Brash Don: Taxation (Annual Rates Maori Organisations Taxpayer Compliance and Miscellaneous Provisions) Bill — Second Reading 
Brash Don: Taxation (Annual Rates Maori Organisations Taxpayer Compliance and Miscellaneous Provisions) Bill — Second Reading 
[Volume:606;Page:3926] 
Dr DON BRASH (NZ National) 
: 
 There is much in this Taxation (Annual Rates Maori Organisations Taxpayer Compliance and Miscellaneous Provisions) Bill that is plain common sense. There is a lot that is unexceptional and we would have no problems with a great deal of it in content. But I have to say that for us there are two fundamental flaws in the bill and for this reason we certainly will not be supporting it—indeed we oppose it quite vigorously. 
The first and most significant problem is that the bill confirms the existing income tax rates. I think that is a huge opportunity missed by this Government. It is running a large Budget surplus—larger than it expected; yet it still proposes to maintain the current income tax rates. Between 1988 and 2000 we had a top personal tax rate of 33 percent and a company tax rate of 33 percent and within the limits of a progressive tax system that minimised the compliance costs of the taxation system. For reasons that had nothing to do with the need for revenue but a great deal to do with political envy this Government raised the top tax rate for people from 33 percent to 39 percent. It did not need to do that for revenue; that is very clear. It did so because it felt that would be popular with a great number of New Zealanders who were paying less tax than that. In fact it was done in the mistaken view that the tax system in recent years has been rigged so that high-income taxpayers paid a lot less tax. 
That is one of the great myths of the tax system in New Zealand. It is a myth because what we saw in the 1980s was a reduction in the top tax rate from 66 to 33 percent and people said it was clear the top taxpayers were paying less. What nobody really focused on was that that reduction in tax from 66 to 33 percent which I must say was absolutely sensible in terms of good tax policy— 
Rodney Hide 
: That was a good Labour Government. 
Dr DON BRASH 
: It was a good Labour Government as Mr Hide points out. That was done in conjunction with the closure of all the tax rorts tax loopholes and tax shelters that had been prevalent prior to that time—the deer farms the movies the musicals; and dare I say it the kiwifruit orchards—which were owned for the purposes of reducing income tax. 
Not many high-income New Zealanders actually paid 66c in the dollar. They were able to manipulate their affairs to pay a good deal less. This Government is going back on that sensible framework and encouraging New Zealanders to try to find loopholes and shelters and any way of dodging the tax which at 39 percent means that people earning more than about US$30000 a year a modest level of income by international standards are paying nearly half their additional income in tax. When we add the 39 percent income tax to 12.5 percent GST that is about 46 or 47 percent tax on additional income above about US$30000. 
The other fallacy is that because the actual rates do not go up very steeply in New Zealand the tax system is not very progressive. That is the widespread belief. But let us look at the situation of someone earning $25000 a year with a non-earning spouse and two children under the age of 13—the kind of people many parties in Parliament including United Future want to help. That person is paying $27 in income tax per year or a little under that by the time we take into account the family tax credit and the other family tax allowances that have been in place for some years. The person who earns $100000 by contrast with a dependent spouse and two children under the age of 13—the same family conditions exactly—is paying not four times as much income tax as the person on $25000 not 40 times as much not 100 times as much but more than 1000 times as much. So the income tax system in conjunction with the family tax credit and similar arrangements is already a very steeply progressive tax system. To make matters more progressive still Government expenditure typically is spent in ways that are quite progressive in the same sense. The person on $25000 a year is much more likely to be using Government-funded services of health and education than the person earning $100000 a year. So we have a very steeply progressive tax system. 
I am arguing that the tax system is too steeply progressive because a system that is that progressive involves very substantial deadweight losses. It means that the people who are most likely to invest most likely to acquire skill and most likely to take entrepreneurial risks are the people whom this tax system clobbers most heavily. We know that high tax rates have high deadweight costs. This bill locks those high deadweight costs into the system despite the fact that the Government’s fiscal position would make it quite straightforward for it to at least move back to a situation where the top personal tax rate and the company tax rate were the same. I would argue that the Government should go further and reduce both. We have a situation now where Australia’s company tax rate is significantly lower than our company tax rate. At least the headline rate is significantly lower. We are missing a golden opportunity by keeping tax rates at their present level. 
There has been a lot of discussion in the last week or two about the Prime Minister having to back off her promise to take New Zealand to the top half of the OECD within one decade. Why have we backed off that? I think it is because the Government recognises that its policies will not move New Zealand to the top half of the OECD in two or three decades—not one decade but two or three decades. We will not make it and one of the reasons we will not make it is that this Government’s ideologically driven policies are intent on increasing the tax rates on people on quite modest levels of income by international standards. That is our first reason for being concerned about this bill and wanting to oppose it. 
The second reason we oppose it is the one that Mr McNair alluded to—the preferential treatment for Maori organisations. I have to say that the previous way in which Maori organisations were taxed was unfair and unacceptable. There was clearly a level of taxation that was totally inappropriate. There was a perfectly sensible precedent that could have been used to ease that problem and it is called the company tax system. There is no reason at all that we could not have applied the same system to Maori organisations as is applied now to companies—a 33 percent tax rate or something lower if the Government was not so miserable. It is a tax rate for companies that is a withholding tax for the beneficial owners of companies which the recipients of the dividends or the income flow from those Maori organisations could have treated as a credit against their tax liability and if their personal tax rate was lower than 33 percent it could have— 
John Carter 
: It would have been fair. 
Dr DON BRASH 
: Absolutely. It would have been fair as my colleague Mr Carter points out. That would have been fair and it would have been racially neutral. There would have been no racial preference involved. This party the National Party stands for one standard of citizenship. That is a very important principle. This bill locks into place a tax system that gives a preference to one particular racial group. That is very very sad. We have enough potential problems in race relations in New Zealand already without creating the widespread public perception based on a reality that a preference is being given to Maori organisations. I think that is very sad.