Smith Lockwood: Supplementary Estimates — Imprest Supply Debate 
Smith Lockwood: Supplementary Estimates — Imprest Supply Debate 
[Volume:618;Page:13809] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 One of those front-bench members whom Mr Tamihere has just been referring to is of course the Hon Trevor Mallard. I have a cutting from today’s  
Hutt News 
 that has an article by the Hon Trevor Mallard in it. In this article Trevor Mallard is waxing on about why tax cuts do not work and why the Budget is so wonderful in delivering to low-income families. Trevor Mallard said: “So how can we deliver an extra $100 per week to a family on $30000 with 2 children? If we were to try and achieve that through tax cuts—they are paying around $100 a week in tax currently. So to gain $100 through tax cuts we’d have to have made the first $30000 of income completely tax free—for everyone.” Well I guess that is the way the current arrangements work but the  
Hutt News  
was not that impressed with Mr Mallard’s arguments. 
The  
Hutt News  
went back to Mr Mallard and asked why that tax break would have to be extended to everyone. It asked: “Why can’t it be that if you only earn ‘x’ (say $30000 or less or whatever other figure is decided) you don’t pay any tax? If you earn $30000-$40000 you could pay a certain tax rate; $40000-$50000 a higher rate of tax etc. Why do we have to have a very complicated set of allowances and subsidies administered by a large bureaucracy (Work and Income) and we have people missing out on their entitlements because they’re not aware of them. Can’t we simplify the whole thing using tax rates?”. Now Mr Mallard came back answering that question—of course he could not answer it because such innovative thinking is quite beyond Labour. Trevor Mallard went on to say: “The main objectives of the Working for Families package were to ensure that work pays. In the past there has often not been a significant incentive for beneficiaries particularly those with children to seek work.” 
If that is the objective of the most recent Budget and the Working for Families package I want Government members to contemplate this situation: a low-income family—low income because it is not that skilled—with three children is seeking to increase its income. Maybe there is one breadwinner in the family working at $10 an hour. After that breadwinner has worked 20 hours a week at $10 an hour that family will have earned a certain amount of income—$10000 a year. To earn another $1 of income once this Government’s Working for Families package is implemented that breadwinner would have to double his or her hours of work to get another $1 and Trevor Mallard claims that that is a policy that makes work pay. 
I would like the Government members opposite to take a call and explain to me how an effective marginal tax rate on the next $1 one earns of 101.2 percent makes work pay. I would like the next speaker to explain that because it has got me absolutely whacked. If a working person earns an extra $100 but loses through that $101.20 through tax changes how is that making work pay? [ 
Interruption 
] What did that Labour member Mr Peck just say? 
Mark Peck 
: Why don’t you listen? 
Dr the Hon LOCKWOOD SMITH 
: I would be delighted to listen to Mr Peck if he was prepared to explain to this House how an effective marginal tax rate of more than 100 percent makes work pay. 
Mark Peck 
: Get your calculator out and do the sums yourself. 
Dr the Hon LOCKWOOD SMITH 
: That shows the appalling lack of arithmetical understanding of Labour members like Mr Peck. An effective marginal tax rate means—if I could just explain to Mr Peck—that on the next dollar one earns it gives one the tax rate one pays. On the next dollar one earns with an effective marginal tax rate of 101.2 percent it means one pays more than $1 in tax for that $1 earned. For Mr Peck’s sake I point out that it actually means one is worse off. 
Mark Peck 
: Oh no! 
Dr the Hon LOCKWOOD SMITH 
: Suddenly Labour does not care about low-income hard-working families trying to earn more for their family through work instead of just being on a benefit. Mr Peck says: “Oh no that does not matter.” That might be Labour’s attitude towards low-income low-skilled people but where it will suffer hugely with this Budget is that now that kind of high marginal tax rate is going to affect middle-income New Zealanders. These are not my figures. These are figures from the Inland Revenue Department made available through written questions. 
I asked the department for the effective marginal tax rates at $5000 intervals from $5000 of income right through to $100000 of income for various family configurations. Let us take the example of a family with three children—a typical family and it is the one I have been talking about up until now. Once that family with three children has earned $10000 a year do members know what that family’s effective marginal tax rates are from there up to $100000 of income? I want to share them with this Parliament because I think the information is hugely important in relation to what this Budget will do to middle-income New Zealand. 
At $10000 of income as I have said there is a 101.2 percent effective marginal tax rate. At $15000 of income there is a 101.2 percent effective marginal tax rate. At $20000 of income there is a 101.2 percent marginal tax rate. At $25000 of income whoop-de-doo the effective marginal tax rate is down to 47.2 percent. But sorry it is only for $5000 of income. For $30000 of income the marginal tax rate is up to 77.2 percent. At $35000 of income there is a 77.2 percent effective marginal tax rate. 
If losing 77 percent of one’s earnings in tax sounds bad enough once people hit $40000 of income—which is the average New Zealand salary—the effective marginal tax rate is such that whether a family has one child two children three children or four children on the next dollar earned the Government will take 89.2 percent of it off them. That means that if people earn an extra $100 in overtime the Government will take 89 percent off them and leave them with just 11 percent. If people earn an extra $100 through overtime they will keep less than $11 of it. They will keep $10.80. It goes on. People with three children who earn from $40000 up to $60000 will keep only 10.8c in every extra dollar they earn. It is an outrage. But it gets worse because at $60000 of income the marginal tax rate hits 95.2 percent. 
Mark Peck 
: Lockie has got it wrong. 
Dr the Hon LOCKWOOD SMITH 
: Mark Peck says that I have got it wrong. These are official Inland Revenue Department figures. What that means for a family with three children and an income of $60000 who wants to go on holiday and decides to work overtime to earn an extra $5000 is that they will keep $240 of that extra $5000 because the effective marginal tax rate they will pay is 95.2 percent. That is what this Labour Government and its mates are doing to our hard-working families in New Zealand—taxing them into oblivion on any extra dollars they earn. That is a disgrace and it why this Budget will see this Labour Government thrown out—and good riddance. 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: Before I call the next member I am advised that this particular speaking slot will be shared between the Greens 5 minutes and ACT 5 minutes. For the benefit of members I will ring the bell with 1 minute to go.