text:
A party vote was called for on the question,
That clause 29 be agreed to.
Ayes 68
Noes 52
Clause 29 agreed to.
Part 3 Annual rates, independent earner tax credit, and consequential personal tax cuts amendments (except clause 29)
Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
This part is a very interesting component of the bill and merits the close consideration of the Committee for some time. It is a misguided attempt to ensure that New Zealanders do not lose because of the clumsy and haphazard effects of this rushed and ill-conceived tax legislation. Unfortunately, the Government has introduced the independent earner tax credit but is vetoing—on financial veto grounds, I understand—an amendment proposed by my colleague Dr Michael Cullen that seeks to protect all income earners from exactly those effects. Dr Cullen took the Minister of Finance, Bill English, at his word when he said earlier in the Committee debate: "There are no losers under this bill."
That's what he said.
Hon DAVID CUNLIFFE Link to this
That is what he said, and that is the Government's position. The interesting thing, of course, is that it is just not true. As we have proven earlier in the debate, anyone earning between $14,000 and $20,000 will, by April 2011, face an 8.5c increase in their tax rate.
Wouldn't that make them worse off?
Hon DAVID CUNLIFFE Link to this
That would make them worse off. Let me prove the point. Dr Cullen's amendment simply provides for a compensatory tax credit for low-income earners and others who might find themselves "inadvertently" penalised. If we took the Government at its word, nobody would be in that situation, and the cost of the amendment would, logically, be zero. Nobody would lose, so it would cost nothing to indemnify them. However, the Minister of Finance has come along with a very blunt instrument called a financial veto. He has said that the actual cost of insulating low-income earners would be—wait for it—$730 million over 5 years. In other words, he has made a $730 million change of mind—that is the nicest way I can put it. He told us earlier that the penalty would be zero, but he went away and did his sums and found that—oops—he was out by another three-quarters of a billion dollars. Sorry! That is a hole he cannot blame on the outgoing Government. It is a $730 million kick in the guts for low-income New Zealanders.
Who are the people who will pay this $730 million so that someone earning three-quarters of a million dollars can have an extra $260 a week? They are people who might have a second job, cleaners, people who are late in their careers and have a pre-retirement part-time job. They are people who earn well below the average wage. As admitted by the Government, those kinds of people will be taxed in order to subsidise those who do not need a cut. This is Robin Hood in reverse, except that Bill English is not playing the role of Robin; he is playing a rather venal Sheriff of Nottingham, just before Christmas. It is not a good look for the Government, let us all admit, in its first week on the job. In particular, it is not a good look because Government members told us there would be no such penalty, and now they have quantified the real penalty in order to veto Dr Cullen's rather elegant amendment. They have shot themselves in both feet at the same time.
The particular irony of this rather interesting self-contradiction is that it stands in strong contrast to the so-called independent earner tax credit, which seeks to improve the relative position of certain sectors of the community who felt a little brassed off because they did not get Working for Families payments. To enter that argument we need to think back and ask ourselves why Working for Families was brought in. It was brought in at a time when our families were under particular stress because of increased housing costs, rising fuel prices, and other things that we have all talked about and that we all understand are beyond our control. People who had the responsibility to bring up children faced huge costs, so we prioritised; we targeted State assistance to those who needed it most. It was a pretty fair thing to do.
Ah, along came a little thing called politics. Some of my parliamentary colleagues, from all sides of the Chamber, have probably done what I do occasionally in an election campaign, and that is stand on a traffic island. Jonathan Coleman does that—[Interruption] Mr Coleman's electorate is just north of the bridge, and I recommend that he go back there sometime soon. [Interruption] Labour won the party vote in New Lynn, thank you very much. And that will be the high tide for the blue tide—let us not worry about that. I noticed while standing on the traffic islands of New Lynn that anybody with a non-Caucasian face would generally give two thumbs up as he or she drove past. But I always knew I was in trouble when I saw a four-wheel drive driven by an overweight white male with a No. 2 haircut. Those drivers would generally wave only one digit and it was not the thumb. That is the market segment that this independent earner tax credit is designed to assuage. The grumpy white male vote is in play here. OK, that is fine; I think we can assume that the Government won the grumpy white male vote in the election.
Hon Gerry Brownlee Link to this
He's sitting behind you.
Hon DAVID CUNLIFFE Link to this
No, no. Here he comes. I said grumpy, not bumbling. Mr Brownlee should read the Standing Orders; then he will be just fine in a year or two, if he is still here. The independent earner tax credit is a remarkable achievement for this Government. This bill was predicated on the unevenness of the marginal tax rate effects throughout the tax scale. In some misbegotten attempt to solve that problem, the Government has helicoptered in a tax credit for one particular section of the population. The net effect is that it makes the problem worse by singling out one small group of people who do not receive any of the other high-priority benefits and giving them a seemingly arbitrary gain.
I come back to where I began. If the Government were serious about indemnifying New Zealanders at risk, it would choose not this mechanism but the mechanism that my good colleague Dr Cullen thought of in 5 minutes during the tea break. It would indemnify the net losers, whom Bill English said do not exist—except that he then changed his mind and said that they exist to the tune of $730 million. Merry Christmas, New Zealanders! They thought they had voted for a benign kind of National Government, one that would keep in place the things they appreciated from the last 9 years of a good Labour Government, such as Working for Families, KiwiSaver, and the research and development tax credit that gave help to our innovators. The smiling face of Mr Key, as a likable bloke, bounced from cloud to cloud and told us it would all be OK. Then, on the Government's first day in the job, it introduced legislation that kicks low-income New Zealanders in the guts. It kicks our innovators in the guts, and kicks in the guts prudent New Zealanders who are saving for their future. Merry Christmas, Mr Key. Merry Christmas, Mr English.
I say to New Zealand that unfortunately this is probably a foretaste of things to come. As one colleague said earlier today, when we look back in history we can see that this week is remarkably similar to the first week of the Ruth Richardson economic reign, when tax cuts to the wealthy, punitive employment relations legislation, and misguided intervention were the order of the day.
It is interesting to see Sir Roger Douglas back in the House. He opposed that Government, and now he is in favour of the same thing. He still holds to the same ideals; it is just that he has had an interesting policy evolution on the way to serve them. I look forward to nothing so much as his maiden speech, so I am getting in early to see whether I can identify the contradiction before he gets the chance to underline it. That will be a precious moment in New Zealand's economic history—when he justifies the full circle that he has travelled. We look forward to that with great anticipation. That kind of full circle, that kind of logical OODA loop, to use military technology, is rather like the logical backflip that has been done here by the Government. It has put in an independent earner tax credit. It has singled out the grumpy white males with the No. 2 haircuts, and chucked them $10 a week, ignoring low-income families.
CRAIG FOSS (National—Tukituki) Link to this
When I look across to the other side of the Chamber I do indeed see some grumpy white males, but not with No. 2 haircuts—not yet. The electorate became sick and tired of hearing a couple of grumpy white males telling them that their taxes could not be cut until those members were 15 points behind in the polls.
Then there was the road to Damascus.
That is right. The independent earner tax credit—
Hon David Cunliffe Link to this
There are 9 billion reasons to be generous.
Did the previous speaker say he was looking forward to Sir Roger Douglas's maiden speech?
He doesn't get another one.
He does not get another one. I think he is about 30 years too late.
Hon David Cunliffe Link to this
I was giving the member the benefit of the doubt. He may have been deflowered a couple of times but he is still a maiden in our eyes.
I did make the point to the member that we learnt the other day that Sir Roger Douglas never made a valedictory speech, so I guess he had a premonition that he would be back. That is over to him. [ Interruption] "The Return"—whatever. There are a few speech notes there!
The independent earner tax credit forms a cornerstone of one of National's commitments that we are committed to pushing through in the first 100 days of our administration. Yes, it will be pushed through before Christmas. I note that the previous member talked about a long night, or a long speech—
Hon David Cunliffe Link to this
I raise a point of order, Mr Chairperson. I see Sir Roger Douglas is preparing to leave. If indeed he does not need to give a maiden speech, I wonder whether the member who is on his feet would cede part of his time so that Sir Roger can illuminate us, which we would very much like him to do.
The CHAIRPERSON (Eric Roy) Link to this
That is not a point of order, and it is not helpful to the debate. One of the things that is going to change somewhat is this habit of members raising points of order that are not points of order but some kind of interjection. The tolerance of that is going to diminish as the days go by, let me assure that member and anybody else in the Chamber. Points of order will be points of order.
Thank you for your guidance, Mr Chair. The independent earner tax credit is a cornerstone of this legislation and of National's commitment to the electorate. It will be very interesting, because it seems obvious that the members on the other side of the Chamber will be voting against this part.
Hon David Cunliffe Link to this
Better believe it.
We had better believe it. They will be voting against it. They keep talking about the people in the electorate. They are going to rock up to 630,000-odd New Zealanders—stand on traffic islands, you name it; whatever the previous member said—who have not enjoyed any benefit whatsoever from the huge tax gains made over the last 9 years by the previous administration. They have not benefited one little bit. In fact, they have been punished by fiscal drag over those years of 25 percent to 30 percent, I guess. They have been dragged through higher prices, etc., and have been taken into new tax brackets. The party opposite is going to tell those 630,000 people who are eligible for $10 a week from 1 April 2009, moving to $15 a week from 1 April 2010, that they should not share in the tax cuts.
The Opposition has been playing wedge politics. Its speeches are constantly about other parties in the Chamber, and about the make-up of New Zealand. Those members are going to tell 630,000 people that they should not share in the tax cuts that the National Party put before the country at the last election. That proposal led to our being resoundingly voted in. The previous administration refused to cut taxes, and it refused to recognise this particular demographic, who work just as hard as anybody else. They resoundingly voted the previous administration out. This group does not have children. The tax cuts are targeted. Many may have delayed having children. Whatever the reason, what business is it of this House as to why people did or did not have children, or when they did or did not have children? Goodness gracious! The previous administration tried to control light bulbs and shower heads, and now it is trying to control even further what goes on in people's personal lives. I will not elaborate.
The members of the previous administration are being true to form. Every single speech made by those members shows their true colours. They will not be more clear and succinct than when they vote against this part whereby 630,000 New Zealanders will enjoy $10 a week from 1 April 2009, in these tough economic times, in this deep recession, which began under the previous administration—prior to it beginning in any other country, by the way. Those people will get $15 a week from 1 April 2010.
It is a start. As I said in my first reading speech, it is a start. The tax changes in this bill are part of a greater plan. They send a very special and very succinct message to the electorate. The message that these tax changes send is that Government members value New Zealanders' hard work. We value the hard work that they do to help make our country great. We value the fact that they are still here in New Zealand, and have not joined their friends and family overseas. We value the fact that they are choosing to make a better life for themselves in New Zealand. We value the fact that one day they may have children, or maybe they will not—it is none of our business whatsoever. The message this bill sends is that hard work is hard work, regardless of family status, regardless of whether a person has children. Does someone who works on the factory floor who has two, three, or four children work harder than someone on the factory floor who does not have children? Yes or no?
A previous speaker, the Hon Clayton Cosgrove, made some superfluous points about the cut-in at $23,999 and argued how arbitrary it was. Yes, in a really academic sense he may be right on that small point, but we should look at it logically. Is hard work different because of who does it? Should not all New Zealanders enjoy the benefits of a positive taxation commitment from their Government? Should not they all enjoy it, regardless of their status? Of course they should.
I have just one other point—I think the next grumpy old man is ready to speak. Dr Cullen raised some interesting points, and I believe he tried to table an amendment earlier. I look forward to it. It obviously is in the same realm as his other accusations about this bill—about pension portability and KiwiSaver—which have been blown out of the water, but we will look forward to discussing it in the debate on Part 4. Thank you.
Hon Dr MICHAEL CULLEN (Labour) Link to this
One scarcely knows where to begin on this piece of nonsense. I said at the start of this debate that there were some incompetent and silly bits in this bill, and this is certainly incompetent and silly and certainly unfair. We are told that this independent earner tax credit applies to 630,000 people. There are 3 million taxpayers in New Zealand, so 2.4 million taxpayers are getting nothing out of the independent earner tax credit.
But they are in the tax threshold changes.
Hon Dr MICHAEL CULLEN Link to this
No, they are not in the tax threshold changes. The member has not listened at all today. Anybody earning $14,000 to $24,000 was getting a threshold change under Labour, but it is taken away under National. They will be paying more tax under National by 2011 than they would have been paying under Labour. They will be paying $9 a week more if they are on $20,000. Everybody believes that. It has been in the newspapers. My God—if we can convince the Dominion Post and the New Zealand Herald then we have the Tory press on side, and that is a pretty good start on winning that particular argument.
We have this nonsense whereby if one is earning $23,999 and one earns $1 more, one will get a $750 bonus—a $780 bonus by 2010 with the independent earner tax credit. So for that $1 I guarantee that there will be an awful lot of people earning exactly $24,000 a year by April 2010. Talk about rorts on research and development tax credits! It will be amazing. We will have businesses around the country saying: "If I slip you 20 bucks extra, give me a couple of hundred back under the table, because you will qualify for a $780 tax credit from the Government." That will go on—it will be rorted up and down the country. It will not be all the clever guys in the glass towers who work this one out—small businesses will be working it out for themselves with their own employees.
But who does not get the independent earner tax credit? Anyone who is receiving an income-tested benefit. So a solo mum who is struggling to bring up her kids, going out to work—Paula Bennett's ideal past—and earning, say, $8,000 a year, or $150 a week, does not get the independent earner tax credit. She might be struggling to bring up three kids, and the Government says to her: "Sorry about that. You're bringing up kids so you don't get the independent earner tax credit." However, the guy next door, who is her ex-husband and walked out, does get it. Members would feel pretty ticked off if they were that solo mum. They would say: "What kind of pro-family National Government is this one?". This is pretty strange, what they are doing here. Had they thought about that? Look at them—they never think about these things when they make up these policies. Why? Because it was made up on the hoof. They promised 50 bucks a week for those on the average wage—which, of course, was including what Labour was already doing. It was not 50 bucks a week on top of that, although they led people to believe that.
Then when they got the Pre-election Economic and Fiscal Update, there was not a dry seat left in the National Party caucus, and they said: "Somehow we have to save some money. So how do we deliver 50 bucks a week at $46,000 a year?". Then they had a bright idea. They would have a targeted tax credit that would start somewhere or other, fade out by $50,000 a year, and just happen to add up to not quite $50 but $49.13, I think it was, at $46,000 a year. That is where this came from. This was a last-minute put-together job that looked as though it was Gerry Brownlee trying to assemble a Chinese bicycle from the parts. It did not work. The wheels were on top of the handlebars and nothing was going anywhere at the end of the day.
Who else does not get the independent earner tax credit? Anybody who is receiving a veterans pension does not get it. We have heard about all the vets. My goodness, have we not had hands on hearts from various people, including during the Prime Minister's speech. Well, if one went to one of those places—say, Malaya—and got injured and is on a veterans pension, and one earns, say, 10,000 bucks, which is a couple of hundred dollars a week, one does not get the independent earner tax credit. Because one is not independent. So here is a veteran, 70 years old or whatever, although he is probably a bit older if he went to Malaya. Say he went to Viet Nam, and here he is, at 60 years old, with an injury, and qualifying for a veterans pension, and my goodness me! He will be cut out of the independent earner tax credit. So that is a thank you for his service to the nation—from the party that sent him there in the first place, and did not honour him when he came back. And now it will not give him the independent earner tax credit. I am sure that person will say: "Well, thank you very much—again."
The person concerned might not be receiving New Zealand superannuation. He or she might have the gall to go out and carry on working, which is a good idea with an ageing population, he said subtly. It is a good idea to carry on working in that situation. But no, that person will not get the independent earner tax credit. And if the person gets Working for Families, both partners, both spouses, do not qualify for the independent earner tax credit—not just one, but both. How did Government members make that up in their minds? How do both people get cut out of the independent earner tax credit because of this? This is the first time I am aware of, in any developed economy, where somebody has developed a tax credit to discriminate against families with children. It is not in favour of families with children, as Working for Families is, but against them. It says it is a bad thing to have children, and if people have children the Government will not say that they are working as hard.
But what about a person on $23,000, or $27,000, who is a solo parent going out to work and slaving, and probably working horrible shift hours, probably paying for childcare, and probably struggling to bring up their kids? Those people are being told, according to Mr Foss, that they are not working hard. Mr Foss, who is lying on the great luxurious Government backbenches, with no real job to do, says: "I know you're bringing up three kids. I know you're working 25 or 30 hours a week, but you are not working hard enough to qualify for"—what is it from this magnificent, this munificent, this great turbocharged New Zealand economy? It is $10 a week. When we had a tax cut that, for a full-time earner, was a minimum of $16 a week, it was derided as being merely the cost of a block of cheese. But suddenly $10 a week, providing a person does not buy the block of cheese, presumably, will drive this economy faster into a golden future.
Turbocharge it.
Hon Dr MICHAEL CULLEN Link to this
Yes, turbocharge it into the future. Are we seriously meant to take this as an intelligent well-thought-through policy by a party that spent 9 years in Opposition planning what it wanted to do in Government? It is rickety, put-together, ramshackle, and expensive. It is expensive to administer. One hundred extra bureaucrats—
Hon Dr MICHAEL CULLEN Link to this
Do members remember that word? Members opposite call them public servants now that they are in Government, but they were called bureaucrats when those members were in Opposition only a few short weeks ago. One hundred extra bureaucrats are needed to administer this bill. It will cost ten million bucks a year, which is easily about $100,000 per bureaucrat by the time we take the overheads into account, etc. etc. That is 100 fewer front-line staff somewhere else in the system delivering services. Well, brilliant! It just shows what a brighter future looks like when one cannot think properly, when one cannot work out policy, and when one does not think about the kinds of individual examples that this applies to.
I say to Mr Foss that he should go and tell his superannuitants, if they work, that they do not work hard. He should go and tell the solo mums who are working that they do not work hard. He should go and tell people on veterans pensions who are doing some work that they do not work hard. He should go and tell the struggling families with two income-earners that neither of them will qualify for the independent earner tax credit, and then come back here and tell me what a great policy it was. People did not think that is what was happening. The Government might have had it in the fine print, but that is not the message it sent to them. The message that National sent was tax credits, tax cuts for everybody; that is what National would be doing. But that is not what this bill does, and that is why we are voting against this part.
DAVID BENNETT (National—Hamilton East) Link to this
First, I would like to congratulate the Chair on his very good ruling earlier, which set the tone for his chairmanship, which is something that the public and this Parliament have been looking forward to for a long time.
Hon Dr Michael Cullen Link to this
I raise a point of order, Mr Chairperson. It is out of order to comment on a presiding officer's ruling.
The CHAIRPERSON (Eric Roy) Link to this
Yes, I know it is. I was hoping he was going to terminate. Will the member get on with his speech.
I was hoping he was going to terminate, as well.
The only termination we have seen is the Labour Party at the last election about a month ago. They are sitting there now, trying to work out what is going on, are they not?
The independent earner tax credit is an initiative that National and its coalition partners have put through in this great legislation, the Taxation (Urgent Measures and Annual Rates) Bill. It is something many New Zealanders have looked forward to for a long time. They have looked forward to a signal from the Government of the day that it actually does reward hard work, and that it sends the right signals to those people who are willing to go out there and make the most of their opportunities. That is what this legislation is about. It is about sending the signal to hard-working Kiwis that the Government does care, that the Government does provide the circumstances so that people can provide for themselves and for their families in the future.
That is what the tax credit for independent earners is all about. Its importance will develop over time, as the individuals who take advantage of this tax credit become the families of the future of our country. A lot of young people starting off in their careers, now find that they are in situations where they pay high taxes, and they feel that they are not getting any support. They are the people who want to get married, have children, buy a house, and set up what we consider to be the heart of the New Zealand community. We have not been looking after those people in this country. We have not been giving them the incentive to stay in New Zealand to actually do the things that develop their communities in this country. Well, National is making a constructive step today to give them some kind of a signal that we want to reward their enterprise and their activity. We want to show them that there is a future in this country, and that the Government of the day will look after them, and will provide the platform for them to go ahead and achieve their dreams.
That is fundamental to building a stronger economy. When we talk about this legislation as being part of a process of economic growth, many people will ask how that will be part of that process. It is quite obvious now that if we look after the young people who are making their first steps in their career, to encourage them to stay here, and to deliver for this economy, then we are building a stronger economic base for our country. That is the fundamental element of this legislation, and the reason behind it. We want to give that future—that brighter future—for the next generation of New Zealanders.
To do that, we must give them the tools to invest in themselves, and also give them the tools so that they get the reward for that investment. No other Government has done this in recent times, but National has. We are not afraid of taking the steps to set out an agenda and a process for New Zealanders to succeed and prosper. We are not afraid to set out a process by which people can have hope and faith in their country, and their future. This legislation gives hope and direction to young New Zealanders who want to make a better, brighter future in this country. They need not go overseas to take advantage of their future and their careers. They can stay in New Zealand and take advantage, because we will give them the reward for their hard work, the reward for their education, and the reward for their diligence and dedication to their job.
That is an important signal for any Government to send. It is important that we as a Parliament send that signal, especially at this time when we need young people in our country, when we need people to feel that they have direction and motivation, and that there is a way forward. National has provided that direction. We have provided the way forward. We are providing that brighter future. It is great legislation; its tax credits for independent earners will go down as something that will be one of the major steps, and one of the first steps, in providing a brighter future for all New Zealanders as we go forward.
Hon RUTH DYSON (Labour—Port Hills) Link to this
It is clear that when that member, David Bennett, makes his contribution in the House, he has a soundtrack to a movie playing in his head. There could not have been more clichés packed into a 5-minute contribution than that member just demonstrated. I am assured that every National Party MP has been offered a dollar for every time he or she says "a brighter future" in the House. David Bennett will retire rich. That was an awful contribution, if I may say so, even by comparison with previous ones.
I would like to make two points during my contribution to debate on Part 3 of the Taxation (Urgent Measures and Annual Rates) Bill. The first is to ask the Minister sitting in the chair some specific questions about what is clearly a misunderstanding on the bill. I was able to pose these questions to the Minister of Finance earlier. Unfortunately, he was called away from the Chamber on urgent matters of public affair; he had to leave, and was not able to give me an answer. So I ask the Minister in the chair, the Hon Dr Jonathan Coleman, to provide on public record the answers to these questions. His colleagues clearly do not know.
Over the dinner break I witnessed another one of the new bewildered backbenchers of the National Government asking a senior colleague whether what Labour was saying was true; whether it was true that we are increasing taxes for low-income earners. That bewildered backbencher was told to just ignore what Labour is saying. [Interruption] In my view, that is a totally dishonest way of proceeding with any legislation, let alone legislation that is being rammed through under urgency without any public input, let alone public scrutiny.
I ask the Minister in the chair what is—under existing law—the 20/11 marginal tax rate for a person who is earning between $14,000 and $20,000 a year? Does the Minister know the answer to that question; if so, is he prepared to answer by interjection? Right. He probably does not know; I will help him. The answer is 12.5c. That is the current 20/11 marginal tax rate for a person earning between $14,000 and $20,000 a year. Under the bill that we are debating under urgency tonight, what will be that same person's marginal tax rate? The answer is 21c. I ask the Minister what is higher—21c or 12.5c? In my view, increasing a person's marginal tax rate from 12.5 percent to 21 percent is raising his or her tax rate. A person earning between $14,000 and $20,000 a year does not have excessive amounts of money to splash around. There is not much left over every week. So the Minister needs to say that either it is a typing or drafting mistake—and that is possible as it may well have been put together in a bit of a hurry—or that what Labour is saying is right, and that what the Minister of Finance and his Acting Minister is saying is incorrect. This bill increases the tax rate for the lowest-income earners in our country, and every member of the National Party who said that they would cut taxes for every single New Zealander, should go back to where he or she campaigned and apologise to the public of New Zealand.
If National members do not do that, we will make sure that every single person who heard that dishonest commitment knows what actually happened during the process of this bill. It is just plain dishonest to say prior to the election that every single working New Zealander will benefit from tax cuts, to make that commitment to the country, and then come into this House and raise the tax rate of the most vulnerable people in our community.
The second point I want to raise is in regard to the amendment that has been presented by Michael Cullen, an amendment to insert a new clause 30A. The point of this amendment is quite simple, and is explained as is appropriate in the explanatory note. It says that this amendment "will ensure nobody is made worse off as a result of the new rate and threshold changes." It could not be more straightforward as outlined in that explanatory note. This "will ensure nobody is made worse off as a result of the new rate and threshold changes." What National member would disagree with that? What National member would say that this only confirms what John Key said all through the campaign? It only confirms what Bill English said all through the campaign—"Nobody will be worse off, in fact everybody will be better off." In fact, this amendment should confirm National's commitment. But what has happened to it? What has happened to this amendment?
I will leave the answer to that question for just a little moment, because I want to quote what the Minister of Finance said during one of his earlier contributions in this debate tonight. On record in the House—recorded extraordinarily accurately by the Hansard stenographer and the tape—he specifically said: "There are no losers under this bill." That, to my mind, means that nobody will be worse off. They may not be better off—I will accept that. But "no losers" means they cannot be worse off. He said: "There are no losers under this bill." So if that is true, if what the Minister of Finance said in this very debate in the Committee is true, this amendment would get the total agreement of Parliament. [Interruption] Sorry; with the exception of ACT members, who may vote differently just because they are so inclined, every thinking member of Parliament would support this amendment because it does nothing more than confirm what the Minister of Finance said. He said there were no losers, so if this amendment confirms specifically in the legislation that there are no losers, then it must be at no cost, because the Minister of Finance has already confirmed it. Yet that same Minister of Finance has used an extraordinary process, a financial veto on this amendment, saying that it would cost $730 million over 5 years. Now, how does that figure? I think even David Bennett might be able to work out that if there are no losers, then an amendment to confirm that there are no losers cannot cost $730 million over 5 years. So where is that money?
Hon Dr Michael Cullen Link to this
Unfortunately, his teachers never told his parents anything.
That is right. He probably did not have a literacy and numeracy test at 5 years of age. His parents never had his standards explained to them in plain English, and that is why we have ended up with the situation that we have. If there are no losers under this bill, then there is no way that Michael Cullen's amendment can cost $730 million over 5 years, but that is what the Minister of Finance has said.
Where is that money now? We know that that money is in the wage packets of the lowest-income earners of New Zealand—the people who have either already had their tax reduced or who, under the existing legislation, are to have their tax rates cut over the coming 3 years. That is where that money either is going or would be going. For example, the law as it is currently gives those people whom I mentioned earlier—the people earning between $14,000 and $20,000—a marginal tax rate of 12.5 percent. They are to lose that marginal tax rate and they will instead be paying over 20 percent. That is a loss. That is a tax increase. Bill English has confirmed in the House during this debate that keeping this bill honest to National's commitment that there will be no losers would cost $730 million over 5 years. Well, in my view, it is now quite clear that it will cost a lot more than that to keep National honest. On this one bill we have had an absolute contradiction, which was confirmed in the debate.
CHRIS TREMAIN (Junior Whip—National) Link to this
I move, That the question be now put.
Hon DARREN HUGHES (Labour) Link to this
I appreciate the chance to take a call on Part 3 of the Taxation (Urgent Measures and Annual Rates) Bill. It is very important that the Opposition gets a chance to speak and to scrutinise this bill, and particularly this part, because throughout the debate on the items in the urgency motion the Opposition has not been given the chance to see the legislation until we start debating it. It is an absolute outrage that that is happening.
Hon Maurice Williamson Link to this
Oh, that never happened under you lot—outrageous!
Hon DARREN HUGHES Link to this
The Hon Maurice Williamson says that that never happened under Labour, and he is right. I want the Minister Maurice Williamson to tell me how often the previous Labour Government put the House into urgency and all the legislation in the urgency motion was not available to the House. How often was the legislation to be debated not available? How often was it made available bill by bill only, even though the Leader of the House had said at 2 o'clock that he would make it available now? That was a quarter of a day ago, which, for Gerry Brownlee is pretty fast progress, I concede, but for most ordinary people a quarter of a day is quite a long time. If the Opposition is not given the chance to read a bill before we start debating it, it is important that we are able to give our part by part analysis in the Committee stage.
Clause 29 sets the tax rates for the financial year 2009-10. It is part of Part 3. Clause 29 has done that; it makes the whole thing quite clear.
Hon Gerry Brownlee Link to this
I raise a point of order, Mr Chairperson. Surely the rest of this contribution cannot be even slightly relevant if the man is not even aware of what he is debating. Quite clearly, judging by his embarrassed look, he has not read this particular part.
The CHAIRPERSON (Eric Roy) Link to this
That is not a point of order.
Hon DARREN HUGHES Link to this
Thank you very much, Mr Chair. I assure the member that I always look this way, regardless of whether I am in an embarrassed state. I was born looking this way and I have learnt to love myself in this shape, unlike Mr Brownlee, who always seems resentful and bitter about the way that mother Nature has him appear in the House of Representatives today. [ Interruption] That is right; he had to work very hard to look that way. I started off looking like this, and that is the way it has to be.
We have debated the tax rates for the coming year, and, as Ruth Dyson has already said, for some people—particularly those on low incomes—their taxes go up quite substantially. Now we come to the independent earner tax credit, which the Government is putting up as its major centrepiece to make sure that people get close to the $50 a week they were promised. But there is a problem with that, because the $50 a week they were promised includes the tax cuts that were part of the Labour Government's legislative programme in Budget 2008. But we have to take the argument even further, because when we put that to Bill English, the Minister of Finance, he said we cannot say that there is a tax increase for people on low incomes, because National is not counting Labour's tax cuts—even though we know that when the legislation comes in it will be adverse for people—but when it comes to making up the $50, it cannot wait to get out the abacus and count Labour's tax cuts as part of the programme that National is putting forward.
The bridging policy is the independent earner tax credit, but when one looks at it one sees how unfair it is. I ask the Minister in the chair, the Hon Dr Jonathan Coleman, a question. Is any single worker worse off as a result of the tax changes proposed in this part of the bill? The Minister's colleagues are talking while he is trying to hear. He is now paid a quarter of a million dollars. He gets quite a good tax cut under this part of the bill. He does quite well out of it, despite the fact that he is not an independent earner in that respect—he relies on nanny State to pay his wages. He can now tell us whether any workers will be worse off as a result of this part being passed by Parliament. The rising star of the National Cabinet cannot answer that question. We have to keep on debating this bill until we have a Government Minister in the chair who understands National's policy.
I ask Jonathan Coleman another question. What was the range of the independent earner tax credit that he campaigned on in the election? He does not know. He shakes his head. He does not know. He has no idea what the independent earner tax credit was that those members campaigned on. I ask him what range it has now that it is in the bill. Oh, he does not know that, either. To be fair to the man, I tell him that it is on the piece of paper in front of him. I know what it is, I tell Mr Coleman; it is on the page in front of me. He will find it on page 15. I will give him a few seconds to find it. It is a different figure from the figure quoted during the campaign, when National members went around the country saying that they would put in an independent earner tax credit. They said that it would range from $24,000 to $50,000. That is not what the bill before Parliament right now states. Thank goodness we have the chance to go through the bill carefully in the Committee stage, because under the bold, brighter, inclusive future that National MPs have been programmed to tell us about we did not get to see the bill before we started debating it.
What it means is that there are people who get only $10 a week, which is a pretty pathetic amount, considering that Dr Cullen's tax cuts were larger. One of the great ironies of this debate is that the largest tax cuts in this 3-year programme are Michael Cullen's tax cuts, not Bill English's tax cuts. Oh, the big man is now on the move towards the papers on the Table, so we might learn what the non-independent earner has to say about it. Maybe he could sit in the chair and tell us what the range was. I know that he has pored over every detail of the legislation before the Committee. I know that the Leader of the House has not let a single page go unmarked as he makes sure that workers in this country get the best deal. I cannot believe that he allowed this $6,000 figure to escape from the National Party manifesto. Gerry Brownlee was all over the detail, so I cannot believe that there is a $6,000 hole for working people in the bill before the Committee of the whole House this evening.
I ask him to get into the chair now and relieve Jonathan Coleman, because he will be able to tell us why people who get a benefit do not get the independent earner tax credit if they are earning money. We were told by Mrs Collins before her demotion that National wanted to raise the amount that beneficiaries could earn to $100 immediately on becoming Government, because work was so important. Work would set people free. Katrina Shanks yawns at the mention of the word "work"; she is working at 7.50 in the evening on the third day of this Parliament. That is what those members are going to have to put up with. This Government, which has barely taken office, cannot tell us why it campaigned on beneficiaries being able to earn more money—because, apparently, that is an important philosophy that people have to learn—but if they get a job and earn money, they are not entitled to the independent earner tax credit. I want the Minister in the chair to explain to me how he can reconcile that social policy with that economic policy. I think it is quite an important point, which the Committee of the whole House does want to know about. It seems to me to be quite crucial.
Dr Cullen talked about veterans pensions for people who have served our country in war.
He would talk about veterans pensions.
Hon DARREN HUGHES Link to this
Well, Tau Henare knows about being in a few battles and a few wars. None of them were official ones, but in every single one he was a victim. He is the walking wounded without ever having put on a uniform. He may well want to line up for the independent earner tax credit before he joins the Māori Party, having been shunned and made to feel whakamā by the National Party. That is what has happened there.
For people on New Zealand superannuation, I see the new member of Parliament for Ōtaki over there. I know that seat has the highest number of people over the age of 65, and I know that a lot of them still work. He is going to vote to make sure they do not get the independent earner tax credit. They will be worse off as a result of the bill being passed by Parliament tonight. Those people would have got a tax cut under Labour. I want to know what these bold new members of Parliament are going to do about the fact that they campaigned all around the country on letting people keep more of their money—that is what they said—yet when the legislation comes to Parliament they cannot wait to take money out of the pockets of pensioners and put it in their own back pockets. One of the first announcements from this Government was an increase in the pay of members of Parliament, but those members cannot wait to take money out of the back pockets of pensioners, which is what they are doing in clause 31. Very many people are going to be affected negatively by the independent earner tax credit, particularly those who earn under $40,000.
I see the new member of Parliament for Te Tai Tonga over there. I congratulate Rahui Katene on her election to Parliament, but 73 percent of her constituents earn less than $40,000 a year, which is way worse than the average for a lot of other electorates in the country—although for Ōtaki it is 60 percent.
And what did you do about it for 9 years?
Hon DARREN HUGHES Link to this
We increased the minimum wage every single year, so that it went up by $5 over the 9 years that we were in Government. It went up by 70c in the 9 years that Tau Henare was part of a Government. So these figures are better than what they would have been if Labour had not been in Government. When 73 percent of a member's constituents earn less than $40,000 a year, that member needs to read Part 3 of this bill really carefully, because those people cannot, by definition, benefit from the changes that the National Government is introducing. This bill unpicks law that is already on the statute book and replaces it, and that means they are worse off a second time, because they will not get the benefit of what Parliament legislated for earlier on. That is the key point.
When the Minister of Finance was in the chair before, he tried to gloss over this point by not counting Labour's legislated tax cuts, but he has to count it in order to get to the $50 he promised. The $10 amount that he is putting in is an absolute sham. It is a disgraceful amount that will not make a difference for ordinary people. We have tried in the debate on this part to ameliorate the concerns we have as an Opposition party. We believe that National Party members were not up front with the public about this matter when they were campaigning. They said they were in favour of tax cuts. Tens of thousands of people right across the country will now find that their taxes are going up under National; they are not going down as they were meant to do. Craig Foss will not be too worried about that, because Craig Foss is in Parliament for Craig Foss, but those of us who are interested in making sure that New Zealanders do well say there is a problem with this part. Michael Cullen has a solution. His Supplementary Order Paper fixes this problem.
Hon DAVID PARKER (Labour) Link to this
Not so long ago, when it was in Opposition, the National Party came down to this House and repeatedly accused us of communism by stealth. That was about Working for Families. National opposed Working for Families. National members said it introduced too much complexity into the tax system, that it made beneficiaries out of taxpayers, who had to fill in a form in order to get some sort of entitlement. Now, in Part 3, National introduces an independent earner tax credit, which is probably the most difficult to administer wrinkle in the income tax system that any Government has been silly enough to put into the tax legislation for a long, long time. It means more bureaucrats and more cost to taxpayers, as they have to file tax returns to get their entitlements, and less certainty for taxpayers, who will not know what they are entitled to. This tax credit that National talks up ad infinitum has a very narrow ambit. It applies only to people who are earning between $24,000 and $44,000. The abatement rates are confusing for people. It will cause additional cost to the Inland Revenue Department, and additional compliance costs to taxpayers—and this from the party that said it was all for tax simplification.
Well, if taxpayers want tax simplification, that means they simply want to know whether they will go forwards or backwards as a consequence of legislation. Of course, that is what Dr Cullen's Supplementary Order Paper would give people. It would give them the certainty that this legislation would not reduce their incomes by increasing their taxes. It is a very simple Supplementary Order Paper. It says exactly that. The motion is "to ensure no taxpayer is disadvantaged by the new rate and threshold changes in this Bill." This is exactly what the Government said, not just in this House but during the election. No one would be worse off—those were National's words. This is exactly what the Supplementary Order Paper would achieve. Bill English had the temerity to say that this should be vetoed. He would not even let it be put to the vote in this Chamber. He used the very rarely used veto powers that are able to be exercised if there is a substantial financial effect from the Supplementary Order Paper.
National exercised the right of veto on this occasion because, truth be known, it now says it would cost $730 million over 4 years. In other words, the effect of this tax bill is to take $730 million of tax off people. They are being taxed more, not less, to the tune of $730 million. If Working for Families was communism by stealth, it appears that this bill is Robin Hood in reverse—taking from the poor and giving to the rich. That is the effect of this legislation.
This legislation decreases the wealth of those who are most vulnerable, and it is being voted upon by the Māori Party, which is supporting the National Party in this legislation to raise taxes on the lowest income people in the country, and that disproportionately affects Māoridom.
The Māori Party, the Māori Party.
We have Tau Henare over there. Tau spent many years in a prior failed allegiance with the National Party, which ended in tears for his members, and which party spent lots of money on underpants but not much on the people he was meant to be representing.
This legislation is an outrage. It increases compliance costs for taxpayers. There will be more money wasted within the Inland Revenue Department. It takes money from those who can least afford it.
Hon Sir ROGER DOUGLAS (ACT) Link to this
Mr Chairman—
Hon Sir ROGER DOUGLAS Link to this
Well, I was not going to say anything, but, you know, how could one resist after listening to the Labour Opposition. The Committee on this bill has spent a considerable amount of time this afternoon and this evening debating whether this taxation bill helps or hurts low-income taxpayers—whether it helps to restore the margin between low-income workers and those on benefits in order to encourage them to seek work. I believe that the bill does help achieve both of these objectives.
Let us look at the issue of whether this bill in fact helps low-income earners or whether it helps the rich. The Opposition has claimed throughout this debate that the decision to hold the 12.5c rate to the $14,000 tax bracket rather than raise it to $20,000 was designed to hurt low-income people. Not so. Not so. If we put aside beneficiaries whose income in whole or in large proportion comes from the Government, we come to realise that the people who are in the tax bracket zero to $20,000 all—or a vast majority; 90-plus percent of them—come from high-income households, or they are people with high assets. So the people who are in the zero to $20,000 tax bracket come from high-income households. They are the sons and daughters of the rich or the partner, the wife, or the husband of a very high-income earner. In fact, if we look at Michael Cullen's 2008 Budget and the tax changes in it, we see that it was an invitation to income split. He created a new industry with that Budget—accountants going to their clients and helping them income split. So the Michael Cullen Budget was designed to help the rich and the high-income earners by enabling them to income split—hardly the action of a party that wants to help those on low-incomes. So the reality is in fact a lot different from the rhetoric of those members.
The group of taxpayers who need tax relief are those who fall within the 21c tax bracket. Anyone who is working full time is actually a taxpayer who falls within that tax bracket. So the people we want to help are the ones whose last dollar of income falls within that 21c tax bracket. It was this group of people who were in the 21c tax bracket that was disgracefully treated by the last Labour Government. A lot of the people in that tax bracket who in 2000 were paying $1 in $5 found, when the Labour Government came along, that for every extra dollar they earned, $1 in $3—not $1 in $5 as it was in 2000—went to the Government. From that point on it was $1 in $3. Quite a lot of people found that they had to pay up to an extra $30 a week because the Labour Government did not want to help these low-income people. It did not want to help, so it held the tax bracket where it was. If it had been inflation-proofed it would have gone to $50,000.
Hon Dr MICHAEL CULLEN (Labour) Link to this
I am going to talk about high marginal tax rates, and I think it is worth reminding the Committee of what probably almost everybody in this Chamber has forgotten. At one stage Sir Roger proposed a form of guaranteed minimum family income that was never put into place in its original form, which up to an income at that time of $23,000 a year—and this is the 1980s we are talking about; well over $40,000 a year in modern money—had a 100 percent effective marginal tax rate. That is what Sir Roger actually wanted to be his legacy. But let us take this extraordinary argument. Sir Roger was always a wonderful person for making up figures and then expanding on them. Without the discipline of a whiteboard he gets terribly lost in the thicket of non-facts—90 percent of those earning less than $20,000 a year are high-income earners! This is his kind of reverse logic. Of course, 90 percent of those earning $200,000 a year are poor, whereas 90 percent of those earning less than $20,000 a year are rich!
Now, of course, some people on low incomes are well-off, for two reasons. First, they fiddle their taxable income. That is probably the most important reason why they are rich. Perhaps the most important reason why most people are rich is that they have managed at some point in their ancestry to fiddle their taxable incomes, because most people who are rich have inherited their wealth, not made it along the way, and that also needs to be remembered. The second point—
Hon Dr Richard Worth Link to this
That's not right.
Hon Dr MICHAEL CULLEN Link to this
That is right, actually. Even in New Zealand, that is true. The second point is that, of course, some second-income earners in families have low incomes. It may be a spouse who has a partial income or an investment income that is small, and so on. But, of course, given what Sir Roger started with—ignoring beneficiaries and superannuitants—with one enormous, expansive wave of the arm, at least 800,000 New Zealanders disappeared just like that. There were 500,000 superannuitants as a start. They are not to be encouraged to work hard. He said that the purpose was to have the gap between earned incomes and benefits, yet he will not reward those people who are trying to move off benefits and have partial additional income whilst maintaining family responsibilities. If one is a sole parent and the choice is between earning $10,000 or $15,000 a year part-time, or $30,000 to $35,000 a year full-time, and one is trying to bring up three kids, what is actually the most socially desirable outcome in that situation? Will it always be the full-time job? In many instances it is better if that person can work part-time and receive some assistance from the State so as to spend sufficient time devoted to those children. I have to say that it is hard enough bringing up kids when there are two parents. When there is only one, it is a very hard job indeed. We cannot just ignore those people.
Even then, if the worry that Sir Roger has is that some people on low incomes actually have high incomes, in the wonderful sort of world in which Sir Roger moves, where the people with whom he spends most of his time do not have high taxable incomes at all—indeed, it is only when they have made a mistake that they have a taxable income at all, by and large—then deal with that issue. This is complex enough already. Imagine the poor employer under the independent earner tax credit: "Madam, have you got a partner?"—"Well, I had one last week, I'm not sure this week. We had a bit of an argument this morning." If people have a partner and they have kids, they do not get it; but, if they do not, they do. That will be a difficult one for employers, because if they are deducting this off at source at 10 bucks a week they will have to ask an awful lot of penetrating questions. This party opposite that is so keen to take the State out of people's homes is now putting the employers back into them and they will be asking questions in a world where life is very different from the old days of the married tax code and all the rest of it. And employers are going to have much-increased administration costs because of this, and much-increased compliances. They are not going to thank the Government at all for the enormous complexity of this mechanism.
What we do know is that it is going to take money off lower-income people, because it is not quantified. The Government has had to quantify this. It told us clearly that $730 million over 5 fiscal years is the cost of making sure nobody is worse off, but that is the next 5 fiscal years. That includes this year and next year, when in fact it does not matter until 1 April 2010. The real cost is over $200 million a year. That is what is being taken off low-income earners earning between $14,000 to $24,000 year and families earning at least under $44,000. But many are actually earning more than that. If they are two-income families they can be earning well over $44,000.
Hon JOHN CARTER (Minister of Civil Defence) Link to this
I move, That the question be now put.
Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
I do want to begin this intervention by acknowledging Sir Roger Douglas. For many of us, probably on both sides of the Chamber, his earlier work in Parliament was the stuff of legend—or nightmare, depending on one's perspective. But he is one of the few people who have left an indelible imprint on this country's history, and it is certainly a matter of great moment to see him back.
It is also very interesting to take this opportunity to reflect on the modus operandi that has been demonstrated in his first intervention. He started by redefining the question. The question we started with was: how do we make people better off through tax policy? He forgot that question, and answered his own question, which was: how do we narrow the gap between income bands, or between income earners and beneficiaries? So that was step 1—redefine the question. It was done very quickly and done without drawing much attention to it.
Step 2 was, "put aside beneficiaries". I think we should all frame that as a quote, because 800,000 people vote and they do not want to be put aside. They have families and they have needs, and we are here to protect them with our Green colleagues to make sure that they are not put aside. But the ACT Party wants to put aside beneficiaries, and let us only hope they cannot do too much damage to New Zealand before they are thrown out.
Step 3 was to say that he wanted to help those within the 21c tax bracket. Yet that seemed to deliberately fly in the face of the fact that at the moment, under existing law, they will pay a marginal rate of 12.5c in the dollar. Under the Act, the legislation that is being proposed that he is supporting, they will pay 21c in the dollar. So he has ignored the contradiction, and redefined the question. He wants to help people by almost doubling their marginal rate of tax! It is extraordinary, but he moved so fast through the contradiction that I am glad I was taking notes.
Step 4, of course, is the fact that his argument is completely useless because Bill English has already contradicted it in writing. Bill English has answered the question—definitively and on the public record—that people are $750 million worse off, because that is what it would cost to fund the motion that Dr Cullen put on the Table, taking him at his word that no one would be a loser. So I guess that step 4 in Sir Roger's mojo was to ignore the proof that was already lying on the Table.
Step 5, of course, was for us to recall that Sir Roger's idea of a progressive policy was a 20c in the dollar flat tax. That was the high-water mark of ideology that got him thrown out of the Labour Party. The impact of that would be the same as the impact of elements of this tax bill. Raise the tax on the poor to 20c in the dollar, and cut the tax on the well-off almost in half, from 39c or 37c to 20c, and somehow that makes everybody better off! The last time I read an argument like that was from Voltaire, who said: "We live in the best of all possible worlds by definition." Well, I hope he had a good whiteboard, because when one writes down the logic of the argument, it ties itself in knots real quick.
Hon Dr Michael Cullen Link to this
You can't read Roger's handwriting when he does it.
Hon DAVID CUNLIFFE Link to this
Yes. We welcome him back. We are glad to have witnessed this extraordinary logical knot, and we are happy to have the opportunity not only to untie this knot, but to untie every other knot that he tries to tie New Zealand up in.
But I will get back to this bill. What New Zealand knows definitively is that this is an ugly Christmas present for those working Kiwis who will be part of the $750 million bill that the Government itself tonight certified. I say merry Christmas to beneficiaries, merry Christmas to part-time workers, merry Christmas to 57-year-olds with a part-time income as they move towards retirement, and to those over 65 who are keeping themselves going and putting a lesser burden on the State. Merry Christmas—the Grinch has arrived.
The CHAIRPERSON (Hon Rick Barker) Link to this
I call the Hon Pete Hodgson.
I raise a point of order, Mr Chairperson. It is normal to alternate the calls from side to side, and our very good member Katrina Shanks actually sought the call at the same time as Mr Hodgson and Mrs King, and for some reason you chose not to do what is normal convention in this case and choose from the Government. I just draw your attention to the fact that Miss Shanks had called. You now have recognised Mr Hodgson and will no doubt have to proceed with that, but I just draw your attention to the fact there was a call from this side of the House.
The CHAIRPERSON (Hon Rick Barker) Link to this
The member is correct. I have already given the call to the Hon Pete Hodgson; the call will stand.
Hon PETE HODGSON (Labour—Dunedin North) Link to this
I want to bring the debate back to the tax credits for independent earners, and just point out gently that the Government has broken a promise. National said in the course of the election that there would be a $10-a-week tax break for independent earners earning between $24,000 and $50,000, and that is not the case. The law that is being passed does not do what the rhetoric before the election said National would do. But it might—it might. It would be easy to amend this. It would be easy to amend it, if the Minister in the chair would care to follow the debate, follow the bill, or follow anything at all, really; he could indicate whether his Government would be prepared to support an amendment to section LC13(5) in clause 31 by changing the amount of $44,000 to $50,000, because this side of the Chamber would gladly draft such an amendment. It would take a matter of moments; we could put it to the Committee, and the Government of the day could maintain its pre-election promise.
It is not a big promise that is being broken—it is only $6,000; it is only $10 a week over that $6,000 range—but it is a broken promise. It can be corrected. We have picked it up, and we are bringing it to the Government and asking whether it would like to fix it. We are happy to draft the amendment. Of course, the Government could draft the amendment itself—we do not mind; we would vote for it, if the Government wanted to put it on the Table, or we could draft it for them. The Minister may want to take the call and indicate whether he would be prepared to support such an amendment. We can put it on the Table in no time at all.
You see, what has happened is that the $44,000 is where the rebate starts to bleed out. It is bled out by $50,000. That means that if one is on $49,000, and thought that one was going to get an independent earner's rebate of $10 a week, the news is that it will actually be about $1.50 a week. So that is a broken promise for that person.
A dollar fifty a week. Someone on $48,000 will be getting $3 a week instead of $10 a week, and so on. So we have a Government that has managed to break a promise for every New Zealander who would be eligible for the independent earner's tax credit who is earning between $44,000 and $50,000. They will not be getting $10 a week, they will be getting less than that, something between $10 and zero a week. So I am saying that to the Minister in the chair, Jonathan Coleman, to see whether he would like to contemplate receiving an amendment on the floor of the Committee from the Opposition. Indeed, the Minister may wish to propose it. It is not difficult, and it probably is not very expensive. It probably is nowhere as near as expensive as addressing the problem of the fact that we are going to have higher tax on very low-paid New Zealanders than we would otherwise have. That is the real crime in this legislation, but this is a broken promise, because National told us about the first amendment, before the election. This amendment arrived this afternoon. This afternoon it became clear that the tax credit for independent earners was not as generous as National had promised in the course of the campaign, and if it would like to correct this clear, obvious, and unmistakable broken promise, then now is the time to do so.
So I will just say to the Minister in the chair that if he would like to nod I will write the amendment. It will be just a pleasure if the Minister would just nod. I am just trying to get something. What did I get out of that, Mr Carter? Did I get a nod? Is that a nod? Let me ask another Minister. Can I ask the Minister whether he would support an amendment to allow National, for not any great price, to not break an election promise? Are any National members prepared to agree to not break one of their election promises? Are any National members within the Chamber prepared to indicate to this Labour Opposition whether they would support any amendment that for not too much cost would stop them breaking an election promise?
I am still not getting any answers. I ask Tau Henare whether he, as an esteemed member of the National caucus, will give me a nod of support that would be followed by his vote, if I were to put forward an amendment to make sure that National did not break an election promise. We have picked it up, we have pointed it out, and there is still time. We are in the Committee stage, and it can happen, ladies and gentlemen. This Parliament can stop the governing party from breaking an election promise. We are here to help, and we are very happy to offer this up. Would one member of the National Party indicate his or her preparedness?
KATRINA SHANKS (National) Link to this
I move, That the question be now put.
Hon ANNETTE KING (Deputy Leader—Labour) Link to this
This Opposition is a very, very fair one. We are very fair; we want to give the Government a fair go and a chance. So I want to start again. Let us start from the beginning of Part 3 and ask the Minister in the chair, the Hon Dr Jonathan Coleman, to answer this question—and he must take a call. We cannot have a Minister on his quarter-million-dollar salary sitting in the chair like a dried arrangement and doing nothing. He has to take some responsibility when he sits in that chair, so I want the Minister to answer this simple question—it will not take long—will the Minister reaffirm the claim made today by Bill English that no New Zealander will be worse off under these tax changes? It is a yes or no question, Minister. We are getting the Cheshire cat grin, but no reply.
Earlier today Bill English said that no New Zealander would be worse off under National's tax changes. Well, that is not true. That is not true, and we want every New Zealander to know that within 3 days of forming a Government, those members have reverted to form. They have gone back to the old Tory Government they were when they went out of office in 1999, and they have broken a promise within hours of being able to put legislation in this Chamber.
I tell members why it has happened. It is because National members worked on their tax package for a long time. There were a lot of arguments and a lot of changes. Mr Key could not make up his mind and he could not agree with Mr English. There was a lot of division, but finally they got it together. But did they release it to the people of New Zealand so that people could get a closer look at it? No, they did not. In October this year they released their tax package, within days of a general election. During the election campaign the National Party candidates could not even talk about their tax policy, because they did not understand it. They had not had it explained to them. In fact, their whole tax policy had been buried because what people did see of it was unpopular.
You see, those members hid so much of it, and now, today, the truth is coming out. The truth is that if we look at Part 3, we will see that this is the nub of what they are doing. They promised that every New Zealander would be advantaged by their tax cuts—every New Zealander. The members opposite know they said that. That is what those members said to the public as they went into the election campaign: every New Zealander would be better off. Are New Zealanders better off under these tax changes? No, they are not. Part 3 tells it all. This independent earners tax credit means that many New Zealanders will get nothing.
Who are these people? Are these people rich? Are these people undeserving? Or are they hard-working, independent taxpayers who do not have dependants, who go to work, do a 40 or 50-hour week's work, but do not earn the net $24,000 a year? They actually earn $23,999, but they do not qualify for this tax credit. They do not get anything. They are not good enough to get anything. But what did they think during the election campaign? What did they think when the National candidates said they would get a tax break? They thought it was them. They thought they were part of this tax package from the generous National Party. It is a fraud, it is a hoax, and many, many New Zealanders have been tricked into thinking that the National Party was going to provide them with a tax break. Small as it was, at $10 a week, they now get nothing.
Just think of the inequities of that. A good example would be two people who live together, but they do not have their own, independent income. One earns $24,000 net, and gets the independent earners tax credit, but the other person earns less than that, and does not.
Hon TAU HENARE (National) Link to this
I move, That the question be now put.
A party vote was called for on the question,
That the question now be put.
Ayes 68
Noes 52
Motion agreed to.
The CHAIRPERSON (Hon Rick Barker) Link to this
The question is that new clause 30A in the name of the Hon Dr Michael Cullen be agreed to.
Hon Dr MICHAEL CULLEN (Labour) Link to this
I raise a point of order, Mr Chairperson. Can I just be clear, that this is the amendment in my name that ensures a compensatory tax credit so that nobody suffers in the difference between the current tax rates and the new tax rates, if he or she makes a loss on it.
The CHAIRPERSON (Hon Rick Barker) Link to this
The question I have here is the amendment in the name of the Hon Dr Michael Cullen. This is the one. We are all clear on the question? OK.
Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
I raise a point of order, Mr Chairperson. I think the Chamber finds itself in quite an interesting situation. As members are aware, a document was presented on the Table and it was signed by the Minister of Finance; it was a signed declaration of a financial veto. Not only was it signed and distributed to Parliament and has since been distributed publicly, but it also happened on the basis of a quantification of some $750 million. That is a large amount of money. If it were the case that the Minister signed that document, it must be true, because otherwise he would have signed an inappropriate document—and I am sure he would not have done that. If it is true, it cannot be withdrawn, because the Government would have grounds to apply the veto, and the Chamber finds itself in an extraordinary situation. Is the Government now committing to fund the motion that the Minister has proposed?
Hon Dr MICHAEL CULLEN (Labour) Link to this
My understanding was that the veto can be withdrawn. One assumes that the Māori Party has now been persuaded to vote against the amendment.
The CHAIRPERSON (Hon Rick Barker) Link to this
Can I just say to the Committee that I have been handed by the Clerk a handwritten note signed by the Hon Bill English, Minister of Finance, stating: "I hereby withdraw the financial veto".
The question was put that the following amendment in the name of the Hon Dr Michael Cullen to Part 3 be agreed to:
A person who under this Act would pay more tax than they would have done under the provisions of the Taxation (Personal Tax Cuts, Annual Rates and Remedial matters) Act 2008 shall be entitled to a Compensatory Tax Credit equal to the difference between the tax otherwise payable under this Act and the tax payable under the Taxation (Personal Tax Cuts, Annual Rates and Remedial Matters) Act 2008.
A party vote was called for on the question,
That the amendment be agreed to.
Ayes 52
Noes 68
Amendment not agreed to.
A party vote was called for on the question,
That Part 3 excluding clause 29 be agreed to.
Ayes 68
Noes 52
Part 3 excluding clause 29 agreed to.
Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
May I comment in passing that that was the most extraordinary vote I have seen in many a year: that the Government of the day would put on a "hugely justified" financial veto, told the Parliament and the public that it would cost three-quarters of a billion dollars to protect poor New Zealanders—overwhelmingly and disproportionately Māori New Zealanders—from the negative consequences of this bill, and then, once it had secured the support of the Māori Party to ditch the interests of—
I raise a point of order, Mr Chairperson. We have moved on from Part 3; we are now on Part 4, which talks about KiwiSaver. I would ask that the member could bring it back to this part, please.
The CHAIRPERSON (Hon Rick Barker) Link to this
The member makes a fair point.
Hon DAVID CUNLIFFE Link to this
The member makes a fair point. I confess my incredulity got the better of me, and I will move to Part 4.
Part 4 is the single most important part of this bill. It is the single most important part of this bill, because it contains the lion's share of how it is paid for. $3.5 billion is being stripped out of KiwiSaver, and the Opposition parties will show in detail in this Committee stage of debate what is being done: precisely what changes are being made that cause KiwiSaver to be gutted; why once again the Government is not being full and frank in the way it is presenting these changes; the financial and economic effects of the change and the impacts on ordinary Kiwis; and, finally, why this is bad policy on any measure of the Government's own objectives.
Let me begin with what is being done. In very, very simple terms, the Government is proposing to change the so-called minimum contribution from 4 percent to 2 percent. Now that, of itself, does not ostensibly sound bad, and it did not sound bad in the election campaign. At a lower threshold more people might come in and it might improve uptake, one might think. Does it sound good, so far? A number of Kiwis thought it was a palatable change. Here is the not-so-fine print: it is effectively not a minimum at all; it is an effective maximum. Why is that? Firstly, because the default setting for any new worker is not now 4 percent but, under this bill, it will be 2 percent. We know, and the data shows, that most of the 827,000—I think it is now—New Zealanders who are in KiwiSaver came there through the default option when they took a new job. So it is being prejudiced from the start-off.
The second, and perhaps most important, feature, is, of course, that the matching contribution is capped at 2 percent. So, technically, people could put in more than 2 percent, it is just that they would not get any return on it, because it would not be subsidised by either the Government or the employer. That accentuates the difference between the Australian scheme, which is a 9 percent—wait for it—purely employer-funded scheme, and the New Zealand scheme under this bill, which is now largely employee funded. Interestingly enough, the Government is also going to repeal the part of the KiwiSaver legislation that protects employees from the actions of employers who seek to offset against wages. It may come up with another solution to that problem, so I will not overemphasise that one. To make matters worse, when the Government realised that it had stuffed up in the campaign and over-promised to the tune of some $700 million because it finally figured out what had been obvious to Labour for months—that ordinary working Kiwis on low incomes would have their actual annual contribution cut from $1,000 to $520, and it decided to restore that very sharp-edged Christmas present—
Hon Dr Michael Cullen Link to this
Not quite!
Hon DAVID CUNLIFFE Link to this
Not quite, as Dr Cullen says, but that move cost the Government $700 million. It then did the Grinch act with the $40 enrolment fee to save $200 million.
Hon Lianne Dalziel Link to this
How miserable is that!
Hon DAVID CUNLIFFE Link to this
I hear people on this side of the Chamber outraged, and the well-suited gentlemen on the far side of the Chamber give not a toss. Why is that? Because for someone on the income of, I do not know, Steven Joyce when he sold RadioWorks, $40 is not a big deal. But for someone on a minimum wage of $12 an hour—or something closer to $9 after tax—$40 off savings is a significant disincentive. When that is combined with the fact that Government has just scrapped anything over a 2 percent contribution and one is going to get diddly-squat from one's boss, suddenly it is not looking so attractive.
Now we come to the next point. The Government's own analysis, provided in the introduction to this bill, was clarified by my esteemed colleague Dr Michael Cullen when he asked the question: "What provision has been made for further enrolments, in the financial estimates for this bill?". The answer was "Nothing". Why is that? It is because the Government is not expecting anybody else to enrol, because it has just gutted the scheme.
I want to cast our memories back to a particular moment for us—one of the most hopeful moments of the election campaign—which was the day the National Party announced its tax policy. Our tracking polls showed its support drop about 5 percent in a day, because this policy is a political lemon. It is a loser. A million Kiwis either enrolled in KiwiSaver or wished they could have. A million Kiwis thought it was great to have a nest egg, and mainly they are New Zealanders who are not of substantial means. Average-wage earners enrolling at 30 get about $420,000 when they retire. That is a big deal for them. That is the value of their home, and that, for many people I have talked to, is not only their principal saving vehicle, but also their hope for a better future. That hope has been taken away from them by a Government that does not seem to care.
Why? It has been done in order to fund a tax cut for the better off. Those who earn less than $44,000 and have kids will lose. Those on the average wage of $45,000 get $1.92 a week more. Whoopee! But those on three-quarters of a million dollars get $264 more a week. Wow! The Government is taking from the poor, gutting KiwiSaver, to give to the rich. That is fabulous stuff, and the Government has done that on its first day in the job! I could say: "Told you so New Zealand." I wish I did not have to.
So Labour got it wrong?
Hon DAVID CUNLIFFE Link to this
The current Minister—he may not last long, at this rate; a bit like Gerry Brownlee, the shortest-lived Leader of the House—Mr English tried to enter a financial veto. When he realised it was going public, he quickly withdrew it, but, sadly, the damage was done, because the public knows it was a $750 million stuff-up. That is the second $700 million stuff-up that that Minister has made in his first week with a warrant. I tell Mr English that it is not a good start. We wish him luck from here on.
Finally, if this is inequitable, and if this is a very unpopular move, it is also an economically fundamentally stupid move. It is stupid, because if Bill English had not noticed, there is a global credit squeeze on. Presumably, that is the reason he wants to tilt the New Zealand Superannuation Fund into loaning to itself by having both assets and liabilities. He wants more savings in New Zealand but he is gutting the best single savings vehicle the country has ever known. It is bizarre. The only other example I can think of was Rob Muldoon killing that superannuation fund of yesteryear—the Kirk fund—whereas he said he would not. So in a sense we are used to that kind of double-talk from that party, but it is none the less sad for New Zealanders whose hope for the future is being sold down the river.
CRAIG FOSS (National—Tukituki) Link to this
I am intrigued by mention of the New Zealand Superannuation Fund, and I am looking forward to further debates on it with members opposite, although I cannot quite see it in this particular bill, the Taxation (Urgent Measures and Annual Rates) Bill. However, the member obviously has some strong opinions on it, as does New Zealand, because that matter was on the table before New Zealand again at the general election and people resoundingly endorsed the National Party's policy of up to 40 percent of the New Zealand Superannuation Fund being invested in New Zealand infrastructure, as opposed to offshore infrastructure and being exposed to various risks. As the member is no doubt aware, the recent updates included quite an asset write-down for the New Zealand Superannuation Fund. Perhaps 40 percent of that risk would not have been there if the funds had been invested in New Zealand in the first place. But, anyway, that is a debate for another day.
Part 4 brings in the 2 percent plus 2 percent option. It was interesting to hear the previous speaker, because as I noted in my first reading speech, I recall being at the Finance and Expenditure Committee when the original KiwiSaver legislation came through and there were strong submissions on it. It was agreed by the Green Party and the Labour members of the committee, and I think by the New Zealand First members, as well, that "2 plus 2" was very desirable and in fact, was quite pragmatic; it was not some political philosophy or anything like that. There was simply a recognition that many New Zealanders cannot afford to save 4 percent of their gross salary. It was as simple as that—about 5.5 or 6 percent net.
So I find it surprising that members opposite are arguing that it is a bad thing that we are going down to "2 plus 2", particularly when some of the unions that contributed to their election fund were in favour of that at the Finance and Expenditure Committee. Business New Zealand was in favour of this at the Finance and Expenditure Committee. In fact, it is something that makes KiwiSaver—and it was Labour's original policy—more robust, more durable, more sustainable, and more affordable for all New Zealanders. It is as if, somehow, any higher contributions have been banned. This measure does not ban any higher contribution whatsoever; it simply allows the entry level to, and the durability of, KiwiSaver to be much more robust and sustainable at 2 percent plus 2 percent. If individual organisations want to negotiate different agreements with their employers, so be it. What is the problem? There is an interesting silence opposite.
I imagine that the next speaker will be the previous Minister of Finance. In previous speeches he has talked about pension portability and about how at risk KiwiSaver is because of the agreement with Australia in relation to pension portability and the discussions on that. He said that the Minister obviously had not called Australia, that the Minister did not know what he was doing, and that it was all at risk simply because of this 2 percent plus 2 percent, rather than 4 percent plus 4 percent. If we read the press releases and watch television, we can see that, to quote the Australian officials, there is no problem whatsoever. The key to the agreement that the Australians had was the fact that KiwiSaver was locked away until the retirement age of 65 years, which is the same as their scheme.
It is interesting that the current Opposition finance spokesperson was trying to dissociate or separate the New Zealand KiwiSaver scheme from the Australian scheme, yet the previous Minister of Finance was obviously trying to bring the two closer. Maybe his hidden agenda was to income test superannuation, because that is what the Aussies do. I presume Dr Cullen will speak next, because we do not quite know about that. There is nothing at risk. Pension portability is not at risk. That is another red herring raised by that member opposite, who is trying to be clever. Obviously, he has far too much time on his hands, these days. I tell Dr Cullen to get used to it, but I am interested to hear his response, because to quote the Australians, again, there is no problem whatsoever with the changes that the National Government is putting before the Committee today to bring the minimum contributions to KiwiSaver down to 2 percent plus 2 percent—locked in. There is no problem about portability whatsoever. Thank you.
Hon Dr MICHAEL CULLEN (Labour) Link to this
The point I was making was whether the Government had checked with Australia, which it had not. The Government drafted this scheme—or launched its policy—without thinking to ask the Australians whether it would affect portability. National did not even bother to ask. I know for a fact that no check was made with the Australians. I still think the previous speaker would be wise to wait longer for definitive statements from Australian Ministers, not from Australian bureaucrats, whom he was quoting in that particular respect.
Let me take another point. The unions were not asking for a "2 plus 2" scheme. The unions were asking for the retention of the "2 plus 2" entry point, which then goes up to "3 plus 3" or "4 plus 4"—
Hon Dr MICHAEL CULLEN Link to this
Yes; over the next 2 years, which is what the current law provides, but is then phased out. The unions did not want to stick to "2 plus 2"; they wanted "4 plus 4", but they wanted to make it easier for people to start in the scheme. The reason I said no to that was that it would have become much more complex for employers. If employers have to run 4 percent for them, and 3 percent for them, and 2 percent for them, it means large compliance costs for employers. But if the National Government had decided just to make that change, well, one would have accepted that it was always an arguable point. Nobody was arguing for a "2 plus 2" scheme, because it does not add up.
Yes, they were.
Hon Dr MICHAEL CULLEN Link to this
It does not add up to anything like enough to make a difference. Why do members think Sir Roger Douglas had "4 plus 4" in 1975! Why do they think the Australians are on 9 percent now and talking of going to 12 percent or 15 percent? The sums do not add up, particularly when the National Government has removed the fee subsidy, which was a flat-rate subsidy designed to ensure a higher net return for small savers within the KiwiSaver scheme, whereas that now has gone.
This is a scheme now that is so much less attractive. National opposed the KiwiSaver legislation when it was first passed. National opposed the extensions to KiwiSaver, and National has hated the success of KiwiSaver. The fact that well over 800,000 New Zealanders have joined KiwiSaver has got National members' bitterness, their bile, their envy, and their jealousy wrapped up. We have just listened to a member who is eligible to join a superannuation scheme based on a salary of $131,200 with an 8 percent employer contribution. He gets up on his hind legs—he who is eligible for a more than $10,000-a-year employer contribution to his superannuation scheme—and tells people on 30,000 bucks a year that they cannot get a 4 percent employer contribution for $1,200 a year. That is his idea of equity. No doubt it is because he thinks he is a hard-working New Zealander, whereas people on $30,000 are not hard-working New Zealanders. Talk about the politics of envy!
Why are those members over there always envious of those on low incomes? A kind of strange reverse envy always comes across from them. Those members think that low-income earners do not do any work because they do not earn as much. They grade people according to their income—the more one earns, the harder one must be working. Well, I tell Mr Foss that, in the real world, life does not work like that. A lot of people on low incomes work a lot harder—and at much less attractive jobs—than a lot of people on higher incomes. That is the reality. KiwiSaver has been hugely successful.
Mr Key has gone around the country in the last few years saying that New Zealand does not have a debt problem. Actually, we have the second-highest national debt as a proportion of GDP—after Iceland—in the developed world. What has happened to Iceland? It has gone down the tubes. The way that Iceland has gone over the last few months, Icelanders are almost hoping that the ice cap will melt so that half of them will drown. We will probably end up being the outstanding country in terms of national debt. We have an appalling savings record. We have had a net dissaving for year after year after year at the household level, and all that has disguised that in the last few years has been the strong growth in house prices. Now that that growth has gone, the reality is being revealed very, very clearly that New Zealanders are, as a collective, divesting themselves of assets at a fairly substantial rate. That is why so few people in retirement in New Zealand have any significant additional income. Some have a lot, but most people have next to nothing in addition to superannuation. They may get an extra couple of thousand dollars a year—that is all.
KiwiSaver was going to give ordinary people the chance to get into a subsidised superannuation scheme, lift New Zealand's saving rate, and change our whole psyche about savings in New Zealand. But National members are again telling us that we can consume our way to victory. It is as though we are in World War II and are being told we should—not dig for victory but—eat potatoes for victory. That would have been the National Party's slogan in the United Kingdom during World War II. People would not have grown things; they just would have been told to eat more because that would, somehow or other, solve the problem. National says we can solve New Zealand's economic problems just by consuming more—much of it produced offshore—rather than producing more and exporting that. We have to save more in New Zealand to produce more of our own capital for investment both here and offshore.
There is nothing wrong with New Zealanders owning more offshore, as that spreads the bets for our future retirement income within New Zealand. That income should not all be based on the New Zealand economy. In that respect, it is wise for us to spread our bets internationally. Sir Roger Douglas agrees with that. National is cutting the possible KiwiSaver contribution from both employers and employees from 4 percent to 2 percent. Employers will initially not be able to take the percentage off gross wages, but National will change the law again so that from next year employers can give employees who are in KiwiSaver a 1 percent pay increase and those who are not in KiwiSaver a 3 percent pay increase. Because National is taking away the employer tax credit, there is no incentive at all for any employer to contribute 4 percent.
Finally, let me deal with the question of the $20 a week employee tax credit. National has worked a con job on the media by convincing them that everyone will get the $1,040 a year—rubbish. National has said that if an employer is contributing 4 percent—that is, above the 2 percent—it will match that dollar for dollar up to $20 a week. But if an employer is contributing 2 percent, National will still match it dollar for dollar up to $20 a week. So those on $26,000 a year will see their employee tax credit halved from $1,040 to $520. The media have completed misunderstood that. The Minister of Finance has done a con job in that regard. For ordinary employees, the total contribution to KiwiSaver has gone from 4 percent plus 4 percent plus $1,040 to 2 percent plus 2 percent—and they may pay the lot themselves—plus something less than $1,040. Their savings have effectively been halved, and in many cases they will be paying the same amount they were paying previously. In practice, they will end up paying 4 percent to get a bit over 4 percent, when they would have been paying 4 percent to get something like 10 percent. Is this addressing New Zealand's savings problems? Is this building a habit of capital accumulation? Is this a property-owning democracy? Is this driving stronger growth? Is this turbo-charging New Zealand? It is nothing like that, at all. Like the research and development tax credit, this is, yet again, a short-term gain for long-term pain. It is the exact opposite of what Sir Roger Douglas used to argue for. To be fair, he did get the long-term gain eventually; it is just that we had to undergo a lot of short-term pain.
This provision is fundamentally wrong. It fails to address one of our most important structural economic problems in New Zealand—it has gone into the air as if, somehow or other, it is not important. It is crucially important in this country. We are in the middle of an international financial crisis, in part driven by the growing gap between savings countries and spending countries. National says we should be a spending country, continue on this huge, long, historic shopping binge, and not worry that someone, some day, will call in the bill. We have to get off that shopping binge. We in New Zealand have to start working, saving, producing, and exporting, but this bill—and this part, in particular—will help to destroy that ambition and destroy this programme that has not been given the chance to work.
Hon BILL ENGLISH (Minister of Finance) Link to this
It was interesting to hear the previous Minister of Finance recast a number of his arguments. Today is the first time I have heard him describe KiwiSaver as the equivalent of the original Douglas scheme or the Australian scheme. Well, New Zealand has quite a different context from the Australians, of course. They have a sharply income and asset tested public pension; we do not. We have a relatively generous—by international standards—universal pension, and we are one of the only countries in the world to have that. On top of that, we have the Cullen fund—named after Dr Cullen—which has been pre-funded on a scale matched only by Norway, with its oil reserves. It is not matched by Ireland, despite the Irish economic miracle. Its pre-funding is about half the size of ours.
In terms of public provision for pensions, we already have universal national superannuation, which is paid to everybody regardless of income, and we have pre-funding—which, I might say, for the next 5 years will be funded from borrowed money. Now Dr Cullen has said that, on top of that, he meant KiwiSaver to be the equivalent of the Australian scheme. Well, the Australian scheme is designed to replace public superannuation—that is why the employer contribution is 9 percent. Dr Cullen did not go around the country telling the public that it was always Labour's intention to replace national superannuation. That is a new rationalisation he has dreamt up today to criticise this policy. The fact is that New Zealand is providing adequately for retirement income, with a universal pension, which the Aussies do not have, with pre-funding, which the Aussies do not go anywhere near, and with the significantly subsidised KiwiSaver.
In fact, the jury is still out on KiwiSaver. A lot of people have signed up, but it will take time to see whether it achieves what Dr Cullen claims it will. Dr Cullen says that, unlike almost all other incentivised schemes in the world, it will unambiguously lift private savings. Well, it is not clear that it will. I hope it does—I surely hope it does—because the taxpayer is contributing billions of dollars to KiwiSaver to incentivise savings. But the fact that 800,000 people have signed up does not of itself mean that private savings have increased. They are increasing, because the cost of debt is high.
Well, here is one thing that Labour has not thought of: KiwiSaver takes away from people their choice to repay debt. If they join KiwiSaver they reduce their ability to repay their debt. People are not just some kind of automaton. They make complex financial choices across their consumption, their investment, and their debt. If many New Zealanders have a top priority now, it is to address directly the problem that Dr Cullen diagnosed—and I agree with him—and that is very high household debt. How do we get debt down? We pay it off. That is what we do. That is why this Government is putting tax cuts back into people's pockets, and reduced subsidies for KiwiSaver will make up for some of the reduced tax take.
New Zealanders have the option to spend more. Well, to keep the economy ticking along they do need to spend something, or to pay off debt. Most assuredly, they should pay off debt. Why would the Government automatically make a better choice than everyone else about whether to pay off debt? New Zealanders now understand the risks of debt. They have dropped their consumption remarkably, and with lower interest rates they will be able to pay off debt. In fact, one of the problems that this economy will have is everyone paying off debt instead of spending money. That will hold growth down in the shorter term, and cost people their jobs, but in the longer term it is an adjustment that may well be good for the country, because people will pay off debt. The simplistic notion that putting big subsidies into KiwSaver will fix everything is wrong.
The other argument is that KiwiSaver provides a pool of capital for local businesses. How many local businesses got $1 out of a KiwiSaver provider's investment? None, actually, and none will for some time, because a lot of providers, like a lot of Kiwis, rightly see that as somewhat risky. Let us have a more nuanced and intelligent debate about savings in this country, instead of these mindless slogans.
Hon LIANNE DALZIEL (Labour—Christchurch East) Link to this
I think the public would be surprised to know that the Minister who has just resumed his seat was the last Minister in this country to cut the pension. He reduced the floor below which superannuation could fall; he reduced it from 65 percent of the average wage to 60 percent of the average wage. I know that there is a word we are not allowed to use in this Chamber, but I would use it happily to describe what that Minister just did. He talked about what would happen to people under a particular position that has never been a proposition put forward in this country, and that is to do away with our national superannuation scheme. New Zealand superannuation has been designed to provide across-the-board access to support at age 65, and it is protected at its percentage of the average wage. The last time that was adjusted downwards, it was done by that very Minister when he was a Minister of Finance.
I noted the statement in the explanatory note of the bill—and some Government speakers have talked about this—that the Government is committed to keeping the KiwiSaver scheme and making it an enduring and affordable scheme for members, employers, and taxpayers. But I think that is an absolute nonsense. I think that the lie to that statement in the explanatory note of the bill can be found in the reality that these changes have been designed only to pay for the promised tax cuts, which have been subsidised by some of New Zealand's lowest income earners.
Actually, no one out there can understand why National has taken the knife to this scheme. It has been the best chance New Zealand has had for decades to foot it with other countries that have recognised the need to encourage a savings culture over many years. Those who have been committed to growing the depth in our capital markets, for example, were hugely welcoming of KiwiSaver when it was first announced. No one thought that National would take the knife to this scheme, under urgency straight after the general election, and ram through the changes without consulting anyone in our capital markets, without consulting anyone in the industry more broadly, and also particularly without the scrutiny of a select committee to consider the detail of the bill in order to take the time so that the National Party could be persuaded to soften the position that it is taking.
I say this is an ill-conceived policy, and it is not one that is supported by the business community generally. Sure, some small-business employers will be happy to see the end of the 4 percent contribution. But they are not paying the 4 percent contribution at the low end of the income level, because there has been a direct subsidy to employers in return for that. In actual fact, the smaller employers were always going to find the 4 percent manageable under the scheme. The reality is that those who run our capital markets are absolutely devastated that this change has occurred to KiwiSaver.
I listened to National candidates say that this measure has been designed to encourage more people to join KiwiSaver. After all, with over 800,000 people enrolled it is only about 150 percent more successful than Treasury originally forecast it would be. But the point has been made that nowhere has National budgeted for an increase in enrolments, because the bottom line is that it is not expecting any more enrolments.
This measure is not about encouraging low-income people to put aside 2 percent of their income and have it matched by a further 2 percent from their employers. It is not about developing a savings culture in New Zealand. It is about chipping away yet again at a Labour Government's attempt to get New Zealanders saving. The sooner the National Government realises that savings are important to the future of our economy, the better it will be. There is, as Michael Cullen pointed out before, extreme dishonesty in the way that National has pretended to keep the Government contribution at $1,000 a year, because of course it is not $1,000 a year if people are contributing only 2 percent of their income to the scheme as lower-income earners.
I too am concerned about the situation, in terms of our trans-Tasman arrangement, over the question of portability. Why did the National Government not think to speak to the Australian Government before announcing these changes?
CHRIS TREMAIN (National—Napier) Link to this
I would like to bring the debate on Part 4 back to where Dr Cullen was going with it. He talked about the real world, which he likes to speak about, although I am not too sure he inhabits it. It is certainly not a world he inhabits on the campaign trail—that is for sure. When we were out on the campaign trail in provincial towns like Napier, KiwiSaver was one of the key things that hard-working Kiwis wanted to ask about. They wanted to know what National's position on it was. I visited many, many businesses, such as Reinforcing Steel and Mesh, Brebner Print, Napier Engineering and Contracting, and AllBrite, and talked to lots and lots of employees at the coalface.
First and foremost, before touching on that, I congratulate the 800,000 people who have signed up to KiwiSaver. I think that is a good start to the scheme. Congratulations and well done! But Mr English is correct. The count is out as to how successful it will be. On a number of occasions when in Opposition I asked written questions of the Minister of Finance. I wanted to know how many of the 800,000 people who are in the scheme are on $50,000 or less a year.
About half.
Oh rubbish! Half are on $50,000 or less? How many are on $40,000 or less? I asked written questions of the Minister but I did not receive any replies. He could not give me any answers.
You can have those answers.
Can I? There were no answers to those questions.
When I was on the campaign trail I was out in the real world, talking to hard-working Kiwis. Guys at AllBrite, for example, are on $12.50 an hour, $13.50 an hour, or $14 an hour. They are hard-working Kiwis, working 50 to 55 hours a week. It is hard out there. I asked in the canteen how many of them were in KiwiSaver. Only one or two, out of 20, put up their hand and said that, yes, they were in KiwiSaver. I asked whether it was the 4 percent contribution that had put them off. Most of them said that, yes, they cannot afford it. People on $30,000, $35,000, or $40,000 cannot afford to contribute 4 percent of their income. When I asked them whether they would join up at a 2 percent level, not everyone in the canteen said yes—that would be exaggerating—but certainly a significant number above two or three said they would be interested.
Why it is important that those guys at that end of the income scale get into KiwiSaver? Because right now they are missing out on that tax advantage. Right now they are missing out on the $1,040 that Labour is saying we are trying to cut out from under their feet. Actually, we are giving them access to it.
Rubbish? I say to Ms Fenton that one has to be in the scheme to get access to the credit. She should understand that. If one is not in the scheme, one does not get access to the credit. What we are doing is helping hard-working Kiwis to get into the scheme and get that tax break.
What a load of rubbish!
Rubbish? People have to be in the scheme to get the credit. Unlike the Labour Government, we are out there trying to help hard-working Kiwis. On the campaign trail, it was clear that Kiwis want the opportunity to be in KiwiSaver. People on under $40,000 want to be in it, and now we are delivering that opportunity. Just 32 days after the election, we are in the House, giving those Kiwis the opportunity to get into the scheme at 2 percent—
Hon Darren Hughes Link to this
So why isn't the Government budgeting for an increase in savings?
They can voluntarily put in 4 percent of their income, I say to Mr Hughes. They can go up to 8 percent—so can the employer. They will get access to the credit. Employees around the country on low income levels will get a significant tax break. That is great. I am proud of what we are doing here today. We are delivering what we said we would. We were totally transparent throughout the election process about what we would do. Now we are delivering on our promises going forward. Thank you, Mr Chair.
Hon PAREKURA HOROMIA (Labour—Ikaroa-Rāwhiti) Link to this
It is a fact that more than 800,000 people have signed up to KiwiSaver. I have just heard my colleague from Napier talk about going to workplaces and seeing only one or two people put their hands up to say that they have joined KiwiSaver. There are 800,000 people who have put their hands up.
It was fascinating to listen to the Minister of Finance's assumptions about those who save. He said that our superannuation scheme is generous. It is generous if people are at the top end of the scale of pay and have a life whereby they can save. But for the 73 percent of Māori in this country who get nothing out of this tax adjustment, this is a sad, sad day. It is a sad day for Māoridom. I am really sad that the Māori Party has supported this measure. I know that Hone Harawira knows better. I was pleased that, at least, he was on TV tonight talking about the next exercise, which is the 90-day stand-down period bill. Every member of KiwiSaver is worse off under National's adjustment.
There will be trouble with portability. It will be very interesting to follow up Mr Foss' statement that he has it organised. That is hard to believe. Who was he talking to? The bureaucrats or the Ministers? It cannot be sorted out, because there is an incompatibility between the structure and design of the two schemes. I think he was telling a short one.
People are worse off. A Māori who worked in the 1950s, the 1960s, and the 1970s could never save because he or she was on a low income. The last time Māoris ever got into saving was in the 1950s and 1960s when we had the little pink Squirrel savings books at school. I think Pākehā had them too. Children had to take their threepence, or whatever it was, along to school every Wednesday and put it in. That is a similar alignment to the design of the National Government's KiwiSaver programme.
I go back to the statements made by the leader of the National Party. They were very, very interesting. What did he say? He said he was and continues to be supportive of what Labour was doing in relation to KiwiSaver. I am not too sure, but I wonder whether the Minister responsible for this measure is waiting for him to trip up. Mr Key said in May 2008: "We haven't finalised our KiwiSaver programme yet, but there will be compulsory employer contributions. They're likely to be at pretty similar levels to what is outlined in the legislation at this point." That is what people talked to Chris Tremain about in those coffee shops during their lunch breaks. They talked about those levels. Then Mr Key said: "Well we've always said that we've got concerns about certain aspects of KiwiSaver, we've also said that there would be a KiwiSaver. I didn't like the first version that Michael Cullen had, because there wasn't really much in it, and that's why he beefed it up in Budget 2007." This is a sinister, manipulative, calculated move to undermine one of the best schemes in this country.
Let us talk about low-income people who have never saved. What is wrong with contributing 4 percent? Mr Tremain's mathematics are quite interesting. He talks about the $1,040, but what he does not talk about is the fact that he has taken 50 percent of the injection into the accumulated figure. He has taken it away. He has flogged it. That will put pressure on low-income people, who will get nothing out of this. There was a culture that was delivering. People knew that in 7 to 10 years they would have a pūtea, a nest egg, that would help them to go forward. Now there is an assumption that if we stimulate business and keep it all up in the macroeconomic area, around the big-business boys, they will trigger activity down at the bottom and everybody will be right. Never mind the poor people. Never mind the low-income people. That is what Bill English has done. He has gutted KiwiSaver, without going to the people, without declaring it—
We had an election.
Hon PAREKURA HOROMIA Link to this
Yes, National won the election—that is dead right. But that is the sort of arrogance that is starting to spurt out in this House. It is sheer arrogance. They are taking from the poor and giving it to the rich.
DAVID BENNETT (National—Hamilton East) Link to this
I think that when we look at this part of the Taxation (Urgent Measures and Annual Rates) Bill and the KiwiSaver aspect of it, it is important to look at the general nature of the bill and the general nature of what we are dealing with in the economy. We are dealing with an economy that is in recession. It has had 9 long years of poor economic management. It is an economy that needs new direction and leadership in a country that needs leadership.
There are young people out there who are training in New Zealand. They want to make New Zealand their home but they want to see a future in this country. They want to see a Government that will deliver a future for them so they can stay and work here. They want to see some reward and some incentive for their hard work and their direction. This bill does that. Not only does the independent earner tax credit do that but the KiwiSaver changes do that for young New Zealanders. Young New Zealanders who would not have joined KiwiSaver before because 4 percent was too high now have a chance to be part of that scheme. Young New Zealanders who want to make their future in this country now have a reason to stay here. They have a reason because we are giving them the ability to get into a savings regime that will deliver a future for them. Young New Zealanders will see a future in this country. They will believe in this Government, and they will see that we are delivering for them. We are giving substantive delivery so that they can make a constructive future in New Zealand. That is the heart of this legislation. That is the heart of what the National Party is about.
National is here to deliver for New Zealanders. We want to bring a new vision. We want to create an economy that is strong and growing. This measure will actually deliver that growing economy. It is the first step in delivering that growing economy, because it will send the right signals and give the right incentives to those young people to stay in New Zealand. If they know that they can be part of a savings regime, they will stay here and be part of the New Zealand dream that they want to buy into. We are giving them that chance—a chance the Labour Government did not give them. That is why they were leaving in droves. They did not see a direction or a future from the previous Government. But this Government is giving them that direction and future. We will not just say the scheme is a Government-knows-best scheme, as the Labour Government did. We will give them the opportunity to partake in that savings regime. It is important that we do that. It is important that we give people that chance to invest in the future of their country. That is what we are doing through this KiwiSaver regime. The reduction from 4 percent to 2 percent gives people that opportunity. It gives them the chance to have a savings scheme.
The worst thing that can happen is to have a scheme here that means the low-income people in New Zealand do not get the chance to save. If we have a scheme that is just for middle New Zealand, or for high-income earners, it leaves a whole generation of low-income New Zealanders without savings to top up their superannuation when they retire. That will be the dilemma that will face this country. The National Party does not want to see that. We do not want to see young New Zealanders on low incomes who do not have a savings regime, and cannot therefore supplement their superannuation in the future. We want to see them have their homeownership, we want to see them supplement their superannuation, and this is the opportunity to do that. This gives a chance to young New Zealanders to have a future here, to get into a savings scheme so that when they actually need that money it comes to them.
The Labour Party does not care about them. Labour members do not care about the people who do not go into the savings schemes. As long as they can be in a savings scheme, that is all they care about. They do not care about the people who do not get into a scheme. They do not care about the low-income earners who cannot give 4 percent. They never have and they never will, because that is not how they think. But the National Party will deliver a structure that will benefit all New Zealanders. It is a structure that will deliver, and it is the structure the public wanted at the election. They wanted a chance to be part of the future of this country, and that is what this measure will do. We are giving more New Zealanders the opportunity to be part of a savings scheme and to build a better future for themselves. That is what National is doing, and it is something that Labour would not do.
Hon DAVID PARKER (Labour) Link to this
I want to start by referring to a statement made by the Hon Bill English in his last contribution, which stood in stark contrast to things he has been saying outside the House recently. In response to Dr Cullen's point highlighting the importance of KiwiSaver in improving the savings of New Zealanders, Bill English said that the effect of cutting KiwiSaver was being fed back to people in tax cuts that they would use to retire debt. I thought that the National Party was saying that the tax cuts were part of the fiscal stimulus that would increase economic activity. Mr English cannot use the money for two purposes. It is either a fiscal stimulus or it is being used to retire debt. It cannot be both. That will be recorded in Hansard, and I think it ought to be remembered next time National members point to tax cuts as being part of their fiscal stimulus package.
"Going for growth" was the slogan yesterday and it is but a slogan. National wants to improve productivity in New Zealand. New Zealand workers already work very hard. We work longer hours than Australian workers. We work longer hours than most people in OECD countries. Our problem is not how hard our workers work, it is how productive the output of their labour is. Total factor productivity in New Zealand is poorer than in Australia because we have lower savings than Australia, and, in addition, so many of our important assets are owned by overseas owners because we do not save enough money to own our own assets and we are reliant on overseas capital to fund our assets. KiwiSaver was the key to fixing that. It made us more like Australia, where Australians have a 9 percent contribution to their savings scheme, all paid by the employer. The "4 plus 4"—4 percent from the employee and 4 percent from the employer—under KiwiSaver, plus a $1,040 tax credit to the employee was pretty similar. New Zealanders would have started to accrue savings so that we could own more of our own country, so that we could invest in increasingly sophisticated plant and equipment so as to improve total factor productivity to add to the very hard work that is already done by New Zealand workers.
But, oh no, that sensible prescription for economic growth has been ruined by the National Party as a result of turning it from a "4 plus 4 plus $1,040" scheme into a "2 plus 2" scheme. National members say that the scheme will be more accessible to people, yet they have admitted that their projections are that no more people will enrol in the scheme. So the same number of people will be in the scheme but they will be saving less. How does that improve the wealth of New Zealand? How does it improve the productivity of New Zealand? The answer is that it does not. It does exactly the opposite.
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