Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — First Reading 
Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — First Reading 
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Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill 
First Reading 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill be now read a first time. 
 Later I shall be recommending that this bill be referred to the Finance and Expenditure Committee for consideration. 
This omnibus bill—the traditional May bill—introduces major changes related to the announcements in today’s Budget. These changes include the new research and development tax credit changes resulting from the reduction in the company tax rate provisions relating to employers’ obligations in the employer tax credit under the enhanced KiwiSaver scheme and increased tax incentives for people in companies to make charitable donations. The bill also introduces a number of other important tax changes several of which have been announced over recent months. The chief of these changes is the liberalisation of tax penalties to promote voluntary compliance—a reform that has met with widespread approval. 
The companion bill the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill which was also tabled today and has just received its first reading deals with the member side of the announced KiwiSaver enhancements and reduces the company tax rate from 33 percent to 30 percent. That bill also includes the associated reduction in the tax rate for certain savings vehicles and other changes that need to be enacted with urgency. 
The legislation I am introducing now gives effect to business tax reforms that have resulted from the business tax review which itself was a direct result of policy stipulated in the confidence and supply agreement between United Future and Labour and between New Zealand First and Labour. Our requirement was for “a review of the current business taxation regimes with the view of ensuring the system works to give better incentives for productivity gains and improved competitiveness with Australia.” The resulting business tax review set out to do just that. 
The first step was the release of a discussion document that canvassed views on possible business tax initiatives to increase our productivity and make us more competitive internationally. Amongst the options were reducing the company tax rate from 33 percent to 30 percent and the introduction of targeted tax credits. The discussion document was followed by further extensive consultation and policy development the results of which appear in the two business tax reform measures that are featured in this bill. 
The reduction of the company tax rate from 33 percent to 30 percent—from the 2008-09 year—aligns it with Australia’s company tax rate. This reduction thus improves our competitiveness with our largest export market as well as making New Zealand a more attractive country from which to do business. 
This bill introduces a number of transitional and consequential amendments that result from the new company tax rate most of which concern imputation credit handling in the 2-year transitional period. Without this transitional period some companies may not be fully able to distribute the profits and associated tax credits they derive before the new tax rate comes into effect. 
The new research and development tax credit is a further measure to emerge from the business tax review. Introducing tax credits for other activities was also considered in the course of the review but in the end we concluded that tax credits there would be less cost-effective than the existing mechanisms for funding areas such as export market development and skills training. On the other hand there is a significant and growing body of evidence that tax incentives have been effective at boosting business research and development. So the tax credit for research and development will help to bring New Zealand more into line with what happens in other OECD countries three-quarters of which already offer research and development incentives. 
The aim of this new tax credit is to help raise the rate of private sector research and development investment in New Zealand which is currently only a third of the OECD average. Increased research and development investment in turn is expected to have wider benefits for the economy and to help boost productivity and international competitiveness. Under the provisions New Zealand businesses that conduct research and development in New Zealand will be eligible for a credit of 15 percent of allowable expenditure. The bill defines research and development relatively widely in line with the definition that Australia uses for its research and development initiatives. 
The research and development tax credit introduced in this bill has built-in safeguards to ensure that it is as effective as possible. For example the requirement for research and development to be undertaken predominantly in New Zealand by New Zealand businesses is there because the spillover benefits to other New Zealand firms are likely to be largest in those circumstances. 
The transformation of New Zealand’s savings culture is closely related to economic transformation both of which are major themes in today’s Budget. Over the past few years we have seen major reforms aimed at both making it easier for people to save and improving the tax treatment of savings through collective investment vehicles. Legislation that was enacted last year paved the way for the introduction of KiwiSaver in July of this year. 
Further legislation last year brought in new tax rules on investment income one of the results of which is the new portfolio investment entity rules and they come into effect in October. A key role of the new portfolio investment entity rules is to prevent the overtaxation of lower-income people who invest through managed funds which are the first investment choice of many ordinary New Zealanders. They and similar funds are the vehicles through which KiwiSaver will operate. 
In this Budget the tax reform of the current savings environment continues and it takes a giant step forward with the announcements contained both in the Budget today and followed up in this bill. What the bill does is to deal with the employer side of the enhancements to the KiwiSaver scheme. It requires employers to match their employees’ contribution to KiwiSaver and complying superannuation funds up to 4 percent of employees’ gross salary or wages phased in over 4 years. Under the provisions of the bill there will also be reimbursement for employers for the cost of matching contributions through a new tax credit of up to $20 per week per employee. Employer contributions will remain tax-free under legislation enacted last year. The tax credit complements that which is introduced for members in the companion bill which we have just been discussing. 
Other savings measures in this bill include changes allowing policyholders in unit-linked life insurance products to access some of the benefits of the new portfolio investment entity rules. We are also including changes to allow certain contributions to retirement schemes to be subject to a withholding tax rather than an income tax so that the contributions are not taken into account for social assistance delivered through the tax system. 
Another key plank in the United Future - Labour confidence and supply agreement was the development of a new tax rebate regime for charities and the direct results of this commitment are found in this bill. People companies and Maori authorities will be able to claim rebates and deductions for charitable donations up to the level of their annual net income and will no longer be restricted by the present caps. Furthermore the deduction claimable for donations made by companies will be extended to close companies that are not listed on a recognised stock exchange. These changes are designed to provide greater incentives for charitable giving which in turn will benefit charitable organisations and all the communities they serve. I am very pleased that it has been possible to make these changes which arise from the review that was undertaken last year. 
A further major reform introduced in this bill results in the relaxation of a whole range of tax penalties such as that for taking an unacceptable tax position so that penalties now reflect the seriousness of the offence. It is generally acknowledged that people comply more willingly with the law when they see that it is fair and reasonable. Our current system of tax penalties does not always distinguish between people who try to do the right thing and fail and people who have no intention of doing the right thing so reinstating that distinction is very important. There are also several other areas of the law where the rules are being clarified and I think that they will be widely welcomed. 
Once enacted the changes in these areas will take effect from today the date of the introduction of the bill. Related changes involve not penalising taxpayers who occasionally pay late and updating the definition of “tax agent”. 
The reform has been the subject of extensive consultation and widespread approval. We have also made changes relating to the introduction of data matching between the Inland Revenue Department and the Customs Service to enable us to better identify those with outstanding child support above a certain level who are seeking to enter or leave New Zealand. This is part of the consistent effort we are making to crack down on outstanding child support payments and to ensure that those people who have a responsibility are able to meet it. 
Finally the bill deals with the consequences of adopting international financial reporting standards. That is a very technical area but it is a very important one and I think that will be welcomed. The bill of course being an annual rates bill also includes the income tax rates to apply for the 2007-08 tax year. Those measures that I have not been able to deal with in much detail tonight are covered in the accompanying commentary a copy of which is being distributed to members. 
I commend the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill to the House. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 Let me make it clear at the outset that National will be opposing the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. This is important legislation and it is just such a crying shame that this Government cannot bring in legislation that addresses some of these issues in a more appropriate way. The biggest problem facing the New Zealand economy right now is the fact that during a period when we are quite low in our economic growth phase—we are towards the bottom of the economic cycle if one likes—our economy is growing at under 2 percent per year right now. Yet our capacity utilisation is high and Dr Cullen cannot deny this. The Reserve Bank is deeply concerned about it. That is why it is having to raise interest rates because we are in a position where we cannot get non-inflationary growth. That is a huge problem. It is growth that delivers wealth but we cannot get the growth because at the moment our capacity utilisation is so high that we cannot get non-inflationary growth. The Government believes that this bill might improve that. Of course the real issue is productivity or the lack of it. Our productivity growth is so disastrously poor and that is why we are not getting non-inflationary growth. 
Much of Part 1 of this bill is about these new tax credits for research and development. The Government argues that this is great because this extra investment in research and development will improve our productivity—at least that is what I presume is the theory behind it. But the problem is that if I look at what is in this bill I can see it actually damaging our productivity because as businesses are forced to go through all the hoops they will have to go through to try to get these tax credits productivity will actually suffer. 
We have seen it all before around the world where Governments offer this kind of incentive. It reminds me of the European Common Agricultural Policy and how disastrous that subsidy scheme has been for productivity. Mr Assistant Speaker I invite you to look at Part 1 and see what the Government defines as qualifying research and development. It has to be “systematic investigative and experimental activities that seek to resolve scientific or technological uncertainty or that involve an appreciable element of novelty”. How the hell does one define that in law? Of course the Government tries to define it—in dozens and dozens of pages. If one looks at clause 100 onwards one sees dozens of pages in which it tries to define this stuff. 
What is extraordinary is that if one is spending money on buildings for example or tangible assets to deliver this novel research work then one can actually claim the depreciation on those. But if one needs to acquire the intellectual property—the intangible assets on which to build one’s real-value research work—one finds that that is excluded. As I read the legislation I find that expenditure on intangible assets is excluded. If the Government is serious about doing something about productivity then it will realise that the whole set of provisions around these research and development tax credits will simply have businesses—as they always do—trying to see whether they can get a handout from the Government and it will realise that the loss in productivity as they go through the whole paraphernalia of trying to actually qualify for these tax credits will all be unproductive activity. There will be the employment of people in unproductive work. I cannot believe that the Government has been convinced to go down this track when it is just going to be adding compliance costs adding more regulation. I accept that Dr Cullen has had nothing to do with business. 
Darren Hughes 
: Well he is giving them a tax cut. In the previous bill you voted against that. 
Dr the Hon LOCKWOOD SMITH 
: I ask the member whether Dr Cullen has ever run a business. 
Darren Hughes 
: Well he’s cut taxes for them. He did it before; the member opposed it. 
Dr the Hon LOCKWOOD SMITH 
: He has not has he? He was a history lecturer. At least I still run a small business. But everything Dr Cullen does—everything in this bill—I have tried to comply with. As a small employer I have to comply with all this stuff. All I can tell Dr Cullen is that it all adds compliance cost and it is all more regulation. He has got to come to understand that excessive regulation is one of the major reasons why productivity growth has collapsed. The business sector of New Zealand has become overburdened with regulation and for more and more cost there is no more output. That is why our level of productivity is collapsing. This bill is adding nothing to improving our productivity because it will involve businesses in a whole lot more worthless work as they try to qualify for these tax credits. 
In Part 1 of the bill there is also an interesting section on the Working for Families tax credits. This is hugely important stuff. Do you know what this part of the bill does Mr Assistant Speaker? It changes the name of family assistance to Working for Families tax credits. It changes the name of family support to family tax credit. It changes the name of the in-work payment to in-work tax credit. It does not change the name of the parental tax credit but it does change the name of family tax credit to minimum family tax credit. Is that not important stuff? That is hugely important stuff to bring into this House under urgency! But it shows the mindset of this Labour Government. It has no understanding of what productivity is about and no understanding of what is damaging this economy. 
If it wants to have a look at what is damaging the economy then it should look at the effective marginal tax rates around that package of Working for Families tax credits. I say to Dr Cullen that when our effective marginal tax rates are up over 90 percent they have major disincentive impacts. No wonder a lot of women are no longer working extra hours when they get to keep 7c to 8c out of every extra dollar they earn! I say to Dr Cullen that it is not worth it. If he is concerned about productivity then he should have a look at some of the fundamentals involved in this legislation. 
I want to refer now to Part 3 of the bill because it is Part 3 that brings in the provisions to actually require employers to now make contributions to the KiwiSaver scheme. The Government has argued that part of what will help employers to do this is the business tax cut. No one I have heard in this debate today since the Budget was presented has mentioned or pointed this fact out: a lot of New Zealand’s businesses and employers which employ most of our workers are small employers. A lot of them are not corporates; they will not get the tax reduction for the corporates down from 33c to 30c yet the small employers will have to pay out these compulsory contributions to this KiwiSaver scheme if their employees want it. 
It is quite clear that the tax credit available back to those employers will not cover the cost of their compulsory contributions. It is dead clear that it will not cover the costs. So what will happen is that our small employers will suffer yet higher costs under this regime. 
I cannot believe that this Government has no understanding of what it is like to run a small business—no understanding at all. All this bill means is that the cost to small businesses will go up. A lot of them are not corporates; they will not get the benefit of tax reduction but they will have to make these compulsory contributions which are all set out here in Part 3 of this bill. No consideration has been given to the impact of this on the viability of our smaller businesses in New Zealand which are so important to our economy. 
Finally I want to make this point about this KiwiSaver scheme and all the incentives around it. It will not do anything for middle to lower-paid New Zealanders. If Dr Cullen thinks that people on $20000 $25000 or $30000 can put 4 percent of that into the KiwiSaver scheme when they face all the realities of trying to meet their costs of living today he is deluded. So they will not get any of the benefits of those tax credits—not even at age 65 which of course is when these tax credits are available to them. 
It is sad that as we debate the first reading of the bill that it is ordinary low-income hard-working New Zealanders who pay a significant hunk of our taxes if they do not happen to have any children who will not get any benefit out of this because they cannot afford to put 4 percent of their income into such a scheme. It is in fact higher-income earners who will benefit just as it was with Labour’s Working for Families package cynically directed towards middle New Zealand to try to buy votes at the last election. That did nothing for low-income New Zealanders and the KiwiSaver scheme will do nothing for low-wage earners. 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 By the standards of Dr the Hon Lockwood Smith PhD that anger was very mild indeed—very very mild. That is not surprising because when National’s leader tie askew and unshaven was asked on  
Close Up 
 this evening what National would do about the KiwiSaver tax credits we heard a kind of pause which is unusual for Mr Key. He does not usually pause before he says anything. It was a long pause and he said National would have to think carefully about them before the next election. When Mr English was asked on  
Checkpoint  
what National would do about the tax credits he also said it would have to think about them before the next election. 
Darren Hughes 
: Hellfire and brimstone. 
Hon Dr MICHAEL CULLEN 
: Well of course Dr Lockwood Smith is incredibly staunch on this issue. He will oppose them—until of course it is in his interests to support them. 
Dr Lockwood Smith tells us he has a sudden large interest in people on low incomes. Well how will people on low incomes be helped to save if not through a scheme whereby if they change their job they are compulsorily enrolled and their deductions occur immediately and as long as they can continue to withstand that they will get a proportionately larger tax incentive? I am sure that if National were designing a tax incentive for savings we would get one that gave more to people like Dr the Hon Lockwood Smith PhD than to someone on $25000. People will also get the employer contribution which on a low income of $25000 will be entirely paid for by the Government at a rate of 20 bucks a week or 4 percent—if he can do the maths and work it out. As a consequence of that they will end up with three times their contributions going into their KiwiSaver account and the prospect of a substantially increased standard of living in retirement. But more than that they will be contributing to savings and to investment in New Zealand. 
We heard Mr Key on television tonight essentially say that the way to build the economy is to spend our way to prosperity and that the way to spend our way to prosperity is to borrow the money to spend. It is true of course that Jackie Dean did have the answer at the last election. She said National would not need to borrow for tax cuts and would just get the money from overseas. That I suppose is a slightly more sophisticated approach to the problem. So what is National’s answer? How do we grow the economy when our gap between savings and investment is 9 percent of GDP and when we have to borrow $15 billion from offshore every year just in order to maintain our current inadequate level of investment in economic growth? From a sort of “British Indian army” what does Dr Lockwood Smith PhD tell us—that the answer is to give somebody a $2 a week or a $3 a week tax cut? That is what National is actually offering to people on $25000 a year. Well that will go nowhere at all. 
Then we heard from Dr Lockwood Smith that research and development tax credits do not work. Well why the hell is Fonterra doing research in Melbourne? There is total silence. Maybe it is because the Australians offer tax credits and we do not. 
Maybe it is time to learn some facts—some pragmatic simple bits of fact. We have been told for years—and I used to believe this—that we did not need tax incentives for saving. We were told that we just had to get the macroeconomic conditions right—low inflation blah blah blah—and savings would go up. They have gone down. We cut the rate of superannuation and raised the age of eligibility and savings went down. They were supposed to go up. Younger people do not believe that superannuation will be there for them but they do not save. Dr Lockwood Smith has no answer to that except to say that if we give them a $5-a-week tax cut they might save it—but of course they will not. They will not save it at that point and he knows that. We know that we have one of the worst savings records in the developed world. National says that is all right. It says we will just borrow more so we can spend more and in that way we will become more prosperous. That is National’s economic policy as explained by the unshaven tie-askew Mr Key on television tonight. It would have been better to have Mr English on television; at least he looks clean-shaven and properly dressed at this particular moment. 
Then we are told that research and development tax credits do not work and I used to believe that too. We continue to have one of the worst private sector research and development records in the world and Australia which has research and development tax incentives has a much better record than New Zealand on private sector research and development. We lose private sector research and development to Australia. Even Treasury has changed its mind on that issue. I have to tell Dr the Hon Lockwood Smith that he is the last person stuck in the 1980s paradigm. Treasury believes that research and development incentives will have spill-over benefits. 
Treasury in a report that will be released tomorrow agrees that savings are a major problem and that there is a role for the Government to play by intervening and providing support for savings. That is a sea change in Treasury’s view of life but it is a fact—it is pragmatism. I suppose National members will now try to argue that I tell Treasury what to think. Well I wish that were true on occasions. But it is certainly not actually true. Treasury is highly independent in the way it arrives at those kinds of views. 
So the National Party members will be voting against research and development tax incentives. They voted against corporate tax rate cuts only half an hour ago. They voted against a tax credit for employees only half an hour ago. 
Hon Members 
: Employees? 
Hon Dr MICHAEL CULLEN 
: Employees not employers. Now they argue that compulsory contributions somehow will not work. Let us take a broader view than that. Let us stop this stupid “let’s look this far in front of our face” way of looking at the future of this country. Yes compulsory contributions will cost employers a bit. How much will it be at a 50 percent take-up rate? It will be 1 percent of the total wage and salary bill in 5 years’ time. Already there are indications and expectations of some modesty in but not nil wage increases—which is silly from Mr English—and a reduction of 0.5 percent in total wage growth over the next 4 years would pay half the net cost to employers of the employer contribution. That is not $2 billion. On the basis of a 50 percent take-up it is about $670 million and 0.5 percent moderation in wage growth in total over 4 years would pay half of that. 
What do employers get? They get out of that greater employee loyalty. They get out of that a greater tie to New Zealand particularly among our semi-skilled and skilled workers as Australia has with its compulsory savings scheme. It will improve the supply of skilled labour because we will lose fewer people. KiwiSaver at that level will lock more people into New Zealand. Employers also get out of that contribution a greater pool of savings and investment capital for New Zealand—and National members are voting against all of that which is in the long-term interest of business in New Zealand because they are obsessed with tax cuts. 
I do not know whether the National members watched television tonight but they better learn something. A sea change is going on as a result of this Budget already and they are on the wrong side of the argument. They will have to change their position before the next election. That is easy for them to do because they change every position they have. Every major initiative of this Labour Government is wrapped up cuddled and kissed and sweated to death by the National Party these days and sooner or later this will be one of those. National members will not go into the next election promising to demolish KiwiSaver; I suspect they will promise to regularly update the employer contributions maximum tax credit. That will be where they will get to by the election. They will not go into the election promising to remove the research and development tax credits will they? Well why the hell are they voting against them now then? That is very stupid. They will vote against something and give me a free speech for the next 16 or 17 months in front of businesses. I can say to them: “National voted against a cut in the corporate tax rate. National voted against the research and development tax credits. National does not believe in updating Auckland’s infrastructure and public transport system. National does not believe in increasing the pool of savings and investment in New Zealand.” 
But come election time there is one thing we can guarantee: the National members will flip-flop and flip-flop and the changes will be there. It is a pathetic effort from a narrow shallow pathetic party. 
Hon BILL ENGLISH (Deputy Leader—National) 
: 
 I do not recall Dr Cullen voting for any National Budget even when he agreed with quite a lot in quite a few of them. What a pathetic effort by him to say that somehow his Budget is so compelling that the Opposition will join the Government in confidence in its programme. 
Darren Hughes 
: You will. 
Hon BILL ENGLISH 
: We will not actually because this Budget could have been miles better. If over the last 4 or 5 years Dr Cullen had not been so dog in the manger about reducing taxes we could have had in this Budget—and we will in 2009—a much better balanced approach to how this economy should develop. We could have had a better balance between incentives to save which are certainly an issue and incentives for growth. 
This country is not retiring. There are a whole lot of 19 and 20-year-olds out there who do not think that the biggest problem with the economy is what will happen when they turn 65. This Budget is all about retirement. Between now and then we have to grow because if the economy does not grow— 
Dr the Hon Lockwood Smith 
: Labour is about to retire. 
Hon BILL ENGLISH 
: That is right. Dr Cullen is about to retire which is why he is so interested in the scheme. If the economy is two-thirds the size it could have been then it will not matter how many savings are in the bank; we will be two-thirds poorer than we should have been. That is why we have to have a more balanced approach. 
Dr Cullen contradicted himself. For instance he said that 0.5 percent reduction in wage growth will cover half the cost to employers of their contribution. Look if the cost to wages is so small then the savings cannot be big. If there is only a 1 percent moderation in wages and consumption then there can be only a 1 percent increase in savings. Dr Cullen cannot have it both ways. If this scheme is to fix the current account deficit and if it is to supply endless new capital for our investment markets then it can come only at a cost to consumption. It can come only if the working people of New Zealand tighten their belts very tightly and cough up a lot of cash into these savings accounts. Dr Cullen cannot have it both ways. If there is a whole lot of new saving in order to have a big impact on the economy then it must mean that New Zealanders are going to have to cut their spending by a lot. 
That is why Dr Cullen is going to spend the next 6 months talking to businesses rather than to normal wage and salary earners. The message to wage and salary earners is that they must tighten their belts to save the economy while he goes on a giant spend-up in order for Labour to win the election. In the Budget today Dr Cullen will spend $3.8 billion of new money. That is a much bigger new spend than in his previous few Budgets. His spending is going up while he is telling everyone else that their spending has to go down. 
I would like Dr Cullen to sort out his strategy. If he is going to claim that this scheme will transform the economy it can come only at a cost to spending by the working people of New Zealand. That is not called an economic identity. Savings are only what one does not consume. That is it—savings are only what one does not consume. If one increases then the other shrinks. That is how the system works. I advise Dr Cullen to claim less. The most immediate impact of these measures will be that people who can afford to will now take their savings in very large quantity out of their bank accounts sell their shares—maybe even sell their house—and put the money into KiwiSaver to the extent that they get a tax break and probably no more than that. The biggest single impact of these measures will be to shift savings. I am sure that Treasury has told Dr Cullen that. That is the first impact. 
The second thing is that there will be some people on higher incomes who have been spending but who will save. Because they can save they will do so. That will make some small increase to savings—and that will be it. You see there is more to growing the economy than having savings. That is part of it; we need some savings because we need investment. But we also need an environment where we can make efficient allocation of that investment where people have strong incentives to get ahead where profitability is rewarded where the infrastructure is unblocked and unplugged where businesses feel like the Government is doing everything it can to keep them competitive and where local bodies do not put up their rates by 10 percent per year. 
Dr Cullen is talking as if the only thing we need for an economy is savings. He should go to Japan. Japan has the biggest savings in the world yet it has had a 10-year recession. House prices have dropped by about 80 percent in Tokyo. Dr Cullen should go to Australia. Australia has had compulsory superannuation at 9 percent contribution. Its national savings rate is about 20 percent better than ours and much worse than in many other countries. Australia has a large current account deficit with a much bigger savings scheme than this one. That is not to say that there is no merit in Dr Cullen’s scheme but it is to say that he is simply being misleading when he says that the answer to everything is more savings. The scheme may have some impact on incomes and returns— 
Shane Jones 
: The people like it. 
Hon BILL ENGLISH 
: People might like it but we are talking here about a long-term view for the economy. It does not matter whether people have a big KiwiSaver account if when they get to retirement there is a small economy. They will be poorer. It is simple as that. 
I would also like Dr Cullen to explain why he has decided to undermine the Cullen fund so soon. What does he think will happen? The public are going to ask why when they now have an account that the Government is putting money into the Government does not take the money it is putting into the Cullen fund and instead put that money into their accounts. [ 
Interruption 
] Winston Peters has promoted that policy. He is going around telling people that that is what will happen. He has actively promoted that policy. We agreed with the Cullen fund. We signed the legislation. We have made the commitment. Why is Dr Cullen setting out to undermine the very policy he put in place? 
The National Party is voting against this legislation because there is nothing in it that provides the balance of policy to actually grow the economy. Dr Cullen is not providing a balance of policy to actually grow the economy. We also oppose Dr Cullen’s view that this scheme will save the world. It may have some impact on national savings. If we look at these schemes all around the world—and they have all been tried—we see that they may make some difference but there needs to be an economy— 
Hon Lianne Dalziel 
: What about Australia? Talk about Australia. 
Hon BILL ENGLISH 
: I talked about Australia to members before. Australia has a 6 percent GDP current account deficit. It has a national savings rate slightly better than ours because everyone takes their savings and puts them into a tax-favoured system. That is why Dr Cullen’s strategy is so unbalanced. Sure he should take some action on savings but he should balance that up with an economy in which someone who goes to work tomorrow knows that it is worth getting ahead and an economy in which workers can keep more of their take-home pay. That is not about savings; that is about getting ahead. In the long run most New Zealanders will be able to save if their incomes are higher. 
 But in a low growth economy such as this Budget is predicting incomes will not go up rapidly—they will not. People need their incomes to be rising. There is nothing in this Budget that says the Government is getting behind a dynamic economy that will raise people’s incomes. The Government is getting behind savings; that is one component. But it is not the way to raise the growth of the economy all on its own. We look forward to the economic debate over the next few months because National will be talking about a balanced approach Labour has decided that it will tell everyone how to spend their money and Kiwis will get to decide. 
R DOUG WOOLERTON (NZ First) 
: 
 New Zealand First agrees with the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. 
Chris Auchinvole 
: Ah ah! 
R DOUG WOOLERTON 
: I note that Mr Auchinvole has an “ah” stuck in his throat. If he has spent so much time going to elocution lessons then he should have learnt to clear his throat silently I would suggest. 
New Zealand First members are in favour of this bill. We applaud the Labour Government and in particular Dr Cullen’s new-found pragmatism. We have long said that the Government should incentivise our economy through the tax system and should listen to the market signals which was a favourite call through the 1980s and 1990s. The market signals are telling us that something needs to be done to stimulate savings to help our exporters and to help our business people. Thank goodness that we see something actually happening here and we think that is great. 
I do not intend to talk about the National Party particularly but it is amazing to me how much the National members talk about Australia and about our wage relativity with Australia. The relativity between New Zealand wages and Australian wages fell more when National was in Government than at any other time. That was when wages fell and when the biggest wage gap opened up. It was all about markets it was all about signals it was all about being hands-off and it was all about the market taking care of things but basically it was all about ideology. 
It amazes me that in this debate we are hearing the good old university lectures coming out from both sides of the House. We are hearing the ideology and all of the stuff that was learnt in various universities. If I myself was more learned I could almost say this person learnt under a Keynesian model or this person learnt his or her stuff at Harvard or at Oxford. To me it is all bunkum because what matters is what works. 
I say thank heavens that this present Labour Government has seen that the path New Zealand has taken in the past has not worked and it is putting in place something that has been proven in other countries. It is not ideology. It does not fit the model of the university-trained people we are hearing from today but we in New Zealand First believe that it will work and that it provides practical solutions to the problems besetting this country. We can no longer sit back and watch our research and development going to other countries. We can no longer sit back and see our businesses leaving our shores. Sure we know that some businesses can never compete with the communist regime in China which has low wages and pours heaps of money into research and development. Inevitably we will lose some of those businesses and that is sad. But we do not need to be losing as many businesses as we are so New Zealand First supports what the Government is doing and we applaud it. 
We also applaud the lift in tax credits for charitable donations right up to the net wage of the person making the donation. So if people want to give away more than they earn to charities they will get a tax credit right up to their net income. I would make this suggestion to Bob Clarkson who we know is immensely wealthy and has done a marvellous job in the community: he can now go out there and give away more than he earns because he will get a tax credit right up to his net income. We look forward to his doing that. I know that he has been a good person in the community in which he lives so I would be sure that even if none of his other colleagues supported this measure he would support it. 
It is true that in this country we should not continually look to the Government. I applaud this Government for saying that there are other methods of having money move around and go to good causes. Some people who have done immensely well in this country are willing—and I applaud Bob Clarkson because he has done this—to give money to good causes in their community. They are prepared to give money to an organisation or a cause for no better reason than they believe in it. It is their money and if they want to give it to a worthy cause they should be able to get a tax deduction to the maximum effect out of that and this bill allows that to happen. New Zealand First applauds that because we think it is wonderful. We know that the country that has the biggest the brightest and the greatest in this area is America and it has a record of getting a huge benefit out of wealthy businessmen because it is in their interests to donate. 
I also think that if we can have our company tax rates and taxation laws aligned more with those of Australia—and this bill does that—that is a good thing. I would have to say that the thought of New Zealand and Australia having a common currency let alone our having an Australian currency would fill me with horror because I think that ultimately it would be one step too far as far as the sovereignty of this country’s economy is concerned. But if we can line up more and more of our taxation— 
Hon Maurice Williamson 
: How come it worked in Europe? 
R DOUG WOOLERTON 
: The Euro? 
Hon Maurice Williamson 
: But seriously—Italy France Germany. 
R DOUG WOOLERTON 
: Yeah yeah but that was a different deal. If we can line these things up more and more I think that is beneficial to both countries. 
I cannot end without saying that we in New Zealand First—and everybody knows this—view with great concern the way in which our industries have been bought by mainly Australians but also other countries. By and large they are buying them through savings funds from savings schemes. In the case of Australia they are compulsory savings schemes and in the case of America they are its huge university funds and other funds like that. Those countries are getting the benefit of any lift in commodity prices and the benefit of the hard work and initiative of our people and we think that is wrong. New Zealand First thinks it is long overdue for New Zealand to start looking after itself building up its own savings and starting to do unto other countries as they have done unto us. New Zealand First wants to see our people buying industries in other countries and repatriating those funds to our country for the benefit of all our citizens. 
JEANETTE FITZSIMONS (Co-Leader—Green) 
: 
 I will address three issues in respect of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. The bill will require some careful scrutiny at select committee given its size and the fact that we have not of course had any opportunity to read it in advance. 
The first issue which has not been much commented on tonight is the lifting of the cap for tax deductibility of charitable donations. The Green Party has for some time argued that that cap should be much higher. We very much welcome the opportunity here to encourage greater generosity to charitable organisations and we welcome the increased income that we hope charitable organisations will receive as a result of this. But we have to look at one or two things very carefully. 
The first one is what the definition of a charity is and what it will become in the future. We have already had quite an argument which has reached a sort of compromise position where there was an attempt to exclude from charitable status any organisation that engaged in advocacy. That would have ruled out immediately all our environmental non-governmental organisations unless perhaps they were picking up oily tarred seabirds from the coast and nursing them back to health or restoring a stream bank. Any organisation doing anything of the nature of the Environment and Conservation Organisations of New Zealand the Royal Forest and Bird Protection Society the World Wide Fund for Nature or all the many others that are involved in trying to lead public opinion and advocate policy changes to Government would have been excluded under that proposal. 
A compromise was reached whereby advocacy is allowed provided that it was not an organisation’s main function. Nevertheless I think it remains to be seen exactly how this will be interpreted in practice. I hope the Inland Revenue Department will not counter the reduction in revenue from the complete removal of the cap by clamping down very narrowly so that only those organisations that help fund ambulances at the bottom of cliffs are able to be charities and not those that are involved in working with society to try to build fences at the tops of cliffs. 
Of course it is not just a question of what the definition of a charity currently is or how that might be interpreted. It is also a question of what that definition might become in the future if too many people get too generous and the Inland Revenue Department starts worrying about its loss of revenue. 
The other question of definition is whether it will be possible to set up charities that comply technically but that in fact may become a kind of tax shelter. It is a very big change indeed to go from a limit of $1890 to a limit of one’s entire salary and I think it is a very sudden step to go that far. I am not sure that we are completely sure of just what the outcome will be. We will be looking very closely at that definition in the select committee. 
Although some charities very much welcome the raising of the cap they are not sure they want it to go to 100 percent of income because of the risk that the State will see this measure as an opportunity for it to withdraw from much of the social service work that it does and leave it to private charities. That is another risk that we do not want to see eventuate. 
Secondly I want to talk about the tax credit for research and development—another thing the Greens strongly support. We do need to lift our investment in research and development in this country very substantially particularly in those technologies that will take us through the twin challenges of climate change and peak oil that will challenge our society very deeply over the next few years. 
But again there is the question of definitions. The bill states that the research must be “systematic investigative and experimental activities”. I would ask what sort of legal definition we will have of those terms and whether we are setting up a gravy train for lawyers to argue whether research and development qualifies. Of course we have to define quite carefully what activities will qualify—we are certainly not in favour of having no definition—but I think it is important that we make sure in the select committee that the definition is robust clear and unambiguous so that we do not spend all year arguing in court about whether research and development investments qualify. 
There is a set of exclusions for qualifying research and development—for example minerals exploration social science research market development stylistic changes to products and the routine collection of information. This is very proper; those things should be a normal part of what a business does and should not require any special tax incentives. But there is the opportunity for these excluded activities to come in through the back door if they are supportive of the matters mentioned in subsection (1)(a) of new section LH4 to be inserted into the Income Tax Act by clause 100(1) of the bill. I think that will also be a matter where there is considerable legal contention about what complies with the law and we need to think about it very carefully. 
A third issue is the liberalisation of tax penalties. It is very sensible for the Inland Revenue Department to develop an attitude of voluntary compliance and to work along with taxpayers to encourage and assist them to get their returns in on time and to comply with the tax laws. But for those who do not comply the penalties now seem extraordinarily light. I cannot imagine that Work and Income would ever treat a beneficiary in this way. I cannot imagine that beneficiaries who failed to comply with the requirements on them to the tune of up to $1.3 million would face a penalty of a mere $50. It seems that some people in society are to be given the benefit of the doubt in compliance matters much more than others. 
We can see the same sort of attitude going through into the KiwiSaver tax credit scheme. Generally we think the scheme is a good idea with the one big exception being that it is increasing greatly the wedge being driven between those on benefits or extremely low incomes and the rest of wage and salary earners. Not only do beneficiaries not get the child tax credit under Working for Families that all working people get but also they will not get the employer top-up of their savings scheme. They will not get the tax credit for savings. Beneficiaries with children do not receive the same State support that working people with children get and because beneficiaries have less opportunity to save they do not even get the top-up that goes with those savings. 
We are already in a situation where we have a group of people at the bottom who are very deprived compared with the rest of society. A great mass has been lifted by measures like Working for Families—and KiwiSaver will lift it again—but some people are being left behind and they are being left further and further behind as we go further down that track. 
RODNEY HIDE (Leader—ACT) 
: 
 I have to say there is something galling about being lectured to by the Labour Government about how we need to save more when we see that this Budget is about spending $56000 million in just 12 months. So we get lectured to about how we are not saving enough and the country gets lectured to but here is a Government that is spending $56 billion—the equivalent of $13000 for every man woman and child in New Zealand—and the Government tells us we have to save. What is interesting about this Government spending is that it is not its own money it is spending. It is actually the money of the people of New Zealand that it is spending—the same people whom the Government is banging up on saying that it is their fault there is inflation. Just to put it into context core Government spending has increased $20 billion since 2000. I want to take members to a line in this Budget. 
Hon Clayton Cosgrove 
: Nice glasses Rodney. 
RODNEY HIDE 
: I thank the member; I got them in Christchurch and they are very nice. 
Hon Clayton Cosgrove 
: Whereabouts? 
RODNEY HIDE 
: From the optician on the corner of Hereford Street and Oxford Terrace. 
Darren Hughes 
: Did you get a pensioner discount? 
RODNEY HIDE 
: Well actually I did not. I wonder whether he gets a student discount whenever he goes shopping and whether he still has to produce his ID. When Darren Hughes first turned up to Parliament it was embarrassing and when Bellamy’s asked for his ID he had to explain that he had been an MP for 3 years. 
I want to take members to a line—[ 
Interruption 
] Mr Cosgrove might learn something if he listened. 
Hon Annette King 
: Don’t be jealous. 
RODNEY HIDE 
: There are many strong emotions I feel at times in this House but jealousy of Mr Hughes has never been one of them. I am not even jealous of his youthful exuberance actually because Darren Hughes is one of those interesting guys who is so young yet seems so old at the same time. It is extraordinary. 
I want to take members to a line in the Executive Summary (B.2 and B.3) on page 162: “Forecast for future new spending”. This is interesting. Dr Cullen said that he will be setting aside a “bit more spending” for election year—at a time when we have to be saving—but I want to read out how much he is setting aside for extra spending. 
Hon Clayton Cosgrove 
: Slowly slowly! 
RODNEY HIDE 
: I am sorry; yes I have to wear glasses because the print is so small. The amount is $1908 million. Let us call it $2 billion. So the Minister of Finance says we all have to save. He will compel employers to save and put that money into a superannuation account and the Government will pay people $20 a week as savings. I ask Mr Groser how much he thinks they will save in the first year and how much they will save in the following year. I think the answer is not much a few hundred million. If we allow for Ricardian equivalence—I think Mr Cosgrove would like to know about this—it will be even less. It may be $200 million in net terms at best. In fact Michael Cullen will be spending an extra $2 billion. 
Then we look at the forecast new spending for the following year and it is $3838 million or say $4 billion. If we go to year 3 it is $5786 million. For Mr Cosgrove’s benefit $1 billion is a stack of $100 bills a kilometre high. That is what $1 billion or $1000 million looks like. We have a Government that will be spending about an extra $2 billion next year an extra $4 billion the year after that and an extra $6 billion the year after that. Who knows what on! Winning an election is what it is going to try to do. That money is going to be used to try to win an election yet the Government is lecturing us about the virtues of saving! 
If the Government were interested in getting people to save it is very simple. It would put more money into their pockets—like tax cuts. 
Hon Clayton Cosgrove 
: But they do not save it. They have not saved in the last 50 years. 
RODNEY HIDE 
: That’s great! Mr Cosgrove is attacking the good people of Waimakariri because they do not save yet he is part of a Government that has increased spending by $20 billion. I tell Mr Cosgrove that those people cannot afford to save because— 
Hon Clayton Cosgrove 
: Rubbish! 
RODNEY HIDE 
: He says “Rubbish!”. Mr Cosgrove says that the people of Waimakariri can save and it is rubbish to say they cannot. Mr Cosgrove will not like this but he should get out more and start talking to some real New Zealanders whose wages have not kept pace with the costs imposed by this Government. Its outlook for growth is just 2.3 percent— 
Hon Clayton Cosgrove 
: Krystal doesn’t count mate. 
RODNEY HIDE 
: I know that Mr Cosgrove is fixated about the fact that I went dancing. I know he is upset they never asked him. I know he is upset that he cannot get a date. But Mr Cosgrove should live in hope. One day I am sure he will get a date and someone might even go dancing with him. I know they did ask Mr Peters to go dancing. He mentioned that earlier. I was not going to be the first one to raise the matter but Mr Peters said that when he was asked to go dancing he agreed. He actually agreed but he put a condition on it: that he could dance only with himself. They said: “We’re sorry Mr Peters but that’s not how dancing works.” He said he was not prepared to share the stage with anyone else so he did not turn up. What we have here— 
Hon Annette King 
: Have you had a date given that you want Clayton to have a date? 
RODNEY HIDE 
: The Minister of Police across the floor of the House on Budget night is trying to date me. How disgusting is that? Maybe 30 years ago it would have been on. I have to say: “I’m sorry; I love you to bits really I love your personality I love your sense of humour but you and I aren’t going dating. I can promise you that.” I would go out with Darren Hughes before I would go out with Annette King and that is saying something—God Almighty! 
The Labour Party is desperate for friends. We saw Michael Cullen get up in this House and plead with the National Party to vote for the Budget and we can see why. We can see why Annette King is flaunting herself before me because they want me to vote for the Budget. Well I am sorry but it is not going to work. Annette King cannot flaunt herself and get me to vote for this Budget. I promise her it is not going to work that way. But members can see why Labour wants the votes because this is the first time in New Zealand’s history that a minority of Parliament has voted for a Budget. That has never ever happened. 
Darren Hughes 
: It won’t happen tonight either. 
RODNEY HIDE 
: Oh it won’t happen tonight? 
Darren Hughes 
: No. 
RODNEY HIDE 
: Well I heard that it happened this afternoon—absolutely. 
Darren Hughes 
: No. 
RODNEY HIDE 
: A minority of this Parliament voted for the Budget. The majority of this Parliament did not vote for the Budget. I can see why Annette is reaching out to me. Michael Cullen is reaching out in a caring MMP way to Bill English and John Key. Why? Because the Labour Party is losing its friends it is losing its support—[ 
Interruption 
] In the case of Annette King I wonder whether it is losing its mind. I really do. 
TE URUROA FLAVELL (Maori Party—Waiariki) 
: 
Tena koe Madam Assistant Speaker. Kia ora tatoui te Whare teneipo. I as a representative of the Maori Party come to the House tonight confident of course that the grand total of 3 hours that we have had to consider the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill has been sufficient to analyse the mere 258 pages of the bill! All jokes aside this is the big wash-up bill which includes amongst other remedial matters tax credits for research and development tax credits for employers of up to $20 per employee tax incentives for giving to charitable organisations and a whole host of amendments to the income tax rates. 
The initiatives on research and development and on skills training are going to be good for business and we hope that the proposals will do something to address the state of emergency that the manufacturing sector has reported over recent weeks. This bill introduces tax credits for science and technology - based research and development conducted predominantly in New Zealand by New Zealand businesses. Of course it is probably too late to prevent our iconic industry Fisher and Paykel from moving itself and its manufacturing operations to Thailand. It is unfortunate that Thailand pulled out all the stops—offering tax breaks and helping with training and other incentives—while this Government unfortunately just waved its premier washing machine and clothes dryer manufacturing business offshore. We said at the time that the Government must do something to address a manufacturing strategy—a strategy that will benefit those low-income workers who will be unlikely to be able to support the 4 percent contribution required for KiwiSaver. We remind the House this evening that the manufacturing sector is a major employer of Maori workers. In fact some 32900 Maori were employed in 2005 and another 23200 Pasifika workers. 
Of course the jury will be out in relation to whether the announcements are too late to stop Dynamic Controls Click Clack G L Bowron and possibly Sleepyhead Manufacturing from being able to stay in the “land of milk and honey but not much money”. We have all heard the warning signals about the exorbitant costs of retaining large-scale facilities and employees in Aotearoa and we will be watching with interest to see whether these incentives will make much of the difference that is needed. We also know that there is a huge demand for research and development which begs the question as to whether the $88 million injection announced today will respond to that. We have to wonder whether setting an entry point of $20000 is just too high a threshold to really enable companies to enter into the scheme. 
With regard to giving tax credits to employers it begs the question of why we do not do away with all the red tape and introduce tax cuts for those on low incomes. Although we support the intention of KiwiSaver to address our relatively low personal savings rate as a nation we cannot avoid the fact that hardship is increasing. The level of social deprivation in Aotearoa is deplorable. It was only a few weeks ago that the OECD economic survey of New Zealand reported that our living standards have remained some 16 percent below the OECD median for some years now. I remind the House that New Zealand suffers from what economists Dr Susan St John and Dr Steve Poletti describe as “an intractable child poverty problem”. 
I was interested to read the release this afternoon from the Auckland chamber of commerce in response to the Budget in which the chief executive Michael Barnett said: “… but to my mind our problems are urgent; we need to get beyond gradualism. If we are going to be an exceptional country and transform our economy we need to do exceptional things that are transformational.” It could be said that investment in research and development compulsory employer contributions and personal tax breaks of about $20 a week are steps towards getting the economy back in balance but I ask: what about the greater society? How do we as a Parliament address the ever-growing gap between rich and poor? The social cost of being unexceptional is too high. The issues of economic insecurity that Mr Jones referred to earlier tonight will still remain long after urgency has been wound up and we all return home. 
I want to refer to the initiative to set a 5 percent deduction limit on donations made by companies and Maori authorities. Like many multifaceted bills this bill has some good changes alongside some not-so-good changes and this initiative is a good one that responds to our culture of giving—the sense of manaakitanga that some 1.3 million people in Aotearoa represent through their dedicated commitment to the community and the voluntary sector. This bill introduces amendments that substantially increase the tax relief for donations of money made by individuals companies and Maori authorities to charitable organisations including removing the Maori authority net deduction limit of 5 percent of an entity’s net income. 
Finally I refer to the confusing picture of changing names. In the current names we have family assistance which now becomes Working for Families tax credits. Family support becomes family tax credits. The in-work payment now becomes the in-work tax credit. The parental tax credit has not changed but the family tax credit now becomes the minimum family tax credit. Some basic questions have not been able to be answered in the quick scan of the 258 pages we have had to look at but here perhaps are some. Why has there been no consultation about the decision to change the name from family support to family tax credit? The name change adds another complicating layer of confusion to an area that is already fairly confusing. We can ask anyone on the street what family support is and they would have a pretty good idea that it applies to every child regardless of whether the parents are in paid work. Whereas the old “family tax credit” previously referred to payments for children whose parents were in work it will now be the term for family support. The family tax credit now becomes the minimum family tax credit. If that is confusing to anyone in this House members should spare a thought for the many New Zealanders at home tonight. 
An obvious outcome of the confusion is that families will find those forms of assistance even more confusing to apply for and they will be more difficult to get. Evidence already shows that that will be disastrous for Maori communities. Whenever complications have been introduced Maori are more likely to miss out than other people because we simply do not know what we should be receiving. We wonder too whether the name changes will be the justification for yet another round of expensive advertisements regarding the name changes. Another important outcome of the confusion is that using the name “family tax credit” which meant one thing but will now mean something else raises concern that the field becomes very difficult to analyse and write about with any ease or coherence. 
Those are all questions that cannot be answered tonight and no doubt they will be just the start of many more discussions. In light of such great uncertainties and unknowns the Maori Party will be abstaining from voting on the first reading of this bill. 
Hon CLAYTON COSGROVE (Associate Minister of Finance) 
: 
 I rise to support the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. Earlier this evening I made a statement that I want to reiterate in respect of the KiwiSaver provisions of this bill. As with the Taxation (KiwiSaver and Company Tax Rate Amendments) Bill this bill corrects what this evening I call 30 years of the biggest perpetration of economic and social vandalism inflicted on this country and this Parliament by the then National Government. I refer to what Robert Muldoon did in pulling the rug out from under every Kiwi who had signed up to the Norman Kirk Labour Party compulsory superannuation scheme. Tonight the provisions in this bill as with the first tax bill we debated tonight bed in and correct that wrong. 
I challenged members over the other side—Mr Foss Mr Tisch— 
Tim Groser 
: John Hayes. 
Hon CLAYTON COSGROVE 
: —no not “Sir Les Patterson”—and Mr Groser who does have a good memory of history to stand up justify and put forward a policy position. We heard Mr Key say we do not need savings schemes. He said that on television tonight. Mr Key thinks we do not need incentives to save. Mr Hide got up and said that we do not need any of this stuff because Kiwis will invest their money where they want and will invest it prudently. Well I say to Mr Hide—that great economic genius of our time who gave a lecture or two at Lincoln University somewhere along the way—that if we look at our economic history in the boom times the real boom times in this country of the 1950s and the 1960s we see that we as Kiwis do not save in the good times. 
Hon Annette King 
: We spend. 
Hon CLAYTON COSGROVE 
: We spend. And what Kiwis are looking for is some sort of incentive some sort of cultural shift to incentivise them to save. 
But of course Mr Key on television tonight said that Kiwis do not need incentives to save. Then we look at what Mr English said. He said that Kiwis do need incentives. But it is a bit like National’s position on tax. For 3 years or 6 years—nay since the 1990 election—National has claimed that we need tax cuts. Then on 24 April on  
Morning Report  
Bill English said: “And we would agree the last thing it”—it being the economy—“would need would be sweeping tax cuts.” Then he came into the House and announced with some sort of chest-pumping pride that he would vote against the cut in corporate tax and that he would vote against a KiwiSaver scheme that backs every Kiwi in New Zealand to make provision for his or her retirement. 
Labour says to all New Zealanders that if they put some money up and if their employers put some money up the Government will put some money up. By 2011 that will add up to around a hundred bucks a week around $5200 a year that people will get back to provide for their retirement. That of course is the great divide between the parties—we believe that Kiwis should be incentivised to save. We do not believe in the slash-and-burn mentality of cutting taxes right across the board. Kiwis will compare that policy of the National Party which would have given my constituents in Waimakariri—whom Mr Hide waxed so eloquent about—around 5 to 10 bucks a week with what the Government is proposing and will implement with KiwiSaver which will give them $5200 a year and I say to the National Party that Kiwis are not stupid. 
Dr Lockwood Smith can look on from over there with his childish delicate flowerlike grin but I will tell members what he cannot do. On Monday he has to front up to the businesses in his electorate and explain in his boyish charming cream-puff way why he fought an election saying that there should be a corporate tax cut and why his party tonight voted against a corporate tax cut. In his delicate naive boyish sort of way he will have to go to those businesses and give an explanation. 
I challenge him to get up tonight along with Tim Groser Lindsay Tisch and that genius when it comes to Inland Revenue Department matters—especially his own—Craig Foss and tell us what National members will say to the business community. What will they say to Phil O’Reilly of Business New Zealand? He has been at conferences where he has said in front me in my capacity as Associate Minister of Finance that Business New Zealand wants a tax cut and that the National Party will give a tax cut. That is OK; Phil is all right. 
The National Party campaigned for years on tax cuts yet tonight it voted against it. Tonight National members continue the 30-year perpetration of what I called in the last debate the biggest social and economic betrayal of Kiwis when the National Party—and Dr Lockwood Smith laughs— 
Hon Annette King 
: No he’s not laughing. 
Hon CLAYTON COSGROVE 
: Yes he is in his boyish delicate flowerlike way. 
Hon Annette King 
: He’s agreeing with you. 
Hon CLAYTON COSGROVE 
: He laughs because he continues to perpetrate the economic vandalism of Rob Muldoon when in 1976 he pulled the rug out from under every Kiwi. 
Dr the Hon Lockwood Smith 
: I laugh because I feel sorry for the poor prick. 
Hon CLAYTON COSGROVE 
: I beg the member’s pardon? 
Dr the Hon Lockwood Smith 
: I said I laugh because I feel sorry for you. 
Hon CLAYTON COSGROVE 
: No the member did not. He said something silly but he will regret that because he has proved he is a small man with a small policy and a small brain. Every Kiwi who listens to that mob over there knows that he and every member of his party who has stood up tonight said for 3 years that National wants a corporate tax cut and tax cuts across the board and tonight they voted against it. Well there is a word for that. He used a word against me and I will not lower myself to that member’s level but I say to Dr Lockwood Smith—and I look him in the eye—that if he thinks the communities in New Zealand are stupid and can be conned and hoodwinked by him I would like to be at the businesses he talks to on Monday when he explains why he voted against a corporate tax cut. I will yield to the member right now if he will tell us. 
Dr the Hon Lockwood Smith 
: Yeah because businesses want us in Government not you! 
Hon CLAYTON COSGROVE 
: No. That member said that his policy was to cut corporate taxes. The problem for that member is tonight this Government has brought home the bacon. Sadly that member has flip-flopped on every policy. The only shallow mediocre tactic that those members have is to take every policy this Government has adopted that is popular and nail themselves to it and drop every policy they went to an election with that the public did not like and deep-six it somewhere dark and deep where only Lockwood would know where to go then try to “me too” themselves to the election. 
But the line has been drawn in the sand because tonight Kiwis can judge a Government of consistency a Government that put out a firm platform before the election a Government that then placed on top of it a solid Budget that enhances KiwiSaver a Government that laid out a tax reduction policy for corporates and then they can judge an Opposition member like Dr Lockwood Smith a member of the Finance and Expenditure Committee who got chased out of the room by students and who campaigned in the last election on a corporate tax cut yet tonight his leader and his deputy leader voted against it. There is a word for that. He will use it; I will not. But I challenge him again. I say to that member— 
Dr the Hon Lockwood Smith 
: Why is Mike Moore so embarrassed about this member? 
Hon CLAYTON COSGROVE 
: That member challenges me about Mike Moore. I will say that Mike Moore did not flip-flop. Mike Moore did not promise a tax cut to every business in the country when he was Minister or Prime Minister then turn round and vote against a cut when members opposite proposed it. So I say to the member that he should put that in his pipe and smoke it because there is a word for him. He represents everything that is dark about his party. I challenge him. I will come with him on Monday I will go to the businesses he visits and I will see what explanation he gives to businesses because he will not be able to look them in the eye. 
CRAIG FOSS (National—Tukituki) 
: 
 It is a pleasure to finally stand up to speak to the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill tonight. 
Earlier Mr Shane Jones the chairman of the Finance and Expenditure Committee made a couple of points. It was an outstanding example of why we need more productivity in the public sector. But he also showed he was quite ready to fill the shoes of Parekura Horomia because like Parekura every time he sits down after getting up and speaking—he speaks very powerfully; he is a great orator—one has no idea what he said. One actually has no idea what they said but one knows they got up and said something out loud. 
 I will pick up on a couple of points that Dr Cullen mentioned in his speech to this bill and the earlier bill the Taxation (KiwiSaver and. Company Tax Rate Amendments) Bill and I have to take issue with one point. He claimed the KiwiSaver scheme is one of the keys to today’s Budget and he talked about the amount of savings that will be built up and will be invested in New Zealand. Well that is totally untrue. He has absolutely no idea where the savings in these KiwiSaver accounts will be invested. He has absolutely no idea of the risks that are entailed once these funds are invested from default providers or wherever. So for him to get up and say there are billions of dollars on the plate tonight to be invested in the future of New Zealand is totally wrong. 
Another term Dr Cullen kept using was “paid for by the Government”. That is partially true but the Government is only a conduit. Money is taken by the Government in the first instance and is then transferred out by the Government in the second instance. Today’s Budget has been christened the “money-go-round Budget” and it is hot on the heels of last year’s “chewing gum Budget”. At that time the 67c a week indexation in the “chewing gum Budget” was supposed to be the highlight. Well it was appalling but in contrast with today’s effort where there is zero cash until a person is 65 the “chewing gum Budget” does not actually look too bad in comparison. 
The linchpin of the Budget today and what all the talk has been about is the KiwiSaver scheme. I do not think there has ever been a programme of any Government that has had such a terrible start to its life—a stuttering start with so many changes and amendments. We are here under urgency. Why are we here under urgency when we speak of anything to do with the KiwiSaver scheme? When the specified superannuation contribution withholding tax was announced as the bill was introduced into Parliament for its second reading or perhaps the Committee stage we flew into urgency and Parliament was informed about that about an hour before. The mortgage diversion part of the KiwiSaver scheme was hot on its heels and again had to be pushed through urgency. Why on earth cannot the New Zealand public present to a select committee on these points? The same applies to the specified superannuation contribution withholding tax extensions which were announced in December and were basically an admission of failure in the original design. But I would congratulate the Government on that extension which at least tries to bring private schemes under the same umbrella. 
I feel sorry for the officials who will be dealing with the legislation tonight. There are another 188-odd pages of KiwiSaver legislation with amendments and Supplementary Order Papers to come no doubt. Why can we not just get KiwiSaver right in the first instance? The select committee spent 6 months on the original bill and lo and behold the major changes—things that fundamentally change this bill—were introduced rushed through and bulldozed into the House under urgency. 
It was interesting to watch the Labour backbenchers as Dr Cullen read what is possibly his last or second to last Budget. They were cringing. The good old spontaneous applause was not all that spontaneous; it was less spontaneous than last year which perhaps is a reflection on the polls they had all seen particularly TV3’s polling around tax cuts and Dr Cullen. I think Government members were also cringing because they know—particularly the backbenchers and those who once had electorate seats—that they are going to have to go around the country this week to explain to people who are struggling to get by where the money is. Those people will say: “Show me the money.” Sure Government members can draw wonderful diagrams of money compounding to $200000 $300000 and $400000 in 30 or 40 years’ time; that is what insurance agents do right now when they try to sell funds to people. But when their bill from the State-owned electricity company has gone up another 10 or 15 percent when people have to pay another 10 percent for petrol when their rates go up another 10 percent per annum that is what counts. That will be the shameful legacy of this Budget once the honeymoon is over. 
I heard an earlier speaker talk about how many phone calls are coming through to members opposite about the Budget. They are probably just asking where the money is and asking members to show them the cash. What is Grey Power saying about this Budget? What is in this Budget for the over-65s? What is in this Budget for the 20 to 25-year-olds? Where is the cash for them? What is in this Budget for those people whom the Labour Party members have a propensity to say they care so much about? Actually they do not care for them whatsoever. There is absolutely nothing—no cash—in this Budget for those who have done the hard yards have already retired and will continue to struggle. 
The stinginess of confiscating the “chewing gum tax cut” is outrageous. A lot of New Zealanders have suffered fiscal drag. Fiscal drag is when inflation drags people up into higher and higher tax brackets. There are two ways out of that. The tax brackets can be moved up with inflation or productivity in the economy can be grown to get more bang for our bucks. Inflation in New Zealand has been underpinned by the overtaxation and unproductive spend-up of the current regime. This Budget is not about a snapshot of just today; it is about the series of Budgets of the last 7 or so years. The difficulty that Dr Cullen is facing right now is because of the failure of those seven previous Budgets; it is not about just this one right here today. 
Fourteen percent of New Zealanders are now in the highest tax bracket of 39c. When Labour came into Government one of its pledge card promises was that 5 percent of New Zealanders would be in that sector. There is now a 200-odd percent increase; it is absolutely absurd. Once this Budget’s honeymoon is over once the hundreds and thousands of dollars have been talked about on TV and on the chat shows etc. New Zealanders will start to wonder why on earth they are struggling to make ends meet and how on earth they will find the cash to pay the bills to pay the increasing floating interest rate on their mortgage which is now near double figures and to pay for some of the items I mentioned before—quite simply how they will get by to live and perhaps to put a little bit together to save. Apparently saving is so important. 
They will finally realise after about 6 months of this policy that Labour has cut their real wages. It has cut their real wages and cut their purchasing power. As my colleague Bill English said earlier that is exactly what this Budget is about—Labour is essentially announcing a wage cut to New Zealanders tonight. That is an absolute disgrace. It will start to hit home once those bills start to be paid in a few weeks’ time. Under this scheme Labour will take cash off workers now today instead of giving them a pay rise and will put it at risk in a fund perhaps until those workers are 65. Well what happened to the party that used to talk about a decent wage for a decent job for a decent living to get by? 
What will be the result of this Budget? Quite simply it will result in the battlers and those who are unfortunately at the bottom of the socio-economic heap having more debt. They will be stuck with more debt. They cannot afford to participate in this programme as it is announced. Because someone would have enrolled them in the KiwiSaver scheme and they would have forgotten about it they will be down at the dodgy shop of the guy on the corner borrowing at interest of 20-odd percent. 
What will happen to the over-65s—the retired people? They will do more reverse mortgages because they will have no more cash to pay the bills. They will start to eat their equity which is exactly the opposite of what Dr Cullen presumably was intending. 
Finally Dr Cullen also spoke about the current account deficit and what a big deal that is. Well I just took a moment to look up the 2000 Budget and in that Budget Dr Cullen was particularly concerned about the current account deficit and the impact it was having on New Zealand’s economy—this was at about the time that the New Zealand dollar was at about 54-odd US cents. At the time Dr Cullen said the current account deficit of 5 percent was much too high and that it would be heading to 2 percent over the next 2 years—oh really? In 2007 the current account deficit is at 9 percent—about $14 billion—and that is the core of the problem. There has been a series of failed Budgets which is why we have these problems today. No Finance and Expenditure Committee inquiries will get Dr Cullen out of the hole he has been digging for himself for 7 years. 
SHANE JONES (Labour) 
: 
 It is an absolute pleasure to stand again and applaud the work that Dr Cullen has done. I look forward to the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill being referred to the committee that I chair the Finance and Expenditure Committee. I have no doubt that after the hyperbole and after irrelevant flights into economic fantasy have faded away from the walls of this House my friends on the other side of the Chamber will see there is much of great worth in this bill and they will ensure that the select committee delivers the finest product it is capable of delivering for the benefit of Aotearoa. 
We have just heard from that person Mr Foss who is colloquially known as “Granny Smith”. He makes the point that workers are not getting a decent or reasonable level of recompense yet when he had the chance to vote to support an increase in their wages the hand above his slightly balding head was the first one we saw opposing it. So one cannot have it both ways—no. But I am prepared to make allowances because that speech reminded me of a third-former in the biology lab pulling off the legs of a great big taniwha. The taniwha is the public and the more he pulls the legs the more the public will demand to know what the newish guys on the other side of the House stand for. What are their remedies? 
We do not want to hear stories about flash levels of incomes from money-changing rooms. We do not want any more tedious renditions of trade discussions which have long since put listeners out there in Aotearoa to sleep. We want a clear distillation of what it is that they propose to do to address the three things that this Budget takes care of. 
No. 1 is the savings deficit. No. 2 is the ongoing investment in physical and human capital. When people do not possess either a vision or a coherent set of ideas that might comprise something of a narrative they are reduced to looking through the ever-diminishing eye of an needle—which is actually like a scratched record in terms of how National members speak. They see nothing. They see only these tiny little parts of the story. That is not what the public is looking for which is why I took a phone call before I came back to the House. Someone asked me: “Shane Jones is it true at long last that the tax system is going to actually improve the savings of our mokopuna and our kids?”. I said: “Absolutely.” He asked: “And do you mean to say the firms of Kaitaia Whangarei Auckland Hamilton—[ 
Interruption 
]—and even of Epsom—are going to wake up tomorrow with lower tax rates and are going to receive a host of incentives? Is this what we are going to receive Shane?”. I said to him: “At least. And the next time you go to catch a cab and you find National guys elbowing you out of the way as they race to the cab in front of you ask them what it is they are proposing to do.” 
I said a rather charitable thing about John Key before but there is an additional thing I will say about him. We have watched the Opposition—like a team that loses to NgatiPorou East Coast—try to come on to the field and play against a far more match-fit superior and stronger team. At least this time the Opposition has put someone on the field who in order to win is prepared to completely disrobe and to grab his opposition’s clothes: he is trying to avoid being hit by us through pinching our ideas. So now we know that strategy. 
But the reality is that we will fight anyone who wants to stand in our way because without a sliver of ambiguity this bill is what we stand for. This bill is what we will take to every firm community and household. We will say to them that stand or fall ebb or flow this is where they will find the Labour-led Government standing for the next 12 months. We will be able to say: “OK adversarialism is very strong but why would you want to deny the firms investors and entrepreneurs the opportunity to grow businesses through some very sensible and progressive tax changes?”. I accept—as Bill English said—that there is a certain amount of adversarialism but this actually shows that the Maori proverb is correct—kei runga te korero kei raro te rahurahu; the lips are saying something but the rest of the anatomy is doing the opposite. That is what this rhetoric shows—make no mistake about that. 
Of course with this bill not only have we gone on with our social investment and been committed to raising and enriching our sense of identity but we have very much focused on an issue that will stand as the legacy of our treasurer—the day that we boldly agreed to put aside the gains that are currently available and inject them into a future focus strategy. That takes a lot of courage and boldness. I will tell members something else. We did not succumb to the flirtatiousness which we see on the other side of the House in promising people that they will spread goods like confetti as at a false wedding. What will that confetti give them? A momentary fix. Yet what people are really telling us is: “OK you’ve invested in social capital; the health services housing and other key elements of the socially progressive State are intact. Now you are coming back to address those issues that lie in private enterprise.” In fact I can see us possibly having to sell tickets as firms race to address our select committee. I look forward to what will be in the Budget next year because ours is a step-by-step approach. 
I omitted something in my earlier speech and it relates to what we are doing in Maori matters. I heard Dr Pita Sharples make yet another foolish statement—as he sought to do last week over Treaty matters. I say to Mr Parekura Horomia that if there was ever a reason why we need to invest more in numeracy and literacy then Dr Sharples evidenced it this evening on television. He said that no there was nothing distinctive for Maori in the Budget. Well Maori will be big winners in the KiwiSaver scheme. At the moment far too many of our people die before they actually gain access to superannuation. I remember Sir Graham Latimer saying that it is actually a case of equity. So many of our people do not live long enough to enjoy the pension in their latter years. The KiwiSaver scheme will enable them to address that problem. Secondly the KiwiSaver scheme will allow them to improve homeownership stakes. You see not everything needs to wear either a moko or a korowai in order for the scheme to be useful to Maori. Maori are an integral part of the rank and file and within the full meaning and breadth of the term “Aotearoa”. 
We are going to expedite the settlement of claims despite the best efforts of the Maori Party to spread misinformation and confuse people. Fortunately for people that confusion will last only 18 more months; then it will be all over. That party will go the way of Tuku Morgan Tau Henare—and just wander around. Of course that party is losing enormous amounts of support at the moment. Its members are holding emergency meetings up and down the country on marae where they meet with the caretaker and a couple of stray animals but those days will soon be disappearing. 
Just to show how wide and how insightful our investment in education is we are going to invest in kura kaupapa wharekura and wananga. Of course National does not believe in wananga—no. Bill English tried to have his mock press interview with Don Brash ambushed by National Party members from the Te Wananga o Aotearoa. They had to go in and participate in a mihi but they were actually there to pour scorn on the wananga. They went to a mihi but they had to ring up the Maori Language Commission to get a translation over the phone. No we are not having any more of that. We are investing in wananga kura kaupapa and wharekura and despite the politics of discord that unfortunately for Aotearoa have been poured out throughout the country over the last few years we have moved on beyond that. 
Of course the great puzzle for Maori voters is why our friends from the Maori Party are busily conjuring up policy with National wandering around trying to meet with NgaiTahu and Tainui to buy out relativity clauses and at the same time saying that the State is spending too much money. Therein lies the tragedy of what these two groups put out together—one is locked in victimhood; the other is locked in falsehood. Goodnight Irene; kia ora tatou. 
TIM GROSER (National) 
: 
 There have been documents consisting of many pages tabled tonight. There has been a deluge of words some less useful than others and in them have been matters of some complexity and also some quite simple matters. Generally as in life the more important things are the quite simple things. 
Amidst the many complexities I am still puzzling over one thing and that is that in the Budget speech under “National Identity” the keynote statement says that giving $245 million or $246 million more to people who live outside New Zealand in the form of development assistance will help our national identity. When one tries to explain to Aucklanders why they feel aggrieved about the mix of policies in this Budget and then tries to explain why they should be positive in terms of their national identity one has some hard yards ahead. 
While on this matter I note that it is symptomatic of the general spending problem. There is nothing wrong with trying to make progress towards our higher overseas development assistance targets. There is absolutely nothing wrong with that but the fundamental speed wobbles involved in the expansion of the existing programme as identified in 2005 by the Marilyn Waring report have not even started to be addressed. That is just one small example of one of the fundamental things that are wrong with the Budget strategy tabled tonight. It is about more spending. More billions of dollars are going down delivery mechanisms that are seriously flawed and no serious attempt has been made to fix them. 
But in respect of the simple things the simple truths what strikes me is that if we try to analyse the two centrepiece issues in this bill which are the Working for Families additional elements and the KiwiSaver elements we see that one simple truth comes through. When we ask ourselves why the Government has gone down these complex routes why has it not gone for simple solutions such as comprehensive tax reform over the years why has it gone down these bureaucratic targeted approaches routes I think there is a simple truth staring us in the face. They do not trust New Zealanders. 
Debate interrupted.