Cullen Michael: Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Instruction to CommitteeCWH In Committee 
Cullen Michael: Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Instruction to CommitteeCWH In Committee 
[Volume:613;Page:10096] 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 I want to respond by saying that David Cunliffe spent a lot more time in the private sector than Mr Hide ever did. Mr Hide started off as some kind of scientist then pretended to become an economist who taught I think part-time at Lincoln University where nobody could tell the difference between whether he was teaching science or economics. 
However let me respond to him. We heard all this garbage back in 1999—that is: “If we put the top tax rate up to 39c everybody will go overseas nobody will work and economic growth will stop.” But what have we seen? Firstly net migration has reduced every year under the Labour-led Government. It is now much lower than it was under the National Government. Secondly economic growth has been above the OECD average in all but one of those years. Indeed this year we will be above the OECD average again. For the first time that I can remember for a very long time we will be above the OECD average for at least 3 years in a row. Thirdly there is no demonstrated connection at all between average tax rates or marginal tax rates and productivity. 
If we had had German productivity growth—because the member confuses gross domestic product growth with productivity growth—for the last 20 years now we would have been at least as rich as Australia. Australia’s problem is its sclerotic labour market; it is nothing to do with productivity growth which has been averaging 2 percent or so per annum. We have averaged about 1 percent or so growth per annum. If we could double that we would be doing fine as a country. President Clinton put up tax rates at the top end in his first year and had the longest successful boom in United States post-war history. It took a Republican president to manage to turn that around and generate massive federal deficits. 
I want to talk about the logic because Mr Hide really thinks that the well-off are really really stupid. 
Hon David Cunliffe 
: Do they vote ACT? 
Hon Dr MICHAEL CULLEN 
: Some of them do vote ACT and they are really really stupid if they do that. But members should listen to what Mr Hide says: if one’s tax rate goes up so that one’s net income goes down one will work less hard so one’s net income will go down even further. That is Mr Hide’s logic. We are supposed to believe that someone sitting up there in Paratai Drive is saying: “Oh goodness me they have just put my tax rate up so my income’s come down so I think I’ll do a lot less work so that my income drops even further.” That argument is really really stupid but it is put up almost every time by people in favour of somehow lowering that top tax rate. Equally we could argue that if people’s net income goes down they need to work harder to get their net income back up to where it was. The only survey I have ever seen on these matters—done years ago in the UK—asked: “If the top rate went up would you work less hard work the same or work harder?”. One third said “less hard” one-third said “the same” and one-third said “harder.” Nobody actually knew. 
We do know that when we have the kinds of stupid tax rates National used to have—at 66c in the dollar—then it is worth our while spending a dollar to avoid more than a dollar’s worth of tax. That rate is such that people can actually make money by spending money under that tax system. At a rate of 39c people cannot do that. Indeed even all of these famous schemes people use at best may defer their tax liability because at the end of the day the money has to come out go back into their own hands and be taxed at their individual rates. 
 What they are really saying now is that given $1 billion $2 billion or $700 million to spend—and this is Dr Brash’s argument—we put it at the top end with nothing for the bottom. Why? Because those at the top end are the only people who create wealth. In other words according to the National Party and the ACT party only those people on high incomes create wealth. That is utter garbage and an insult to every ordinary Kiwi out there who is battling away working for this country creating wealth and producing goods and services. Wealth is not created in Paratai Drive alone I tell Mr Hide. When that member wakes up to that fact his party might get more than 4.5 percent in the polls and perhaps something a bit more approaching the 45 percent that this party gets—this party that recognises who creates wealth in this country. And that is everybody who contributes in terms of working.