Copeland Gordon: Budget Debate 
Copeland Gordon: Budget Debate 
[Volume:626;Page:20834] 
GORDON COPELAND (United Future) 
: 
 I would like to begin by referring to the workplace savings scheme. In the Budget it is now called the KiwiSaver scheme. United Future welcomes this scheme. New Zealand must lift its savings level. Let us look at the figures. We have negative household saving. We have very high levels of overseas debt—in fact 88 percent of GDP. The important thing to grasp is that all that money is owed by New Zealand households and businesses. In net terms the Crown itself owes nothing. We have a continuing high balance of payments deficit. A price is attached to all that—not only the fact that we are so reliant on overseas investment to keep our economy going forward but also that we now have a risk premium attached to the New Zealand interest rate. 
I was very very disappointed to hear that as a result of the “Economics ‘R’ Us” policy—the “R” standing for Roger and Ruth—in the late 1980s and early 1990s many probably most of New Zealand’s major corporations wound up their staff superannuation schemes. Why? The reason was some ill-conceived Chicago school doctrinaire economic theory that had no reference whatever to the realities of human behaviour. No thought was given to the fact that if we discourage humans from doing something they will probably follow our lead. That is exactly what Roger Douglas and Ruth Richardson did. They adopted a highly theoretical tax / tax exempt situation based on the approach of no jam at all on day 1 but plenty when one retires in 20 30 or 40 years’ time. What a dopey system that is if the idea is to encourage people to save. In other words Roger Douglas and Ruth Richardson between them set out to discourage long-term savings through diversified savings schemes. And can members guess what happened? People stopped saving. It is like night following day. If we discourage something we get less of it. 
The KiwiSaver scheme therefore is the beginning of a reversal of those truly disastrous policies and it is well overdue. I wholeheartedly congratulate the Government on at least—at last—acting to reverse the trend and take some initial steps to encourage savings. Before leaving the KiwiSaver scheme let me mention a couple of aspects of it. First of all the Minister told United Future in his briefing—it was not in the Budget papers—that the KiwiSaver scheme will enable people to use their savings to repay mortgage debt. That is a vitally important component of the KiwiSaver scheme because obviously people who have mortgages are way better off to repay their mortgages than to try to save money. With a mortgage interest rate of 7.5 percent one actually needs to earn about 12.5 percent pre-tax in order to have about 7.5 percent after tax. Such returns are simply not available so the wise thing to do is always to repay one’s mortgage. If that mechanism is put in place—and I support the Minister’s resolve in that regard—it will actually ensure that people can stay in the scheme and will be encouraged to join it. 
The second aspect of the KiwiSaver scheme is the housing deposit point initially suggested to the Government after the Harris report came out. I make the point that the Harris report was completely silent about using the KiwiSaver scheme to put a deposit on a first home. That suggestion was put to the Government by the United Future party. It has been taken up in this Budget to the extent that a Government subsidy of up to $5000 per saver will be granted to people who have been in the scheme for 3 years. Potentially that is up to $10000 for a couple to help them to buy their first house. We believe that is a very very worthwhile and long-overdue initiative. We come back to the same point: if we encourage something we get more of it. If we encourage people to buy their first house they will be able to do that. Let me make this very very clear: it is United Future’s policy to see realised the old Kiwi dream of as many New Zealand families as possible being able to have the security of owning their own home. It is the route to an ownership society; it is the route to long-term security. 
There are also some other initiatives that United Future took to the Government concerning savings. First of all we asked that the earnings on superannuation funds be taxed not at the flat 33 percent tax rate which overtaxes 45 percent of all savers but instead at the marginal tax rate of the saver. If we lower the tax rates that will obviously encourage savings. I am pleased to say that the Government accepted that bid and it is included in the Budget. The second thing we suggested to the Government—in line with Craig Stobo; we were not the only ones to suggest this—was that the capital gains tax on domestic share investments through managed funds be abolished. Again the Government accepted that recommendation and that is also a very very worthwhile step forward. We not only have to save but also to ensure that our savings go into high-quality investments. It is also a problem in New Zealand that so much of our savings has gone into low-quality investments. One of the reasons is that no capital gains tax has been put on residential property investment but a capital gains tax has been put on domestic share investments through managed funds. That is crazy. It is an anomaly and we are very very glad to see the back of it. 
I want now to talk about the so-called deep dark secret concerning tax bracket adjustments for the effects of inflation. As is well known in this House I have banged on about that matter for 2½ years including last year when I brought into the House an amendment to a tax bill providing for an adjustment to the tax bracket—a 13 percent adjustment I might say—which I wanted to take effect from 1 April 2005. At the time the Government vetoed that but I am glad to see that at long last—although it is too little too late—it has acted on it. This is actually an historic moment that breaks the logjam with regard to fiscal drag. Never before has a New Zealand Minister of Finance committed to a regular adjustment to the tax brackets to offset inflation. The fundamental unfairness of fiscal drag has been pointed out by many people since the days of Rob Muldoon when he cynically used high inflation rates to boost his coffers at the expense of taxpayers. He was caught; he was found out. Yet in all the Governments we have had since whether they were Labour or National Governments no adjustments to the tax brackets have ever been made except once and that unfortunately lasted for just a little time. It was when my leader the Hon Peter Dunne was Minister of Revenue that we last had a tax bracket adjustment. Unfortunately however when the National - New Zealand First coalition Government came in it reversed that very sensible step. 
United Future will adjust the tax brackets by $5000 from 1 April 2006—from $38000 to $43000 and from $60000 to $65000. Under United Future no tax at all will be paid on the first $3000 earned by all taxpayers. In combination that will lead to a saving of $11.25 per week for those on $20000 of $16.44 a week for those on $40000 and of $30 a week for those on $65000. However the jewel in the crown under the United Future tax policy is income splitting for couples with dependent children. That yields huge gains. For example a single-income family on $45000 will be better off by $40.67 extra per week. At $55000—which is the income bracket of the Gilbert-McLachlan family in Waihi who featured in the media last year—families will be better off by $66.63 a week and at $80000 which is about the average income for a household headed by a couple in New Zealand the amount will be a massive $154.62 per week. Those are fundamental gains; they are very real gains for New Zealand families. It is fundamentally unfair that although self-employed people in farming and business can already income-split for taxation purposes those people who earn salaries and wages and pay PAYE cannot do that. 
Also income splitting is the answer to the problem of high marginal tax rates alluded to earlier by Lockwood Smith. John Key has done some tables on that. There are high marginal tax rates but if we put income splitting into the equation the problem disappears. So that is also the answer to the high marginal tax rate problem. Income splitting dovetails in beautifully with the Working for Families package. It starts at about the middle-income bracket and goes up. It would be a very very positive step forward for New Zealand families. Unfortunately United Future is the only party in this House that is yet proposing that policy.