taken. There have to be economic development strategies. There needs to be investment in our people. I would have really appreciated seeing some effort put in that area but no there has been none. 
METIRIA TUREI (Co-Leader—Green) 
: 
 I will briefly refer to the corporate tax rate which is being cut in Part 1 of the Taxation (Budget Measures) Bill. We know that the corporate tax rate will go from 30 to 28 percent. We also know that this Government has an intention to continue its approach concerning alignment and I wonder whether—we have heard nothing as far as I am aware from the Government at this stage—the Government in fact intends to eventually bring the top tax rate down to 28 percent. If it is truly committed to alignment that is obviously what it will do next. The question is whether it would do that in an election year—which would be the next Budget—or afterwards. Will the Government tell New Zealanders that it intends to not only lower the top tax rate by 5 percent in this Budget which is twice as much as the tax rate has been lowered for those on the lowest incomes but that it intends to give those on the very top incomes another tax cut in the very near future to 28 percent—the corporate rate? 
That discussion has not been raised yet in the debate on the corporate tax rate as far as I am aware. It is of serious concern if it is the intention of the Government to continue to lower the top tax rate because the burden and the cost of that will be borne by those at the very bottom. They will pay and continue to pay not only for the corporate tax rate whether in GST increases or in some other form but also for increasing cuts to the top tax rate. 
I referred earlier to one of the other choices that this Government had to reduce the gap between rich and poor income disparity and inequality in Aotearoa. I described the alternative that we had proposed in Mind the Gap regarding the in-work tax credit. I follow that up by saying that if the in-work tax credit were extended to those who are on benefits and those who are not working and who currently do not meet the hours criteria for paid employment we would see $60 a week in disposable income going to 130000 of the poorest New Zealand families who have up to three children. The 10000 poorest New Zealand families who have four or more dependent children would benefit even more. It is about benefiting and supporting our children the children who need the most because they are the most vulnerable and the poorest. 
Part of it is also about housing. There are clauses in the bill that deal with housing. What is obvious and my colleague from Labour talked about this earlier is that this Government has cut provision for the building of new State houses. It has cut at least $100 million from the State housing budget such that there will be no upgrades and no building of new State homes. That is a disgrace. We have 10000 families on the State house waiting list. All that is happening is that those families are churning around through the existing State housing. Some come out and try to get into private rental housing; some go back into State housing. The waiting list has continued to churn. This Government is doing nothing to provide housing—homes—for our most vulnerable families. Those are families who are desperate just for somewhere to live. Instead we have two or three families crowded into private rentals that are expensive cold and damp. That is causing $1 billion worth of health problems from cold damp overcrowded housing. Yet this Government will give thousands of dollars in cash to the richest people while families are desperate for just somewhere to live. 
This is the Aotearoa that we have now—an unequal country where those families who need somewhere to live have nowhere because this Government will not build houses and invest in those families. This Government will spend $10 billion on new motorways which are holiday highways for their friends but they will not spend money on homes for our families who need it the most and for our children who are in the worst poverty—the 200000 children who live in the worst poverty in this country and the poorest families who are in desperate need. This Government does not even see those people. They are invisible to this Government. They do not know them they do not see them they do not care. 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I take a brief call to respond to some of the points just made by the member who has resumed her seat Metiria Turei. She asked whether some dastardly plan was afoot to align the personal and corporate tax rates at 28c at some point in the future. I disillusion her by saying that there are no present plans to move in that direction. The Government’s medium-term intention remains the alignment of rates but frankly that will occur as fiscal circumstances permit. If one looks at the Budget tables and the Budget figures one sees that there will not be a rapid path in the direction that she fears and that others would welcome. 
I come to the real point that lies behind the issue. As the Tax Working Group disclosed the big issue was the discrepancy between the top personal rate and the trust rate because over the last decade since the Labour Government in 1999 hiked that top rate we have seen a massive explosion in the use of trusts. 
Moana Mackey 
: We campaigned on that and were honest about it. 
Hon PETER DUNNE 
: I acknowledge that Labour campaigned on it but it was the most stupid and inept tax decision made in the last decade. It has created a massive explosion in the use of trusts not for property protection reasons but for income sheltering reasons. That explosion has cost revenue and has cost the taxpayers of New Zealand around $300 million a year in revenue forgone. Over the period of the decade that was about $2.7 billion. If Metiria Turei wants to talk about having a tax-free threshold which is extremely expensive she should just bear in mind that she would have been able to achieve that had we not had that leakage over the last decade. The point that needs to be made is that by aligning the rates in terms of the trusts and the top personal rate as is set out in the Taxation (Budget Measures) Bill we will actually secure revenue for the future that can be used to give funding to some of the dreams that members might have. 
I will talk about the in-work tax credit. I am in the unusual position of having been part of the previous Government when the Working for Families scheme was being developed. One of the things that was critical there and members opposite have quite rightly campaigned on it was that that Government wanted a difference between the level of support provided to people who were in work and to those who were not—hence the title the in-work payment. If we were to extend the in-work payment to those who were not in work we would actually defeat the whole purpose of what Working for Families was about. The title was deliberately chosen; it was about families who were in work and struggling to make ends meet and about giving them a boost. Extending it across the field simply broadens the welfare net. I give credit to the previous Government for not including that idea in the original thinking. I think that point detracts from the member’s argument. 
The other thing I mention was that the hoary old chestnut of the capital gains tax was wheeled out by the Greens as part of their Mind the Gap package—I thought that was a railway term from the United Kingdom but never mind. The reality is that a capital gains tax in New Zealand would add hugely to compliance costs would not be fair and would not raise the revenue that is supposed to be attached to it. Over a long period of time it might but it is a simplistic argument to say that we should have a comprehensive capital gains tax exempt the family home and all the revenue that will flow will allow nirvana to be created in this nation. It simply does not work that way. 
I am delighted that we have rejected the notion of a capital gains tax; I think it is time to bury the idea once and for all. It has been floated over the last 20 years and no Government has ever picked it up because whenever a Government has looked at the reality of what it would actually mean it has worked out that it would be worth far less than the trouble the disruption and the chaos it would create. It is far better to move to an alignment of rates far better to smooth out some of the discrepancies that are there at the moment and far better to deal with some of the abuses that we will talk about in later parts of this bill—which are distorting investment patterns and creating biases in the economy—than to impose what would be the ultimate of envy taxes. That is where that policy becomes a complete failure and a nonsense. 
As I conclude I acknowledge that this debate may have a little bit longer to run but I say that it has been a good constructive debate today and I congratulate all of the members who have participated. I disagree profoundly with many of the things that have been said but I think there has been a good airing of the issues. Let us hope that we can continue in this spirit. 
MOANA MACKEY (Labour) 
: 
 I thank the Minister in the chair the Minister of Revenue for taking a call. You know it is interesting that the Minister was responding to the Green member Metiria Turei. Well she talked about people and about the impact of this Government on people. With the greatest of respect to Government members I have been noticing that they are not talking about people. They like to talk about the taxation system but they do not like to talk about how that system works for the people of New Zealand because these changes will not work for the people of New Zealand. The Minister said the Government may be looking at making a further alignment of tax rates as fiscal circumstances permit. Well fiscal circumstances do not permit the changes that are happening in this Budget and in this legislation. In fact we have a hole of half a billion dollars coming from a Government that promised not to borrow in order to fund tax cuts. Members on this side of the House would argue that fiscal circumstances do not permit these changes to be made so why should we have any confidence that the Government will wait for fiscal circumstances to permit further changes to be made? 
The Minister of Revenue also mentioned the revenue windfall that will come from the alignment of the trust rate and the personal income tax rate. Well if there is to be such a windfall why are we increasing GST? Why do we need to increase GST when the changes to the income tax rates by the way as an unintended consequence happen to deliver a $1000 a week tax cut to someone who is on a million dollars a year? Why are we doing that if we have to raise GST? Clearly the revenue windfall will not be as great as the Minister and the Government would have us believe because we have to load a tax increase on to the poorest families in New Zealand which John Key promised before the election that he would not do. 
Hon Dr Wayne Mapp 
: We’re moving away from the decrepit old wretched ways of Labour. 
MOANA MACKEY 
: Dr Wayne Mapp has been sitting here throughout this entire debate and chipping away. Instead of sitting there like a dried arrangement why does he not get on his pins and take a call? Instead of chipping away why does he not take a call? This is the Minister of Research Science and Technology who has gutted the funding for research science and technology. He has not been a good advocate for that sector and that has continued in this Budget. Less than half the money that was in place when Labour left office is now in place and he expects scientists to be happy about that. 
Craig Foss 
: I take offence at the reference to his pins. 
MOANA MACKEY 
: Craig Foss takes offence that I called them— 
Craig Foss 
: Can we table his pins? 
MOANA MACKEY 
: I say to Mr Foss that he can table Dr Mapp’s pins if he would like to; I will leave that entirely up to him. 
This legislation puts in place the tax swindle that is Budget 2010. It is based on three main broken promises. One is that the Government swore black and blue before the election that it would not increase GST. Less than 18 months later we are passing legislation that will raise the rate of GST by 20 percent. That is a broken promise. Secondly National swore black and blue that it would not borrow in order to fund tax cuts. We are putting in place legislation today that borrows in order to fund tax cuts. That is broken promise No. 2. Broken promise No. 3 is that no one will be worse off. Well by the Government and Treasury’s own figures someone who is on the average wage will be $30 a week worse off under this regime when we factor in the GST increase and the effects of inflation. Is it not interesting that the Government’s tax calculator which it had up on Treasury’s website factored in inflation at less than 2 percent when the Budget documents said it will be 5.9 percent? What kind of swindle is it that the Government’s own tax calculator is deliberately producing misleading figures in order to make— 
Hon Dr Wayne Mapp 
: No you’re misleading— 
MOANA MACKEY 
: I ask Dr Mapp not to point at me. He should stop sitting there like a dried arrangement and get up and make a speech instead of doing it from the comfort of his chair. He has not bothered to get up to explain to scientists in this country why he has slashed their funding since coming into Government and becoming their Minister. 
Do members know that a number of scientists were laid off at the Institute of Environmental Science and Research this week? Why? It is because of health cuts and cuts in the budget that that Minister oversees. Scientists in the health science area are some of the better-paid scientists in New Zealand. The Minister says that scientists are rich. I think he needs to go out and talk to them because the Prime Minister included scientists in the list of people who are rich in this country along with nurses—and the Nurses Organisation had something to say about that—and teachers. I suggest that he goes and talks to some of them instead of sitting in his chair and chipping away. 
I will have a lot more to say about housing in my Budget debate speech as well. When we look at how it is being paid for we see that the Government which went on and on about how it would be great for State house tenants has made a $100 million cut relating to the procurement and building— 
DAVID SHEARER (Labour—Mt Albert) 
: 
 I want to take another call in the debate on Part 1 of the Taxation (Budget Measures) Bill. Basically Tracy Watkins has it pretty much right: the Budget is an “Old-fashioned vote-winner”. It is not really about increasing our productive economy and it is not really about trying to grow our economy; it is really about the Government getting back into power in 2011. 
There is a lot of positive talk out there about the tax cuts and how much they will bring in. I believe that over the next few days as we start to unpick what the Budget really means we will get to the real core of what it means—that in effect the small amount of money that people on the average wage will get in their hands will be chipped away by GST by power prices by accident compensation by tobacco tax and by increased rates if one happens to live in Auckland to pay for the super-city structure. On top of that there have been the lowest wage increases in a decade. When the combination of those facts sinks in people will start to understand that the Budget as we have been saying today is an enormous swindle and it will leave a bitter taste in people’s mouths. 
What I want to talk about is what the tax cuts mean in terms of our productive economy. Let us take a look across the Tasman as this Government always wants to do and see what the Australians are doing. They will decrease their company tax rate down to 28 percent like New Zealand is doing. We have got the jump on them as the Government says. But companies in Australia pay superannuation contributions of 9 percent to 12 percent. Let us think about how much money in that economy—how much savings—is available for the productive sector to reinvest in the economy. What has been done here in New Zealand? The Government has dropped the employer superannuation contribution from 4 percent down to 2 percent. Our savings are woeful. In Australia people understand that increasing their savings increasing their capital to be able to invest into their productive economy is the way forward. 
Australia has given a 40 percent tax credit to its innovative companies—a 40 percent tax credit. So a company in Australia that invests in innovation gets 40 percent of its tax back for its efforts. We used to have a tax credit and it would have doubled our business research and development. Instead we have the State subsidising our companies. The State which cannot afford to do so at the moment is subsidising our companies. On top of that we have a farcical scheme called Primary Growth Partnership. Thirty million dollars was supposed to go into the Primary Growth Partnership in 2009-10. How much has gone out of the scheme? About $3 million went to greenhouse gas research. The rest of it has delivered nothing. So 18 months after the Government axed the Fast Forward Fund which transferred $700 million into productive research what do we have? We have nothing—zip zero—going out of the Primary Growth Partnership. For 18 months during which our scientists in combination with business could have been investing in our productive economy they have not received a thing. What has happened as a result? I will tell members. Thirty-six staff from AgResearch’s wool and meat sector have been laid off. That used to be a productive enterprise. Under this Government it will no longer be a productive enterprise. We have lost 12 to 15 people from the Institute of Environmental Science and Research. We have seen today that the Budget’s reprioritisations as the Government is calling them will move money out of environmental research and out of heath research and a bunch of good policies will be cut as a result. 
JO GOODHEW (Junior Whip—National) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 66 
New Zealand National 58; ACT New Zealand 4; Maori Party 3; United Future 1. 
Noes 50 
New Zealand Labour 43; Green Party 7. 
Motion agreed to. 
The CHAIRPERSON (Lindsay Tisch) 
: Before I put the question on Part 1 there are four amendments to Part 1 in the name of the Hon David Cunliffe. The three amendments to clause 45 are not in order as the Minister has issued a financial veto certificate in respect of each of them. These certificates are on the Table. 
The question was put that the following amendment in the name of the Hon David Cunliffe to the cross-heading above clause 44 be agreed to: 
to omit “to Goods and Services Tax Act 1985” and substitute “designed to Increase Goods and Services Tax”. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 50 
New Zealand Labour 43; Green Party 7. 
Noes 66 
New Zealand National 58; ACT New Zealand 4; Maori Party 3; United Future 1. 
Amendment not agreed to. 
A party vote was called for on the question  
That Part 1 be agreed to. 
Ayes 66 
New Zealand National 58; ACT New Zealand 4; Maori Party 3; United Future 1. 
Noes 50 
New Zealand Labour 43; Green Party 7. 
Part 1 agreed to. 
Part 2 Personal tax cuts: 2010-11 start 
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. 
METIRIA TUREI (Co-Leader—Green) 
: 
 Before I discuss the issue of energy poverty in terms of the tax cuts in Part 2 of the Taxation (Budget Measures) Bill I will refer to a couple of statements made by the Minister of Revenue Peter Dunne. One was his criticism of a capital gains tax excluding the family home. He mentioned the compliance costs and how difficult it would be. There is a capital gains tax in practically every OECD country on the planet. It is an area of tax reform that is progressive and broad and New Zealand is seriously lagging behind. Not only do most of the other OECD countries have a capital gains tax of some form but also they include— 
The CHAIRPERSON (Lindsay Tisch) 
: I bring the member back to Part 2. Part 2 is not about capital gains tax so I ask the member to concentrate on Part 2. 
METIRIA TUREI 
: Part 2 is about the rates but it is also about personal tax cuts and decision by this Government that the best way to fund those personal tax cuts is by giving to the richest a tax cut that is funded by an increase in GST which affects the poorest. The alternative is a capital gains tax as the Minister was describing just a few moments ago. I remind Minister Dunne that the UK the US and Australia have a capital gains tax but New Zealand does not. On that basis alone we are obviously lagging behind. 
The other issue the Minister raised again in terms of the justification for cutting taxes for the richest in this country concerned the corporate tax rate. The fact is that those who are the richest and who were using dodgy means to avoid paying the top tax rate will now have to pay only 33 percent if they are being straight up. But now they can use business as a means to funnel their income to the tune of a 28 percent tax rate as opposed to a 38 percent tax rate. 
New Zealand is one of the easiest places in the world in which to do business and to establish a business. It is very common for New Zealanders to set up businesses for a variety of purposes. I am very concerned that the corporate tax rate dropping to 28 percent opens up another loophole for those who are very wealthy to avoid paying their fair share. There are other choices too. 
One of the issues with the personal tax cuts is that prices are increasing. We have seen energy prices increase by 40 percent in the last 9 years. People are having to pay more in all sorts of areas but they are not being compensated in these personal tax cuts. One of the areas where they are not being compensated is that of energy and electricity. We know that a pensioner who lives on his or her own in an old house has a 97 percent chance of living in energy poverty. There is nothing in this legislation or in the personal tax cuts this legislation deals with that will address the needs of that pensioner or of a solo parent in the same situation who is living in energy poverty. 
We need to have reform—and this is a choice John Key could have made—of the electricity system to provide for progressive pricing so that all families have access to a fixed cheaper rate of electricity to help alleviate energy poverty. Seventy thousand of our poorest families are suffering the most but 350000 would benefit from that change. These were the choices this Government could have made but it did not make them. Instead in this legislation it has chosen to give the biggest tax cuts to the wealthiest and to make the poorest people pay. 
It begs the question of why this Government would make those choices. Why would it place the burden on those who have the least? Why did it not look at alternatives—alternatives that would not cost the Government money except for set-up costs? Certainly that would be the case if we looked at progressive pricing. National did look at progressive pricing in the 1990s and considered it as a potential option as a means to reduce the costs on families. These are costs they cannot avoid and that they have to bear in order to keep their families safe and warm. 
We know that families in this country are not safe and warm in their homes. We have a terrible problem with cold damp housing and it is causing a billion dollars of costs to our economy in lost productivity in truancy and education costs and in health costs. There is no plan in this legislation which is so urgent we have to deal with it on a Friday to deal with any of the expected costs that our poorest families must deal with. The personal tax cuts will do nothing for those families who are living in energy poverty. We are coming up to winter. It is May and we need it now. 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 I am very pleased to speak on Part 2 of the Taxation (Budget Measures) Bill. My colleague Stuart Nash chose a Rolling Stones analogy for this Budget and this bill in terms of saying it did not give people satisfaction. There are other Rolling Stones songs that are equally appropriate. One is “Paint it Black” because this is a “black” Budget and bill for many New Zealanders at the lower end of town. Another song is “Gimme Shelter” from the top tax rates—and in the words of another song “Gimme my money back”. If members recall there is a Rolling Stones album called “Voodoo Lounge” and this bill is about voodoo economics. President Reagan believed that if he cut the top tax rate suddenly there would be a new surge of economic growth that would pay those funds back. We will see the borrowing of half a billion dollars in order to pay for tax cuts at the top end of town. “Jumping Jack Flash” is another Rolling Stones song. Jack Flash is very happy. He is jumping because he is receiving the benefits of this Budget. 
Let us turn to Part 2 of the bill which has two changes. The one that I want to speak in support of is the integrity of the Working for Families package and the efforts of the Government to remedy the problem arising from some people offsetting investment losses such as losses from rental properties against their taxable income for the purpose of increasing their Working for Families entitlements. There are no problems from this side of the House with that change in the bill. 
But the other change relates to the indexation of the Working for Families abatement rate. The party opposite used to rail about the impact of fiscal drag on working people and say we needed to adjust the rates so that people would not have their incomes eroded by inflation. Yet here were are heading into an inflationary period that Treasury estimates will hit darn near 6 percent and we see this bill de-index the abatement rate for Working for Families. 
Those working New Zealanders who— 
Hon Dr Wayne Mapp 
: There is a tax reduction instead. 
BRENDON BURNS 
: They will get tax reductions instead? Oh wonderful! I ask Mr Mapp whether those reductions will not be affected by 6 percent inflation or by the July increases in power and petrol prices as a result of his subsidies in the emissions trading scheme. 
In this part of the bill we see a move to stop indexing for the impact of inflation on the abatement rate. There is no surprise about that coming as it does from the party opposite. Was it not the Prime Minister who described Working for Families as communism? “Communism by stealth” was the phrase that he used. Well excuse me if I am a mite suspicious of Part 2 when we are seeing very stealthily the de-indexation of the abatement rate at a time of high inflation and at a time when it is most important that Working for Families continues to rise with inflation. Yet this bill does absolutely the opposite of that. It will stop the inflation indexation of the abatement rate and that of course will mostly come at the expense of lower to middle income families who are the major beneficiaries of Working for Families. 
Yes as the bill acknowledges there are people who are perpetrating rorts and maximising their exposure to Working for Families and this part attempts to close off that. We have no difficulty regarding that. But de-indexing from inflation at a time when we are expecting by Treasury estimates to see inflation go to 6 percent in the year ahead is being done at absolutely the wrong time. It is being done because this Government really has no commitment to Working for Families; it regarded it as a terribly awfully socialist policy. The fact is that Working for Families has lifted many thousands tens of thousands of New Zealand families out of poverty and it sees many families not pay tax because they are on low to middle incomes and have a number of children. Those families deserve to be supported. We are supposedly a Parliament a Government and a nation that wants to protect and preserve families and their integrity. 
The changes in Part 2 are around the integrity of the Working for Families package. I applaud the changes that will mean that people cannot rort Working for Families. But at the same time this part clobbers ordinary working families because at a time of such high inflation we will see an end to indexation. This will simply be one of those exercises that this Budget repeats time and time again: it gives with the one hand and it takes back viciously with the other. It takes back viciously with the other because we will see an end to the indexation of Working for Families at a time when inflation will go through the roof. That is wholly inappropriate. Members opposite should be screaming against that change. 
STUART NASH (Labour) 
: 
 My colleagues have let me speak because I wanted to continue on this theme that I talked about before because I think it is quite an important piece of legislation. As I mentioned I agree with the Minister of Finance on this and I was explaining what used to happen. If people paid their marginal tax rate at 38 percent they could channel money through a trust and the final rate on a trust was 33 percent. But the dividends or the disbursements from the trust were not counted as income and as someone said there are trusts sprouting up like rabbits in Southland; I think John Shewan said that. People were setting up trading trusts that owned the companies so they were paying a company tax rate. They were paying themselves about $70000 or $69995 just below the top marginal tax rate and then that dividend from the company went into a trust and they were paying money from the trust disbursing it at 33 percent—that is how they were avoiding tax. That is why it is very important to align the top marginal tax rate with the trust rate. 
I do not agree personally with dropping the top marginal rate down to meet the trust rate; one could have increased the trust rate to meet the top marginal rate. The difference with a company for example is that one does not need to have a trust to run a company. People were setting up trusts to avoid tax. There are a whole lot of reasons why people have trusts and I know that the vast majority of members on this side of the Chamber have trusts but the reason a lot of Kiwis have trusts is to protect their assets not to run income through them. But the difference with a company is that dividends that were paid from a company were paid at its marginal tax rate so it was harder to avoid. This will still create an avoidance industry as Metiria Turei has pointed out because if there is a differential it will still create an avoidance industry. But it will not be nearly as high as it was under the trust rate. This is something we would have changed there is no doubt about that. So I support the Minister on this change. 
The Inland Revenue Department also estimated that about 9800 Kiwis were channelling their income through a trust and therefore saying it was not a part of their income and claiming Working for Families. The cost of this was about $57 million. Here is a story. I have a very good friend whom I talked about yesterday who is one of New Zealand’s top entrepreneurs. He went to his accountant who said to him that he was paying too much money in tax and the accountant would channel his income through his trust and he would claim Working for Families for him. This guy is worth about $80 million or $100 million and he threw up his hands and said that Working for Families was not for him and that it was put there for the 335000 Kiwis who actually need that extra money. He said that he was not prepared to do that at all. 
Unfortunately I showed my indignation too early so I could not get the name of this accountant. But although the Inland Revenue Department estimates the number is 9800 people this accountant had told my friend that most of his clients do this so I suspect the figure was a lot higher. I suspect we did not know the half of it. This is why I support this clause in terms of allowing the Inland Revenue Department to get rid of the avoidance industry around restructuring things through trusts. 
Let me talk to Part 2. Am I right in saying that the Minister in the chair the Hon Peter Dunne was the person who set up the Families Commission? 
Hon Ruth Dyson 
: Say that again. 
STUART NASH 
: Did Peter Dunne set up the Families Commission? He did. We have an ex - Families Commissioner in our caucus Rajen Prasad and the thing that astounds me is that Part 2 also takes away the automatic indexing of Working for Families to inflation. That is astounding. I ask the Minister to stand up and tell us his logic behind that. I ask him to stand up and take a call because he set up the Families Commission and Part 2 means it is not now automatically indexed to inflation. It is at the will of the Government. So if inflation which is running at 5.9 percent—that is the Government figure—does not get indexed that means there are a whole lot of Kiwi families who could really miss out. Working for Families was set up because the previous Labour Government understood how hard it was for families to re-engage in the workforce. Kids cost money; we absolutely love them dearly but they cost money. 
JOHN BOSCAWEN (ACT) 
: 
 We are debating Part 2 of the Taxation (Budget Measures) Bill which makes changes to the Working for Families allowances and also adjustments to the personal rates of taxation. It sets up much lower rates of taxation. In particular it drops the rate of taxation for those earning less than $14000 from 12.5c in the dollar to 10.5c in the dollar; for those earning in that big bracket from $14000 to $48000 the rate goes down to 17.5c in the dollar and for those earning from $48000 to $70000 the rate is reduced to 30c in the dollar. One of the reasons the Government has given for these reductions in personal income tax rates is the need to compensate for the increase in GST. Of course the first part of this bill gives effect to that increase in the GST rate from 12.5 percent to 15 percent. 
But I challenge these decreases in personal tax rates. I was very pleased to hear Brendon Burns say just a short time ago that one of the things these tax reductions will not do is compensate for the increases in power and petrol that we can expect from 1 July as a consequence of the emissions trading scheme. Mr Burns has been the first MP I have heard from the Labour side to acknowledge that the emissions trading scheme will have an effect on inflation. I am very pleased that Mr Burns has done that because his colleagues have talked in very general terms about the inflation rate of 5.9 percent and how a rate of 5.9 percent will eat into these tax reductions. There are two components to that 5.9 percent: there is the general effect of inflation and there is the one-off effect of the increase in GST and in the price of power and electricity which will flow throughout the economy as a consequence of the emissions trading scheme. 
I find it also interesting that Labour is constantly referring to Paul Reynolds the chief executive of Telecom and the impact that these tax reductions will have on his take-home pay. I suggest that another group of people we should be looking at is not individual persons but farmers. I ask what impact these personal tax reductions will have on the incomes of farmers who are the actual backbone of our economy. We have heard a lot from the Government in recent times about the fact that the costs of the emissions trading scheme will not affect agriculture until 2015. But farmers like all New Zealanders will be affected by increases in electricity petrol and diesel prices from 1 July. Meat and Wool New Zealand the lobby group that represents sheep and beef farmers has said that the impact on farmers as a consequence of the electricity and petrol cost increases will be about $1300 a year and will be a further $1300 at the beginning of 2013 when the emissions trading scheme is effected. Essentially that is $2600 for electricity and petrol costs. Will these tax reductions fully compensate farmers for that? No they will not. 
There is another cost that the emissions trading scheme will impose on dairy farmers’ incomes from 1 July. Fonterra has announced publicly that the cost on its company from 1 July will be about $38 million which is firstly a consequence of electricity price increases but also because the emissions dairy herds give off will have to be accounted for in the processing of milk. That cost of $38 million on Fonterra will be passed directly back to farmers. Dairy farmers will be paying on account of the emissions trading scheme and the processing of milk about $2600 a year from 1 July and a further $2500 from 1 January 2013. All up those two costs—on the one hand the cost of electricity and petrol and on the other hand the cost of Fonterra processing dairy farmers’ milk—will affect dairy farmers’ incomes by $3900 on 1 July 2011 and a further $3900 on 1 January 2013. I acknowledge that the Government has said that it may well review the emissions trading scheme and that that secondary increase may not come in but certainly Meat and Wool New Zealand are quoting $3900 as the first one-up impact on dairy farmers’ incomes. Thank you. 
DAVID SHEARER (Labour—Mt Albert) 
: 
 I want to lead on for a second from where Mr Boscawen ended just now in terms of what this Budget is doing to the productive economy. I think that buried in amongst the detail is a significant cost to farmers and other productive industries that want to be able to invest—for example to invest in capital. If they invest in the leading edge technology that will be able to drive and increase their businesses they no longer have the ability to claim depreciation. So they will not be able to invest in that way. That will be another impact on the productive economy. 
I have spoken earlier about the need to look at investments our savings rate and our ability to increase our exports and the complete absence of real incentives in this Budget for that to occur. I particularly touched on innovation and research and development. Frankly if we look at the history of our economy we see that it was innovation and research and development applied to our natural resources that made us wealthy. It is as simple as that. When we see the paltry amount of money that this Budget invests in research and development and innovation we know that this Government is not serious about moving New Zealand’s economy up the value chain and increasing its productivity. 
Stuart Nash 
: What’s the Labour budget on this? 
DAVID SHEARER 
: I can tell members right now that if Labour’s 15 percent tax credits for innovation and research and development had been continued business research and development would have doubled. The productive end of the economy is not being looked after in this Budget. 
The other part that is not being looked after is the people at the bottom of the pile. The previous Labour Government through the Working for Families scheme was able to lift 130000 people out of poverty and put them into productive enterprise. That was the legacy of the Labour Government. It was really touching last night to look at the  
Tagata Pasifika 
 TV programme and see the impact that this Budget will have on families at the bottom of the pile. I refer to the family of a husband wife and four kids on that programme. By the time they take off their rent their electricity costs the cost of running their car etc. they have $80 a week left to feed six people. According to the budgeting service the family need more than $200 for food; they are trying to get by on $80 a week. 
The family rely on Working for Families to give them the incentive—and I emphasise the word “incentive”—to move forward to get into productive work to do the best for themselves and obviously to benefit our economy. What will the family get from this Budget? They will get a kick in the teeth because as a number of speakers have said the Government has removed the indexing to inflation. That is what it has done with this Budget. So the Working for Families incentive that people receive will be slowly eroded over time. It is not only that poor family in Manurewa that will not benefit from the Budget; the many poor families in my electorate—which make up most of my electorate—will not benefit from the Budget at all. Most of them will find that the paltry tax breaks that the Budget gives them will be eroded by the GST increase by power prices by fuel prices by the tobacco price increase and by the accident compensation levy hikes. That is what will happen to the people in my electorate and that is what will happen to that particular family. Inflation as Mr Nash pointed out before— 
Craig Foss 
: 0.9 of the 5.9 percent. 
DAVID SHEARER 
: I get a bit tired of members on the other side quoting percentages at me. These people cannot eat percentages I say to Mr Foss; they cannot eat percentages. 
DAVID CLENDON (Green) 
: 
 The Budget release is one of the big political events of the year. It is a time when the public pay a bit of attention to what goes on in this place and of course the media get excited. I think one of the best media commentaries one of the most astute and also one of the most succinct is on the front page of today’s  
Dominion Post.  
The headline reads simply: “Lollies for all”. I think that brief phrase captures the essence of this Budget. After all what are lollies? They give us a momentary sense of sweetness and they give us a bit of a sugar rush but there is not a lot of long-term value in them. There is not much nutrition in lollies. There is nothing to build strength or over time to add value. I think that sums up this Budget quite nicely. We all get a nice wee sugar rush; we get a tax cut. The difference between the gross income figure and the net income figure is reduced momentarily or it will be in a few months’ time but the apparent benefit that sugar rush will not last for very long. Inevitably people will get over it and what will be left is quite a sour taste. 
Already people have lost some of the benefits of the tax cut through such things as accident compensation levy increases. When families need to re-register their cars they will discover it will cost them a great deal more than it did last year. The accident compensation employers’ levy has also gone up. Electricity prices have been mentioned; they are on the up. That is because the Government is not adopting a progressive system such as the one the Greens are proposing in our Mind the Gap package which is a system whereby people would get affordable electricity and would pay extra for excess use only. No the Government chooses to stay with a much less progressive policy. People will be paying more for their public transport because of the insistence on dumping massive amounts of cash into roads which is a subsidy for road transport albeit that is denied. People using public transport are being forced to pay more because apparently some ideological purity demands that public transport must pay its way. So in many ways people are being cheated by this Budget. The little sugar rush is all they are getting. There is no long-term value in it for the average family. 
GST clearly is where the rubber hits the road immediately. In a few months’ time every time people purchase an item they will be paying more. GST is a highly regressive form of taxation because those who earn the least will pay the most in terms of their overall expenditure. People will pay more for food petrol and accommodation—all of those things that people must have. The people who have the least choice will have even fewer choices than they had before. 
What has been missing from some of this debate is the effect on retailers when people spend their money. The retailers will be the ones in the front line bearing—literally in many ways—the cost of the increase in GST. We know that when the Government proposed to raise the level of GST it did not talk to small-business owners and it did not talk to small to medium sized enterprises. We know this because some weeks ago we asked the Minister of Finance what consultation there had been with small to medium sized enterprises over the probable impact the cost to that sector of raising the level of GST. The answer from the Minister was that there had been no consultation. Despite the fact that 85 percent of New Zealanders earn their living in the small to medium sized enterprise sector that sector was not consulted about the cost to it and to the wider community of GST being put up in this way. 
That is a remarkable reflection and it says something about the priorities of this Government and its blindness to what happens in the real economy in the real world. We know that there will be a cost to retailers in particular and that cost inevitably will be passed on to consumers. There will be the one-off cost of rejigging the way in which they charge—the technology change effectively—and repricing everything on their shelves. There will be an inbuilt cost. What do retailers do when they are running near a sensitive price point on a given product? Do they simply add the GST which puts the product into another pricing point which creates consumer resistance? They then have to either cut their margin or face consumer resistance to purchasing the product. 
Four months is a very short time for small-business people without the resources of large companies and large organisations to try to get their heads round how they will actually manage the transition. They have not been consulted by this Government. I fail to see anywhere any measure with which this Government will assist them with that transition and that cost will come back to hit consumers to hit the families who are already struggling. Suddenly their tax cut will be seen for the illusion it really is. Again the  
Dominion Post 
 headline showed that very well. Kia ora. 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I am very happy to follow the member who has just resumed his seat David Clendon because today I am announcing the establishment of a special GST advisory panel precisely to deal with the interests of retailers and the small business sector in terms of the technical adjustments that they will need to make through to the introduction of the changed rate on 1 October. That panel will be in place until the end of this year. It has a 6-month lifespan and it will be out there consulting with those who are most affected to make sure that the very things that the member was talking about are able to be addressed in time for 1 October. I simply say to him that the reason that we did not make that announcement earlier was that quite obviously until yesterday there was no announcement of a decision to increase the rate of GST. So we are getting the cart behind the horse rather than in front of it. 
I come back to the comments that Mr Nash made regarding the abatement rate for Working for Families. I point out to him that he has the wrong part of the bill; the clause that gives effect to that change is actually clause 94 which is in Part 3 of the bill which we are yet to debate. But since he has jumped the gun I am happy to address at this stage some of the points that he raised. Clause 94 in Part 3—which we will debate when we get to it—holds the abatement at the current threshold of $36827. The reason for this is quite simple. A person earning $36827—or above but we will stick just with the bottom rate at the moment—as a result of the tax changes we passed in Part 1 of the bill will be $1078 a year better off. So the issue about whether the automatic indexation that was provided for previously needs to continue is somewhat overtaken by events. 
I ask members to bear in mind that people earning that rate of income and below will now be paying a marginal rate of 17.5 percent. That is a big drop on the current 21 percent rate and it is a virtual halving of the rate that only a couple of years ago was as high as 33 percent for that bracket of taxpayers. In fact around 73 percent of taxpayers will be paying no more than 17.5 percent as a marginal rate. So against that background the notion of a periodic indexation for the Working for Families abatement rate becomes somewhat irrelevant. The provision will be there as set out in clause 94 for it to be adjusted by Order in Council from time to time as circumstances dictate. But the real point of the change and why we felt it was unnecessary to continue with the automatic indexation—which was in effect a form of compensation for a lack of movement in tax rates—was the fact that we are making not only a change in that marginal rate but proportionately the biggest change in any of the measures in the bill. The drop-down from 21c as it currently stands to 17.5c is being made for the very group affected by that provision. 
Dr Cam Calder 
: Eminently sensible. 
Hon PETER DUNNE 
: I take the member’s point; it was eminently sensible. It delivers a far bigger benefit to those households than would have been possible under the regime that was in place. As I said even for someone at that threshold level their tax gain is over $1000 a year—around $20.75 per week. That is a good advantage and far better than anything an adjustment in the abatement rate would have delivered. So although the member jumped the gun I am happy to respond to him at this point and indicate the reasons why that change was made. 
IAIN LEES-GALLOWAY (Labour—Palmerston North) 
: 
 I am very pleased that the Minister in the chair the Minister of Revenue traversed the subject that he did because I would also like to discuss the same material. The Minister talked about percentages and things that are somewhat intangible to real families. I would like to talk about the real example of a real family who actually happen to live not far from where I live in Palmerston North and the effects that the changes set out in Part 2 of the Taxation (Budget Measures) Bill will have on them. 
This family has four children. Dad works—he is a scientist funnily enough and he earns a reasonable income. Mum is at home with the kids. One of the great things about Working for Families is that it allows many families to have one parent at home and I am sure the Minister in the chair thinks that that is a good idea. Using the Government’s tax calculator that family figured out that even with the dodgy inflation calculations in that calculator the tax cuts would get them between $16 and $20 a week extra. That sounded quite nice on the surface of it. But then we have the changes to Working for Families and the lack of indexation as set out here in this bill. So the inflation rate is to hit 5 percent to 6 percent yet we have no indexation of Working for Families. That family a hard-working family that this Government reckons that it is targeting will see the benefit that they are receiving from Working for Families become slowly eroded over time. They will become steadily worse off. 
But that is not actually the worst thing that will happen to this family. The worst thing concerns the fact that they have kids who still need to go through early childhood education—in fact my youngest will be going to kindy with their youngest. The cost to them of early childhood education will be far greater than the amount that they receive from tax cuts. So the Government gives with one hand but it takes an awful lot away with the other hand. 
That is the truth about this bill that is the truth about this Budget and that is one of the biggest swindles in this Budget. The Government goes on and on about what it is doing for hard-working battling Kiwi families but in truth what it is doing is giving a tiny amount with one hand and taking away a whole lot more with the other hand. Let us look at the regulatory impact statement for the bill. Why is the Government looking at taking these measures around Working for Families? We see that it is to save money. The Government hopes that it will spend a lot less money on Working for Families. 
Let us look at the impact of the equity measures which Treasury has looked at. It says the impact is mixed. When Treasury says the equity measures will have a mixed impact that is hardly a ringing endorsement of this bill for the middle-income families of New Zealand. Basically that means that even Treasury knows that the changes happening as a result of this bill will be unfair on middle-income families—at best. At the very best if we are very charitable to the Government we could say that hard-working families are no better off than they have been. But the truth is that when we talk about real families when we step away from percentages and the theory and get down to the practical impact of this taxation bill on real families in New Zealand we find the truth is that they will become worse off. They will become worse off because this Government wants to appear to be supportive. It gives with one hand with the tax cuts but when we look at what is happening with Working for Families we see the truth is that with the inflation that we will no doubt see through the increase to GST through higher power bills and higher rent those inflationary increases will be passed on to families through the changes that this Government is bringing into place. 
Working families will become worse off. Let us make no bones about it; that is the fact. That is what is happening as a result of the changes to Working for Families that are made in Part 2 of this bill. 
COLIN KING (National—Kaikoura) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 67 
New Zealand National 58; ACT New Zealand 5; Maori Party 3; United Future 1. 
Noes 50 
New Zealand Labour 43; Green Party 7. 
Motion agreed to. 
A party vote was called for on the question  
That Part 2 be agreed to. 
Ayes 67 
New Zealand National 58; ACT New Zealand 5; Maori Party 3; United Future 1. 
Noes 50 
New Zealand Labour 43; Green Party 7. 
Part 2 agreed to. 
Part 3 Other measures 
STUART NASH (Labour) 
: 
 It is interesting to see Rahui Katene in the Chamber; I welcome her to the Committee. I am interested to see how she votes on the Taxation (Budget Measures) Bill because she had a member’s bill pulled out of the ballot that seeks to remove GST from healthy food. 
Hon Trevor Mallard 
: And Kentucky Fried Chicken and chips. 
STUART NASH 
: Yes. At the moment we are debating a tax bill to increase GST from 12.5 percent to 15 percent on all items: healthy food petrol electricity—everything. Am I right in hearing that that member voted for this bill? 
Hon Ruth Dyson 
: The Maori Party did. 
STUART NASH 
: The Maori Party voted for this bill. 
Hon Trevor Mallard 
: Only three of them did. 
STUART NASH 
: Where are the other two? Where is Hone Harawira? Hone Harawira puffs out his chest— 
The CHAIRPERSON (Eric Roy) 
: Members cannot refer to the absence of members from the Chamber. 
Hon Trevor Mallard 
: Ask why they didn’t vote. 
STUART NASH 
: I ask why they did not vote. Are ructions going on in the Maori Party? Is this the split of the marriage between the Maori Party and National? Members should watch this space and the public should watch this space. The press will have picked up on the fact that only three Maori Party members are voting for this bill. I thought they had more than three members. Two Maori Party members are not voting for this tax legislation. That says something about what is happening here. It says something about the dynamics. 
I wonder why two Maori Party members are not voting for this legislation. When I look at the statistics I see that 71 percent of people in Maori electorates earn $40000 or less. The median income of all those in the Maori electorates is $21900. What do we think that an increase in GST will do to the people who have an income of $21900? I will tell members what it will do. It will increase the price of petrol. It will increase the price of apples. It will increase the price of fruit vegetables Kentucky Fried Chicken rates—everything. It will increase the price of everything for everyone in those Maori electorates yet three people in the Maori Party are voting for this legislation. That is astounding. 
It is quite amazing that Rahui Katene is the one down here providing the votes for this bill. As mentioned that member has a bill that has been drawn out of the ballot to remove GST on healthy food. That is quite astounding. 
I move to Part 3. We have already had a good debate on Part 3. I have some concerns with the Minister’s argument because the huge rate of inflation will erode the real value of wages and therefore their spending power. This Government increased the minimum wage last year. What did it increase it by? 
Metiria Turei 
: 25c. 
STUART NASH 
: The Government increased the minimum wage by 25c. How will that help people cope with 5.9 percent inflation? 
Craig Foss 
: Look at page 63: nominal wages are up 14 percent over the next 4 years. 
STUART NASH 
: I say to Mr Foss that we are talking about people on the minimum wage. If we look at that member’s electorate we see that 76 percent of people in the Tukituki electorate earn under $40000. They got absolutely nothing in tax cuts last year and they will be hurting this year. I challenge that member to hold a public meeting with all his constituents with the 76 percent of constituents who earn under $40000 to see whether he can sell this Budget to those constituents. Will he tell them that inflation will eat it away that they will not get much at all and that GST will eat it away? What are those 76 percent of constituents—and let us not forget that the median income is only $22500—going to get out of this Budget? They will get nothing but pain and heartache. 
It will be a winter of discontent. Mr Boscawen has mentioned increasing power prices. Those increases will not come from the emissions trading scheme; they will come from the fact that Mr English said to Mr Brownlee that he wants a greater dividend out of State-owned enterprises. What does that mean? It means an increase in power prices. This will be a winter of discontent for many many Kiwis and I tell members that leading up to this election many people will say that they voted for a change but this is not the change that they voted for. I would like Mr Foss to organise that public meeting. I will come along and see how he sells this package. 
CHRIS HIPKINS (Labour—Rimutaka) 
: 
 I am going to talk about superannuitants and the old diggers the people who receive war pensions. Part 3 of the bill will supposedly compensate our superannuitants our pensioners for the cost of living as a result of the increase in GST. But that is another cruel hoax as is much of the Budget because it does not say that the compensation has an expiry date. The cost of living will increase. In fact the compensation being offered does not compensate for the true increase in the cost of living because for superannuitants who live at least a little on the interest from their savings the increase in GST will lower the actual value of their savings. They may still have $20000 or $30000 in the bank but the value of that will be less in real terms after GST is increased; there is no compensation for that. Although they may receive some short-term compensation in superannuation in the longer term their savings will not be compensated for. Of course in the longer term if the Government commits to retaining superannuation at 66 percent of the average wage in fact the value of that compensation will disappear and erode over time. It has an expiry date on it. If the Government were saying that it was going to permanently increase the level of superannuation in order to compensate for the GST increase then that would be an entirely different thing. But it is not doing that. The Government will not compensate superannuitants on a permanent basis for the increase in GST. Our senior citizens are being swindled by this Government. It promised that it would not increase costs for superannuitants but that is exactly what it is doing. Superannuitants will have to face 5.9 percent inflation which means that the value of their savings in the bank will be worth 5.9 percent less but the Government is not doing anything to offset that or to help them. Senior citizens are being diddled out of the value of their savings. 
The other thing that is directly relevant to this which I get asked about by superannuitants in my electorate is the kind of country we are leaving for future generations. That is something that superannuitants think about. They think about their grandchildren; they will be thinking about how this Budget loads up a mortgage on their grandchildren to pay for tax cuts that are disproportionably targeted to those on the highest incomes. Superannuitants are concerned about that because they want to think they will be leaving the country for their grandchildren in a better state than it was when they found it. But in fact they will not be. This Government is spending that inheritance and loading up debt on future generations. This Government is interested in only the next 18 months. It is interested only in being re-elected. 
It is not interested in 10 years from now when half a million New Zealanders will be retiring. It is making no provision and no saving for that. It has not recommenced contributions to the New Zealand Superannuation Fund. It has not done that. In fact it will not do that even when it gets back into surplus which was another of its promises. So now that is another broken promise. I ask members how many there have been. I have lost count. I cannot remember how many broken promises we have had out of this Budget. It is full of broken promises. There are broken promises on interest-free student loans broken promises on early childhood education broken promises on GST—it is all just broken promises. This is a Government that cannot be taken at its word before an election. 
Hon Trevor Mallard 
: Or after. 
CHRIS HIPKINS 
: People cannot rely on the Government delivering on what it says it will before an election. As Trevor Mallard has pointed out we cannot rely on the Government’s word after an election either because it is a Government that simply shifts around. 
John Key is very relaxed about it all. I ask members how prime ministerial his speech was in the Budget debate yesterday; he spent the first 10 minutes laughing and cracking jokes. That was very dignified and prime ministerial! People have rung me to ask whether I think it was undignified; I think that it was very undignified of him. It would have been good to hear the Prime Minister in the first 10 minutes of his speech actually mention the Budget. He can focus on the Labour Party if he likes but maybe he should have talked about the Budget that his Minister of Finance had just delivered. 
Perhaps the Prime Minister is just embarrassed by the Budget; perhaps he is embarrassed about the number of promises he has broken. He was the one who stared down the barrel of a camera and said that his Government would not increase GST. In fact he said “If we do a half decent job growing the economy then that won’t be happening.” That is a broken promise. By the Prime Minister’s own admission the Government has not done a good job of managing the economy because 18 months’ into its term of government it has already broken that promise and it has already increased GST. This is a Budget of broken promises. 
METIRIA TUREI (Co-Leader—Green) 
: 
 Part 3 of the Taxation (Budget Measures) Bill deals with the property tax changes that are being proposed by the Government around depreciation and capitalisation. Those are two areas where the Greens agree that changes need to be made. We are pleased that there has been a small step in the right direction but there is nothing like the kind of serious reform that was necessary and could have been provided through a capital gains tax excluding the family home. We see that the Government has made some small steps while making more significant changes of course to the top tax rate. But it has made some small steps in the property area. It has not however done anything to deal with the inevitable rise in rents that will result from the changes—any changes—it makes to property tax a capital gains tax included. 
A truly responsible Government that talked and thought about a smart economy that was good for our people and our environment would have a joint approach whereby one not only shares the tax obligation more fairly through property taxes but ensures that there is provision of more affordable rental housing for those families who need it because of the inevitable rent rises. Treasury has I understand estimated an increase in rents of some 1.4 percent as a result of these small steps in property tax changes. I think that is a very conservative estimate and I think it is quite possible that we will see an increase of more than 1.4 percent because we also have the impact of inflation on rents and a growing need for rental accommodation. We have families who are desperate for somewhere to live. 
The Green Party’s Mind the Gap package which we released on Monday and which provides an alternative set of solutions to deal with inequality and our economic and environmental issues had not only a capital gains tax to provide the sharing of the tax obligation but a programme to build another 6000 State houses over 3 years. That would cost $2 billion and we would need to make sure that we could find that money—$2 billion dollars over 3 years. It would also provide 28000 new jobs. So not only does it have our package of capital gains tax and building State homes and not only would it provide an income for the Government and spread the tax obligation more fairly but it would provide housing for those families who are desperately in need. We would have not just housing but good-quality warm dry housing. 
One in four households spend more than 10 percent of their income on energy just to keep warm—just to keep warm. Three out of four New Zealand homes are too cold to be healthy. That causes costs to our economy. There is a cost to the economy in excess of $500 million in terms of energy lost production and hospitalisation. There are 50 admissions a day for respiratory illnesses. That costs $54 million a year. One hundred and eighty thousand workdays are lost to sickness caused by cold and unhealthy housing. Over $400 million is spent unnecessarily on energy. That $400 million comes from the budgets of our families who have to spend so much of their income on energy just to keep warm. So we must invest in housing in this country. 
Housing is much more important than new motorways. Housing is a core part of New Zealand’s infrastructure. It supports our families so that our families can be productive healthy and well. Yet this Government has cut $100 million from the State house building budget. There will be no new State houses built under this Government because it does not believe that New Zealanders deserve to be housed. It will give money to the road-building lobby—sure that is fine—but it will not invest in homes for our families so that our families can take care of their children. 
We have 10000 families on the State house waiting list who are desperate for somewhere to live. We have people living in garages. Thirty to 40 percent of our most vulnerable young people in this country are living in unsafe housing which puts them at risk. Where the investment for those families those children and those young people? It is nowhere from this Government. 
Hon Sir ROGER DOUGLAS (ACT) 
: 
 I will be brief. I want to ask the Minister in the chair Peter Dunne a couple of questions in relation to rental property and the loss of the depreciation rights. I must say that I certainly had not contemplated the 50-year rule. It seems to me that it is a relatively neat provision. I thought that the Minister might have reduced it to about 1 percent or something of that nature. I am interested in the administrative handling of it particularly for older houses—maybe a house that is 60 to 70 years old. One would hope that the procedures would not be too bureaucratic. But that is a minor issue. 
The second issue is really the more important one and that is what economic analysis has been done on whether the measure which is in Part 3 of this bill is in fact likely to change New Zealanders’ attitude towards or love of investing in rental property. I think one of the big reasons that people invest in rental property is not just the fact that the sharemarket is prone to go up and down but that they tend to understand rental property. From my calculations the loss of deductions is probably equal to an interest rate rise of about 1 percent. It is equal to an interest rate rise of approximately 1 percent and I am not sure that that is likely to deter property investors from investing in rental property. 
If we take a house in a regional town worth $200000 and we take 40 percent off that for the value of the land that brings us down to about $120000. We then take off $20000 for chattels; they will still get the depreciation as I understand it on the chattels. That leaves $100000. At 3 percent property investors will lose the depreciation on that—on $100000 that is $3000. Those people are likely to be on the new top rate of tax—and we thank the Minister for that—so after those savings they will lose about $1000. They will have to pay an extra $1000 in tax. On a borrowing of $100000 that is equivalent to 1 percent. If it is as high as 80 percent then the equivalent borrowing cost is probably only 0.75 percent. 
So I am not sure that this provision will change the approach of New Zealanders to rental property and I wonder whether the Minister received any analysis of it from Treasury or anyone else. I think that what might deter people from moving into rental properties in the near future is the likelihood that interest rates will rise by 3 percent over the next 2 or 3 years. If we look at the prediction at the back of the Budget we can clearly see that mortgage interest rates are likely to rise by at least 3 percent and maybe hit 8.5 or 9.5 percent. I just wondered what economic analysis the Minister had received. 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I thank the member for raising the point about depreciation and the way in which the package has been constructed. I thank him for his comments which on the whole I think were helpful. Essentially what we have done is as follows. The Tax Working Group had an estimate of about $1.3 billion as being the cost of depreciation. When we recalculated the figures they came out at around half of that. What we have done by introducing the 50-year provision is allow for buildings that have a transitory lifespan—for instance farm buildings warehouses and various industrial settings where the short-term use is likely to be around 50 years’ duration. Beyond that when we looked at residential property and other commercial buildings it was our assessment that firstly most of those are going to endure for more than a 50-year period and secondly over their lifespan whatever it is they certainly will not depreciate in value. If we take the example of a turn-of-the-century villa that may have originally gone on the market for £1000 many many years ago even in real dollar terms today it certainly will not have depreciated over time. So the notion that people could then claim depreciation against something that was not depreciating seemed to us to be a bit silly. 
I guess the bigger question the member raises though is why we did the depreciation measures and did not look at some other measures that might have had a more dramatic effect. There is a question of balance here. We wanted to send a signal to people who entered into property investment for essentially speculative purposes and used the mechanisms that were available to advantage their tax circumstances as opposed to those who wanted to enter into the property sector because they thought it was a good investment. It is the old argument that the member will be very familiar with about investments being made on the basis of the quality of the investment rather than the tax advantages that accrue. 
Our estimate about the likely increase in rents on the best advice available from Treasury was that it would be about 1.4 percent from memory so we do not expect there to be a significant impact although over time there will be a modest impact. Again we have to offset that against the tax changes that are taking place and look at the broader picture there. 
One issue that people will immediately leap on will be to say that we will now see a big explosion in fit-outs renovations and other things designed to change the character of a building. The Inland Revenue Department will be issuing a discussion document in the very near future about how we might address that and we will be working our way through that issue with the sector and other interested parties over the time ahead. 
In conclusion I simply say that any investors who have some doubts as to where they are left as a result of these changes and about what their appropriate depreciation rate should be should immediately contact the Inland Revenue Department. A list is being developed. Basically it is a reformulation of the existing list that takes account of the various situations and circumstances. On the whole I think that the measures we are introducing in this part are a balanced response. They will certainly shift the emphasis to the quality of the investment. But the one thing they will not do because the tax system is not capable of doing it is shift what the member referred to as the emotional attachment of people to various forms of investment. There will always be the attraction to property because it does not depreciate over time. What we intend to put in place is a regime that is fair reasonable and ultimately enforceable. 
A party vote was called for on the question that Part 3 be agreed to. 
Hon TREVOR MALLARD (Labour—Hutt South) 
: 
 I raise a point of order Mr Chairperson. I thought that the normal practice was that when there was a short vote the question was asked as to whether there were any other votes to allow for the possibility of abstentions. I wonder whether that practice is being followed. 
The CHAIRPERSON (Eric Roy) 
: Technically that is right and I ask the Clerk to put that. Before I declare the vote I point out that I cautioned the House yesterday about members calling out during voting and maybe to reinforce that it may well be time that someone takes a walk as that used to be the practice. I just affirm that no members will vote in this Chamber under duress and we need to hear the votes. 
A party vote was called for on the question  
That Part 3 be agreed to. 
Ayes 67 
New Zealand National 58; ACT New Zealand 5; Maori Party 3; United Future 1. 
Noes 50 
New Zealand Labour 43; Green Party 7. 
Part 3 agreed to. 
Hon TREVOR MALLARD (Labour—Hutt South) 
: 
 I raise a point of order Mr Chairperson. I understood that this was a confidence vote for the Government and therefore there is an obligation on the part of the coalition and confidence and supply partners to support it. Clearly that has not been—[ 
Interruption 
] Therefore I am slightly surprised at the declaration of a short vote and ask whether that is an indication of some members having now left that confidence and supply arrangement. 
Hon GERRY BROWNLEE (Leader of the House) 
: 
 It is somewhat rare and unusual to have to do this but the situation is that parties of course cast their votes within the requirement that they can have some people away from the House but can still cast a full vote. All parties are in that position. In this case not only is public business taking one of our colleagues away but also I understand that two tangi are also part of proceedings. There was an absolute full vote yesterday. When it comes to personal matters there is not a lot the House can do other than in these circumstances meet the requirements of public functions that have been committed to and of course take care of family business. 
The CHAIRPERSON (Eric Roy) 
: I am not sure whether that is a matter of order for the Committee but it does possibly relate to matters that are related to the order of the Committee. However the member has had an explanation and I think we should accept that. 
Clauses 1 and 2 
STUART NASH (Labour) 
: 
 When we talk about the commencement date there is a slight concern. GST increases are coming in on 1 October and cuts to personal taxes are coming in on 1 October. The systems are changing over in the middle of a financial year. Firms have the end of their financial year either at the end of April or at the end of the calendar year; I have never heard of any starting their financial year on 1 October. As we know and as the Minister in the chair the Hon Peter Dunne himself pointed out the Minister has set up a commission or a task force or something to help small to medium sized business with their questions their concerns and the issues of compliance costs around GST. This commencement date will only compound that further because I suspect businesses will have to run two series of accounts and two payrolls and the cost of that will be higher than it should have been. So I have some concerns around that clause. 
Sitting suspended from 1 p.m. to 2 p.m. 
STUART NASH 
: I was looking at the title over the break and I do not think that the title we have at the moment is a true reflection of the bill. The bill is called the Taxation (Budget Measures) Bill; it should probably be called the “Tax Cuts for the Extremely Wealthy Bill”. If people earn really big money they will get a really big tax cut from this bill. 
The name of Paul Reynolds has been dragged out at every debate but there is a good reason for that: he is one of our highest-earning people. He will do incredibly well out of this bill. He will get about $1600 extra a week or an extra $88000 a year in the hand so he is absolutely rapt about this bill. But for the worker on the median wage the tax cut is about $5 a week or $262 a year. Eighty eight thousand dollars versus $260—that is not really very equitable is it? I do not think that that is equitable at all in fact and I think that the vast majority of New Zealanders out there will be looking at this—not enviously because New Zealanders are not envious sorts of people—and thinking that it is not really fair. So we could call the bill the “Don’t Be Envious Tax Bill”— 
Hon Clayton Cosgrove 
: Jealous. 
STUART NASH 
: —sorry the “Don’t Be Jealous Tax Bill”—because the Prime Minister signalled very early on before we knew what would be in this bill that he thought there would be Kiwis who would be jealous about this bill. What message does that send? We did not even know what the tax package would be yet the Prime Minister told Kiwis not to be jealous. Immediately everyone knew that this was a bill where the top players the very wealthy would get a substantial amount of money—like Paul Reynolds’ extra $1600 a week—and the person on the median wage would get an extra $5 a week. 
H V Ross Robertson 
: How much? 
STUART NASH 
: Five dollars a week. As I said Kiwis are not envious by nature; we are not jealous by nature. In fact we do not ask for very much at all. But what we do ask for— 
David Shearer 
: We want a fair go. 
STUART NASH 
: Mr Shearer is dead right—we want a fair deal. We kind of know when we are being ripped off or rorted and we do not like it. We just do not like it. So when someone on the median wage who will get an extra $5 a week hears about someone like Paul Reynolds getting an extra $1600 a week or John Key getting an extra $350 a week it does not feel right. It actually feels to them as if they have been ripped off a little. As I say it is just not fair. 
How about a title like the “Budget of Broken Promises Bill” or the “Broken Promises Bill”? John Key looked at the camera and said that he would not raise GST. He also said that he would not borrow for tax cuts. 
Hon Darren Hughes 
: Jonathan Coleman said that too. 
STUART NASH 
: Yes. In fact every member on that side of the Chamber went to the electorate and said that they would not raise GST or borrow for tax cuts. But this bill allows the Government to borrow $1.1 billion over 4 years for tax cuts—$1.1 billion over 4 years for tax cuts. In this bill there is provision for increasing GST. This bill increases GST for every single New Zealander. It increases it for Paul Reynolds but he does not care; he has about $1600 a week extra. But average people on the median wage will get an extra $5. This is the bill of broken promises. 
How about the “Inflation Upwards and Onwards Bill”? As the Government has said in the Budget because of this bill inflation will rise to about 5.9 percent. That rise will eradicate the real value of the savings of many many Kiwis. There is a bit of a misconception over on that side of the Chamber because this bill is about broken promises and inflation. This is not a great bill at all. 
Hon CLAYTON COSGROVE (Labour—Waimakariri) 
: 
 I probably cannot do any better than my colleague Mr Nash in his summation of the Taxation (Budget Measures) Bill as the “Broken Promises Bill”. 
H V Ross Robertson 
: Give it a go! 
Hon CLAYTON COSGROVE 
: I will give it a go anyway. We could also call this bill the “Mark Bryers (I Am Getting a Thousands Bucks a Week After I Finish My 75 Hours’ Community Service) Bill” because as I said last night to “The Maestro” who is sitting in the back row over there after Mark Bryers the biggest crook in the Blue Chip scandal has finished his 75 hours’ community service he will get a lovely little letter from John Key—because Mark Bryers earns over a million bucks a year—saying “Thanks do not pass go and do not go to jail. You will get $1000 a week in tax cuts from the Government.” 
David Shearer 
: As a reward. 
Hon CLAYTON COSGROVE 
: As a reward. So we could call the bill the “Mark Bryers (Thanks for Coming) Bill”. We could call it that. We could also reflect on the fact that as Mark Bryers gets his extra thousand dollars a week—because he earns a million dollars a year—all the people on the average wage will be worse off after taking their meagre tax cut flicking on the increase in GST and then being exposed to 5.9 percent inflation. 
Hon Dr Jonathan Coleman 
: What about the “Goodbye Labour 2011 Bill”? 
Hon CLAYTON COSGROVE 
: Oh no. You see that member over there the great “Maestro”—the man who did such a wonderful job in the Mt Albert by-election that his name as a tactician is mud—thinks he is so good; I wish I were half as good as he thinks he is. Even in his electorate—what is that member’s electorate; I cannot remember— 
Grant Robertson 
: Northcote. 
Hon CLAYTON COSGROVE 
: —Northcote—about 60 or 70 percent of the people earn below $40000 a year. Therefore with the increase in GST and with 9.5 inflation they will be worse off. The great “Maestro” I am sure will organise one of those wonderful public meetings that he tried to organise in Mt Albert—in a telephone box or a Portaloo. He should collect together the 60 to 70 percent of his electorate who are worse off hold up the bill say it is the “I Broke My Promises Bill” and explain to those of his constituents who remember his name why he broke the promise not to increase GST why he broke the promise on the Superannuation Fund why he comes into the Chamber and says that National members are here to encourage savings when he kicked the living daylights out of KiwiSaver and never told his constituents about it and why he said before the election that National would not borrow for tax cuts yet under the scenario in the Budget documents $240 million per week is being borrowed for 3 years and the financing costs of that will not even start to track down till 2021. I say to the great “Maestro” that those are a couple of political problems that he might want to exercise his mind round given the hopeless job that he did in Mt Albert. 
This bill could be called the “Broken Promises Bill” as my colleague Mr Nash said. People will be reflecting on that tonight. We know that Government members held a big breakfast meeting this morning and we know that they puffed out their chests when they read a few of the headlines. We know that they are going around gloating that a poll on  
Close Up 
 said that 80 percent of the public is positive about the Budget. But I can tell those members that we have all been there after Budgets—we have all been there. We have seen those wonderful polls. The people in our communities will take a little bit of time to work through some of the malarkey that the media put out and some of the spin from the National Government but then they will get out their calculators and they will work out that although the Government has given them a few dollars here the pile of GST receipts on a Friday from the grocery store has gone up a bit. Then they will work out that the price of vegetables the price of meat school fees car insurance—everything—have gone up. The electricity bill has gone up. Education costs have gone up by 5.9 percent. Then they will work out of course—it is called inflation I say to “The Maestro”—that the National Government giveth with one hand and grabbeth all of it back and then some with the other hand. If the great “Maestro” thinks that his constituents are silly and cannot work their calculators— 
Hon Darren Hughes 
: Open their eyes. 
Hon CLAYTON COSGROVE 
: —if he wants to pull the smokescreen down over their eyes as he has been wont to do from time to time with the odd cigar as we know he is treating those people with disrespect. 
This bill is quite rightly more appropriately called the “Broken Promises Bill”. I will go on to say that if— 
Hon Dr Jonathan Coleman 
: What about the “Clayton Could Be Leader Soon Bill”? 
Hon CLAYTON COSGROVE 
: No no. There is no danger of that—no danger at all I say to the member. But you see— 
Dr Rajen Prasad 
: Take a call. 
Hon CLAYTON COSGROVE 
: Well that is a good point actually. Rather than sitting there barracking from the sidelines that member should stand on a street corner in his electorate and hold up a sign that says “I ripped off and sold out 60 to 70 percent of my electorate; what do you reckon?”. He should do that. 
Dr Rajen Prasad 
: Sorry! 
Hon CLAYTON COSGROVE 
: Maybe he could say sorry but he just giggles and laughs. He has Judith Collins-itis. He is grinning away like the Cheshire Cat. But as the weeks and days go by the men and women in this country—the battling families—will examine this bill and see it for what it is. They will examine the fact that it will cost them an extra $25 a week because of the $400 million cut to the funding of early childhood education. The Government has piled that cut on top of the GST increase then it has piled inflation on top of that. And we will not talk about—because it would not be appropriate—the accident compensation scheme levy increases the increase in the cost of car registration and all the other taxes that have been piled up. 
David Shearer 
: Interest rates. 
Hon CLAYTON COSGROVE 
: Then as my colleague Mr Shearer says—I say to Jonathan Coleman the great “Maestro” that he is the one who thrashed the living daylights out of his candidate in Mt Albert whom he managed so well—there is that thing called interest rates. Dr Bollard will look through the 2.5 percent increase in GST but he will not be able to look through the added 4 percent that when one makes the calculations makes up the 5.9 percent increase in inflation. What does that mean? Mr Foss said that some members on this side of the Chamber will pay off their mortgages with their tax cut. Well I say to Mr Foss who is an economic genius that I suspect that most New Zealanders—and I am talking about the 20 or 30 percent who are on the top rate or even less who will actually get something—might try to pay down their debts and their mortgages but the vast majority of people will be exposed to an increase in interest rates. 
Craig Foss 
: Phil Goff stated he would use it to pay his mortgage. 
Hon CLAYTON COSGROVE 
: I ask the member whether he will go to his constituents and explain that because of the 5.9 percent inflation rate— 
Craig Foss 
: What interest rates—which ones? 
Hon CLAYTON COSGROVE 
: Well maybe we should explain the policy targets agreement to that member. Maybe we should explain that the Governor of the Reserve Bank given a 5.9 percent inflation forecast will have to lift interest rates in order to get inflation back within the target range. But Mr Foss says that Dr Bollard is wrong. Everybody is wrong except for Mr Foss. [ 
Interruption 
] The Chairman is not wrong. I would never say that the Chairman is wrong; he is the Chairman. If we add up the mortgage interest the increase in inflation the adjustment to the cost of living and the increase in GST— 
Craig Foss 
: Why are you reviewing monetary policy if Dr Bollard is wrong? 
Hon CLAYTON COSGROVE 
: Oh those members are very vocal now but I say to Mr Foss that if he is so vocal he should hold a public meeting. He should hold a public meeting. But oh no he laughs; he will not front up to his constituents. If he is so good and has such a gift of the gab then he should take this bill which we are calling the “Broken Promises Bill” and have a public meeting on it in his patch. He should fill the hall with people who fall in the various tax brackets that he has put in place in the legislation and let them hear an explanation. 
Hon Darren Hughes 
: And in Nelson. 
Hon CLAYTON COSGROVE 
: Oh yes goodness gracious I forgot about the Minister for ACC whose electorate is Nelson. Let us look at Nelson because Nelson is interesting. In Nelson which is Nick Smith’s electorate 76 percent of people earn under $40000 a year—76 percent. After he parks his little car at Nelson Airport and rolls into Nelson Airport I wager that one or two people on the aircraft might ask him: “Dr Smith you are our MP. Why am I worse off?” because they will be one or two of the 76 percent of his electorate who are worse off thanks to that member and his Government. But oh no Nick will not front up to his constituents. This bill is the “Broken Promises Bill” so I challenge that member to hold a public meeting. He should ring up people get some of the 76 percent of his electorate who earn under $40000— 
Hon Dr Nick Smith 
: They’re better off. 
Hon CLAYTON COSGROVE 
: No they are not. Just as Mr Nick Smith cannot do the calculations on accident compensation he cannot do a decent tax calculation. I say to him that he should hold public meetings. We will be there. 
Hon Darren Hughes 
: It’s his last term. 
Hon CLAYTON COSGROVE 
: It is his last term all right. We will be there. If National members do not give explanations then we are quite happy to do that on their behalf. As we speak 76 percent of Nelsonians will be worse off when this legislation commences thanks to that member. The Government’s tax calculator does not factor in inflation. 
GRANT ROBERTSON (Labour—Wellington Central) 
: 
 The title of this bill the Taxation (Budget Measures) Bill is an anodyne one is it not? But I think we need to look deeper than at just the title to see what this bill really means. I think that a more appropriate title would be the “Taxation (Cake Stalls for Crayons) Bill” because that is what will be happening in early childhood centres all around New Zealand. 
Jo Goodhew 
: Four percent operations grants. 
GRANT ROBERTSON 
: I say to Ms Goodhew that early childhood centres all around New Zealand are now thinking about how they will make up that deficit. The priority in this bill is tax cuts for the wealthy not early childhood education. Early childhood centres all around New Zealand know and parents reading the  
New Zealand Herald  
this morning all know that their early childhood education is at risk. Those cuts of $400 million over 4 years—$400 million over 4 years—will have an impact on the quality of early childhood education services. The cuts will have an impact on access to early childhood education. 
I ask what could be more important than that. This is not a Budget where Bill English came down and said that we were in a recession and that we had to pull back. No this was a Budget where he thought he could be generous. And who did he decide to be generous to? He was generous to people who already had had three tax cuts from this Government. He was generous to them but took money out of early childhood education. 
That is an absolute outrage because one option now available to early childhood centres is that they will probably get rid of their trained teachers. But I ask what good that will do for early childhood education in New Zealand. Other options potentially are that centres might have to cut back on hours or try to raise some money some other way. We had someone on the news last night saying that they will have to do fund-raising to buy paper. They will be fund-raising to buy paper. That is why this bill should be called the “Taxation (Cake Stalls for Crayons) Bill” because that is effectively what this taxation bill will mean. Those early childhood centres rather than focusing on the quality of the education they are delivering and ensuring that trained teachers are there and giving children in New Zealand the best possible start in life will be forced to be out there raising money or cutting back on quality teachers. In many cases some parents simply will not be able to enrol their children and that is what people are already saying in the  
New Zealand Herald  
today. 
Another title could be the “Taxation (Field of Broken Promises) Bill”. Let us be absolutely clear: National went into the election in 2008 saying that there would be no increase in GST. Mr Key can dance on the head of a pin and say he was saying that if a National Government had a deficit or say he was talking in some other way. But he stared down the barrel of that camera and told New Zealanders that there would be no increase in GST when National came into Government. That promise has been broken and that is why this bill should be renamed the “Taxation (Field of Broken Promises) Bill”. 
Another promise was made that there would be no borrowing for tax cuts but that is exactly what we are seeing today. 
Hon Dr Nick Smith 
: Rubbish! 
GRANT ROBERTSON 
: It is what we are seeing I say to Dr Nick Smith. If we are to borrow money which we may well need to do I ask whether it should not be in things where we are getting a return on an investment. Should it not be in making sure that we have investment in education and in research and development? That would be real investment and that should not be broken down. That would be real proper investment in ensuring we had research and development that grew companies and that grew our economy but that is yet another broken promise within this bill. 
Then there is the broken promise on public services which is another reason why this bill should be renamed. This Government came in saying that it would cap but not cut public services but it has continually cut them. In this Budget Bill English tells us there is $1.8 billion of low-priority spending. That “low-priority spending” is in tertiary education it is in early childhood education and it is in health. Those are areas where this Government thinks there is low-priority spending. That is another broken promise and it is another reason to rename this bill. Public services in New Zealand have to be rebuilt time and time again by Labour Governments who come in on the back of National Governments that know they can get away with undermining public services while delivering tax cuts. This is not a Budget about the long-term future of New Zealand; this is a Budget about short-term political thinking from National. It is not good for the economy of New Zealand and it is not good for the society of New Zealand. 
We could also rename the bill the “Taxation (Rob Peter to Pay Paul) Bill”—literally to pay Paul Reynolds—and that in fact is what this bill will be doing. It ensures that people like Paul Reynolds who have already benefited significantly from pay rises and tax cuts once again are the main beneficiaries of this bill. The main beneficiaries are not the strugglers in New Zealand; they are not the people who have been facing higher power prices and who are now facing higher GST. 
JOHN BOSCAWEN (ACT) 
: 
 We are debating clauses 1 and 2 of the Taxation (Budget Measures) Bill—that is the title and the commencement date. I note that the Labour Opposition has focused its efforts on renaming this bill. I would like to focus on the second clause which is the commencement date. The substance of this bill starts on 1 October. I know that various provisions come into effect on the day after the date of Royal assent but the substance of this bill commences on 1 October. 
Hon Clayton Cosgrove 
: The man’s a genius! 
JOHN BOSCAWEN 
: I thank Mr Cosgrove. We have a GST increase from 1 October and we have the start of the personal tax cuts and the income tax cuts on 1 October. 
I suggest that this legislation should start on 1 July. I actually think the country needs to have tax cuts on 1 July. The reason I say that is that National has been at absolute pains over the last 4 months to say that if it went ahead with an increase in GST it would make sure that there were at least equal compensatory reimbursements or equivalent tax cuts. Well we have another tax coming into effect on 1 July and it is the emissions trading tax. I know that National does not like me referring to that as a tax and no it is not a tax in the true sense of the word. It is not revenue collected by the Government and redistributed but the substance of it is a tax on electricity and petrol. Treasury estimates that the impact of that emissions trading scheme tax is to add 5 percent to the price of electricity and 3c or 4c a litre to the price of petrol and that will double again on 1 January 2013. The effect of that the Reserve Bank tells us is to add 0.4 percent to the cost of living. That starts on 1 July. 
We could actually bring this legislation further forward than that. We could introduce the tax cuts in June because Contact Energy a company that generates electricity from gas and that has to pay for its emissions from 1 July has already announced tariff increases effective from the middle of June. Naturally the electricity companies will not all come together and increase their prices on 1 July. So what has happened? Contact Energy has the early running. It has moved to increase its tariffs 3 weeks before 1 July. So we do not need to wait until 1 October for the tax reductions; they need to be brought forward to at least 1 July. 
Finally I will comment on the Minister’s Budget speech. He said when referring to tax cuts: “First for all income earners at all taxable income levels the reduction in personal income tax will be sufficient to match the increase in GST.” The Prime Minister and Government Ministers including the Minister of Finance have been at pains over the last 3 or 4 months to say they were going to reimburse people for the increase in GST. The Prime Minister even went and gave a speech at North Shore Grey Power back in April about that. But this Government has continuously refused to acknowledge that we have a tax being put on electricity and petrol and that that tax will make its way through the whole economy. It puts a cost on every single individual in this country. 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 At this title and commencement debate in the Committee stage we have the opportunity to reflect upon some of the arguments that have been made of a more technical nature. The first issue I wish to bring to Parliament’s and the Minister’s attention is the inappropriateness of this Taxation (Budget Measures) Bill including within it matters of a technical nature that are not required for the purposes of implementing the Government’s major pieces of Budget policy. There is precedent to put major Budget policy through in urgency in all stages but it is well established and bipartisan— 
Hon Gerry Brownlee 
: Ha ha! 
Hon DAVID CUNLIFFE 
: The member may laugh but he is not known for detailed attention and it would be of value to him as well as to taxpayers if any unintended wrinkles or mistakes of a technical nature in this legislation were sent to a select committee as has been the normal practice. I see the officials who are aware of the risks— 
Hon Gerry Brownlee 
: It has not. My goodness we’ve forgotten our recent history. 
Hon DAVID CUNLIFFE 
: The member is in danger of digging himself in a deeper hole. 
Hon Clayton Cosgrove 
: It’ll be a big hole. 
Hon DAVID CUNLIFFE 
: We all know it will be a wide as well as a deep hole and there will be plenty of his colleagues ready to put the dirt in on top when he burrows down. The Leader of the House is misnamed. 
We need to put the marker down right at the start that we think it would have been more appropriate to restrict this 96-page bill much of which is technical. The reason for that is that try as our officials might and assiduous as they are it is always possible that material of a technical nature would benefit from submissions and the review of tax practitioners and others at the select committee process. 
The Committee of the whole House has made much note of the fact that as last evening’s first reaction sees the cold light of dawn and people’s expectations of being better off meet the reality of next year’s inflation three-quarters of New Zealanders will find themselves worse off after this budget at least until 2012 or 2013. 
Hon Gerry Brownlee 
: What rubbish! 
Hon DAVID CUNLIFFE 
: Here is some simple mathematics for the Leader of the House. Let us apply 6 percent inflation to that member’s gross salary. Does that member believe he could multiply his gross salary by 6 percent and come up with a number? I would yield to the member if he would like to do that sum in his head. Would the member like to do that sum in his head—6 percent times God knows what he earns; a quarter of a million dollars? How about 10 percent times a quarter of a million dollars for the member sitting opposite? Ten percent times a quarter of a million I say to Gerry. That is an easy one. A round number I say to Gerry. I ask him to give it a go. Well I say to Mr Brownlee that is around about the amount he would lose from inflation over the next 2 years because this ill-informed Budget will stretch the borrowing capacity of the economy. Poor old Alan Bollard’s job just got a lot harder. He will have to raise interest rates to sterilise off this Budget which ends up borrowing to give a $1000 a week tax cut to a millionaire. 
It does not worry Gerry because he cannot multiply 250000 by 10 percent. Detail focus I think proves the point that this bill should have gone to a select committee. I ask members whether I am right. I am right about that. When we go beyond the fact that most Kiwis will get nothing out of this Budget for at least 2 years we then come down to the question of priorities. The Government is really saying that it is a higher priority to give a millionaire $1000 a week than it is to give a rape victim counselling to give a frail elderly woman an hour a week of home help or to help all the people who are reliant—because they have not got $1000 a week extra tax back—on our public hospitals and public health services to be there for them and their families when they need them. The health budget is $300 million a year short—$1.2 billion short over 4 years. That is the real change to the health budget when we apply inflation from this Budget. There will be 6 percent inflation so the health budget will be $300 million short. 
DAVID SHEARER (Labour—Mt Albert) 
: 
 I concur with my colleague Stuart Nash in terms of renaming this bill the “Broken Promises Bill”. The Taxation (Budget Measures) Bill is a little bit like one of those sugary drinks: it looks good and it tastes good but when we have had it we think it is not so good for us after all. This bill really is not so good for us after all. As David Cunliffe just said if we subtract from the tax that we are supposedly getting back in this Budget the 6 percent inflation the accident compensation levies the car registration increases the Auckland tax increases that will be imposed upon us in terms of rates because we are making such a mess of the Auckland super-city the tobacco tax and the power prices—and of course because the inflation rate has gone up interest rates will go up—what do we have? We have a rather uncomfortable feeling that maybe we have just been had. It will take a couple of days to work through but as my colleague Clayton Cosgrove said before we know what it is like. The Government puts its Budget down it gets plaudits saying that it is a good Budget and after 2 3 or 4 days the real oil comes out and suddenly we realise that actually it is not so good after all. 
I will touch on another aspect of this Budget and what this Budget really does not address at all. The Budget mentions agriculture only once or twice. It does not look at the productivity of this country. Productivity is based on for example our savings rates. If we look across the Tasman to Australia we see that Australia’s employers’ contribution has just gone from 8 percent— 
The CHAIRPERSON (Lindsay Tisch) 
: We are debating clauses 1 and 2. 
DAVID SHEARER 
: I beg your pardon Mr Chairman. The title of this bill should be the “Broken Promises Bill”. 
I will tell members about one other broken promise. In 2008 the National Party said it would double the amount spent on research and development. What do we have today? We have half the rate of research and development that National promised in 2008. Not only that it took away the 15 percent tax credit that the Labour Government had already put in place. So that is why I believe this bill should be called the “Broken Promises Bill”. 
This Government has broken its promises about what it has already said. Not only has the Government broken its promise not to increase GST but also it has broken its promise to increase spending on research and development. The research and development spend that the Government came out with was $56 million a year which will be paid in the form of grants and vouchers. That means that small and medium sized businesses have to go on their knees to Government bureaucrats to ask for money in order to be recompensed for their research and development. That is what they have to do. If the Government had stayed with the tax credits that Labour put in place it would have been able to double the amount of business research and development spend in this country. It could have been upped from $1 billion to $2 billion. 
This bill is aptly named the “Broken Promises Bill” as my colleague Mr Nash has said. It breaks the promises on innovation. The Government therefore breaks its promise on productivity and it breaks its promise on GST. As I said the “Broken Promises Bill” is an apt name for this bill. 
The question was put that clause 1 be agreed to. 
A party vote was called for on the question that clause 1 be agreed to. 
The CHAIRPERSON (Lindsay Tisch) 
: Before I give the result of the vote I remind members that the previous Chairman prior to the luncheon adjournment said that there was to be silence during the taking of votes. I ask members to respect that. 
A party vote was called for on the question  
That clause 1 be agreed to 
Ayes 67 
New Zealand National 58; ACT New Zealand 5; Maori Party 3; United Future 1. 
Noes 51 
New Zealand Labour 43; Green Party 8. 
Clause 1 agreed to. 
The question was put that clause 2 be agreed to. 
A party vote was called for on the question  
That clause 2 be agreed to 
Ayes 67 
New Zealand National 58; ACT New Zealand 5; Maori Party 3; United Future 1. 
Noes 51 
New Zealand Labour 43; Green Party 8. 
Clause 2 agreed to. 
The Committee divided the bill into the Taxation (Budget Measures) Bill the Government Superannuation Fund Amendment Act 1969 Amendment Bill the National Provident Fund Restructuring Amendment Bill the Social Security Amendment Bill the War Pensions Amendment Bill (No 2) and the New Zealand Superannuation and Retirement Income Amendment Bill (No 2) pursuant to Supplementary Order Paper124. 
Bill reported without amendment. 
Report adopted. 
The ASSISTANT SPEAKER (Hon Rick Barker) 
: Before I call on the Minister to move that the bills be read a third time I have a small matter to attend to. The result of the vote on the question that the Taxation (Budget Measures) Bill be read a second time was announced as Ayes 69 and Noes 53. The correct result is Ayes 69 and Noes 52. I order that the record be corrected.