Hon BILL ENGLISH (Minister of Finance) : When I rose last night and spoke very briefly, I moved that this bill be read a second time, and I pointed out that the one thing that was obvious from the first reading debate was that Labour still does not realise it has lost the election. With the attitudes on display, I see that that is a realisation that will take some time to sink in, but I will come back to that.

I remind members of the context in which this legislation has come before the House. New Zealand has already been in recession for a year, and of course there are questions about how we managed to get into recession before other countries did. The 2008 calendar year will show virtually zero growth—the much-vaunted legacy of the previous Government, I presume. During this debate I expect that Labour members will be able to explain to us just why the economy was in such apparent great shape when it had zero growth. We have been in recession for longer than any comparable economy, and that was before the international events that are now concerning us. So we are introducing this legislation in the context of an economy that already had quite significant problems because of 9 years of complacency about what it takes to grow an economy and allow people to have all the benefits that go with a growing economy. That is the first point.

We are introducing this legislation in the context of a country that was already in recession well before the international events that have created so much uncertainty. Of course, we have seen those events occur in the last couple of months, and we are surprised that in its dying days the Labour Government did not make much of them. The reason is that Labour was doing all of its dirty tricks, and that is a very obvious and high-profile legacy of this Government in the public mind; at a time when it should have been going through our proposals in detail, which are embodied in this legislation, and outlining its own ones in detail, it was chasing dirt files in Australia on the current Prime Minister.

If those members do not understand the detail of the legislation that is laid out now, that is why. They were too busy being focused on continuing their legacy of personal denigration and continuous scandal, and on issues that did not matter to the people who trusted them. That is why those members are on that side of the Chamber. Instead of looking at the detail of our economic policy and debating it in the election campaign in a way that would reflect the interests of the people who trusted them, Labour members were too busy chasing their strategy of personal denigration. The dirty, complacent Labour Party let its own people down because it did not focus on the issues that mattered to its own people. We did, and that is one of the reasons why Labour lost the election.

Looking ahead, we see that the New Zealand economy faces very significant uncertainty, and that uncertainty is—at the moment, anyway—largely to do with the state of the economies of our trading partners. In the last couple of months the economies of our trading partners, with the exception of China as a significant partner, are almost all headed into recession. That has happened quite quickly, even in Australia, which as recently as 2 months ago was forecast to grow at 2 percent per annum, but is now looking at a couple of quarters of negative growth despite the Government over there saying that it would not happen. So this legislation is part of a fiscal stimulus of around $7 billion over the next 2 years. That is not all of it; this will add to the stimulus created by a fairly big-spending Budget in 2008—well, another big-spending Budget from a Government that has tried all sorts of tricks to hide some of the impacts of its worst decisions—then the tax cuts on 1 October 2008. Those tax cuts were made somewhat reluctantly by the previous Government. Having spent 9 years saying it would never do that, it did. Having spent 9 years saying it would never borrow for tax cuts, in its dying days it turned round and borrowed for tax cuts. That is another reason Labour lost the election: it ended up doing the opposite of what it said after 9 years, which was “We will never cut personal taxes.” Then because National won that argument the Government was forced to cut them, and it lost the election anyway.

There is nothing worse than giving way on one’s principle and then regretting that one did it; that is what those members are sitting there doing. Would they not love to be able to say “We stood firm; we never gave in; we never cut personal taxes.”? They cannot; at the last moment, along with the blowout in Treaty settlements, endless promises on rail, and the big hole in the Accident Compensation Corporation accounts, they caved in and made tax cuts. Well, we are happy to claim those tax cuts as part of our stimulus package because, in Dr Cullen’s immortal words, “He lost”—he lost the tax cut argument.

When we add those three things together—the big-spending Budget in 2008, the 1 October tax cuts, and this tax package—the economy over the next 2 years will benefit from $7 billion of stimulus. Why does that matter? Well, it matters because it will put cash in people’s pockets.

Hon Darren Hughes: Not all people.

Hon BILL ENGLISH: Well, actually, just about everybody. I want to pay attention to one particular issue that has been raised, and that is the issue around Working for Families. Over the last 3 or 4 years there have been substantial increases in the net incomes—the after-tax incomes—of people with children.

Hon Darren Hughes: Opposed by the member.

Hon BILL ENGLISH: Well, no, actually we support it. Many other New Zealanders who were not part of Labour’s political strategy got nothing, so in this package people who got nothing for 9 years—loyal Labour voters who were meant to be looked after by the previous Government, which spent all its time on a campaign of personal denigration and incompetent scandal—will get something. It is true that there are no increases in Working for Families here. That is simply for this reason: families with children have had big increases over the last 2 or 3 years; people without children have had nothing. This tax package will give them some cash in their pockets, which will help to keep this economy ticking over and will protect people from the sharpest edge of recession.

As it happens, this is a decision consistent with our long-term goals, which are to improve incentives in the economy to encourage people to get ahead, and to let them make their own decisions with their own money, instead of being told what to do by a Government that takes too much tax off them. So the decisions that will help the economy in the short term to cushion the effects of a recession will also help the economy in the long term to achieve our objectives of raising our long-term growth performance. Of course, who would know where Opposition members start from? They are against tax cuts; they are for them. They are against borrowing; they did it. They think the economy matters, but when it matters they never talk about it, such as in an election campaign. They talked about everything else. I suspect that it will take, probably, another 12 months for Opposition members to figure out that Labour is no longer the Government.

Hon DAVID CUNLIFFE (Labour—New Lynn) : That has to be one of the singularly worst speeches I have heard from a Minister of Finance in my entire time in Parliament—it is the worst, in fact. There is Bill English, saying we do not realise we have lost the election; I do not think he realises he has won. That was one of the bitterest, meanest, most angry speeches I have heard. We are in a better mood than he is, and we lost the election. I ask New Zealand what that was about. Was that the happy, friendly face of the modern National Party, or was that some warmed-over dipstick from Dipton? Look, I do not know about his mana-enhancing Treaty blowouts, and his carping and whining about the election campaign, but can members just imagine the situation if National had lost? How bad would Bill English’s mood have been then?

Hon Darren Hughes: Oh, he’d be happy then. He’d be leader.

Hon DAVID CUNLIFFE: Ha, ha! That is terrific—that is terrific. He would have been happy then, because he would be leader—“Et tu, Bill!” It is a wonderful thing to watch the body language on the front bench of the Government—absolutely wonderful. Every time the poll ratings go up, Bill English’s face goes down.

Three things are wrong with this bill: it is bad process, it is bad economics, and it is bad for working Kiwis. The bad process stuff is obvious, is it not? The Government did not even put the bill on the Table before the debate started. It is not sending it to a select committee. What has happened to the flowering of democracy, the “Key spring”, in New Zealand? We cannot see that today. All I can see is a bill the National members must be ashamed of, because they are rushing it through all stages, with no opportunity for affected New Zealanders to comment and no opportunity for the detail of the bill to be tested.

You know, this bill is so shoddy that even the commentary on it says it is rubbish. It does not meet the Government standards for a regulatory impact assessment, according to page 10. The Government has not quantified the effects of the bill. It does not know whether the removal of the research and development tax credit will push innovation up or down. It does not know the net effect of the KiwiSaver changes, but we established yesterday—thanks to Dr Cullen—that it is not allowing for any growth in enrolments. So that move to make it easier for New Zealanders to enrol—that minimum 2 percent—is something we know the truth about, ladies and gentlemen: it is a cap. It is a maximum, because that is the default level that people will enrol at. That is all an employer will be allowed to subsidise, and that is bad for workers. It is bad for Kiwis, who need to save.

You know, the macro effects of this legislation are rubbish. If there is a short-term recession problem and the pump needs to be primed, the last thing to do is to have a long-term tax cut. Why is that? Well, there are two things. Firstly, any economist knows that the multiplier on Government spending is bigger than the multiplier on a tax cut. Why is that? Because if investment is directed well, it flows through the economy. If there is a tax cut, people spend part of it on stupid consumption items, they spend some on investment goods, and they save some away. That does not ricochet through the economy, so the multiplier on a tax cut is lower than the multiplier on good investment. That is why this measure is bad economics.

The second thing is that this is a long-term measure to address a short-term problem. It is a bill that does not work. The idea is to match a short-term problem with a short-term measure. So one does a temporary stimulus package, and does not lock in a structural tax cut that will blow out the debt track. But, hey, if National is confident about that debt track, I say it should show it to us. Why does it not tell New Zealanders the truth about where gross sovereign debt will get to in 20 years’ time? National has not told New Zealand that, because it is deeply, deeply ashamed about it.

Even Treasury, in its briefing to incoming Ministers—I tell Bill English that it is on about page 10, if he has not got that far—tells us that this fiscal stimulus is not required. That is because there is $13 billion of pump priming, of which $9 billion came in October with Labour’s package. Two-thirds of it has already been done, and we spent—as Dr Cullen said—right up to the maximum of where we felt that we could go, based on the information that we had, up to the point where we were borrowing to fund a tax cut, which is bad policy and bad economics. Ignoring Treasury advice and, like Rip Van Winkle, ignoring the entire meltdown of the global financial market, Mr English has done the politically populist thing. He says we should have a tax cut.

A tax cut sounds wonderful, until one works out who gets what. I say to members and to those who are listening that the answer is that if a person earns less than the average wage, less than $44,000, that person will lose, because National will have taken off the KiwiSaver enrolment subsidy. National is to cut $3.5 billion from KiwiSaver funding. That has to come from somewhere, and it will come from the workers—from the poor, as usual. And who gets what? Well, someone on $750,000 a year, a nice income for a good National Party supporter, will get $200 a week in tax cuts, which that person does not need. A person on the average wage of $45,000 will get $1.92 a week. Whoopee! That will really help at Christmas, will it not, even if one has not lost one’s job because of the 90-day sacking bill. I thank Mr English very much for the kinder, gentler, National Party.

The smiley face of National is hopping from cloud to cloud, forgetting to tell people the truth about what was in its policy. What about that superannuation tax credit that National just forgot to mention—that it was cutting the net rate from 4 percent to 3.4 percent. That would not really have pleased the oldies if they had been told about it ahead of time, so National did not tell them. The reason that we do not get to test these things is that there is no select committee process. This bill is being rammed through. National knows this bill is not well-thought-out. It is bad economics; it is bad for people.

This bill will make a lot of our old structural problems worse. Those problems were that people were spending a bit too much because their house valuations were going up, and they figured that they could take afford to take on a bit more debt. People did spend beyond their means; there is good evidence of that. But this bill makes that problem worse. It says National will cushion the effects of a short-term recession with a tax cut. The money will not go into investments; it will not do anything for productivity. That was National’s theme in the Speech from the Throne, just yesterday, when it said it would go for growth and productivity. Nothing in this bill will go into growth; it will go into wasteful spending and into things that will not help our innovators. The bill will not help our exporters, will not help our dynamic companies, and will not help families who are in need.

I ask what the bill was supposed to be about. What was it supposed to do, and what was the point of this bill? Was it to deliver on an election promise? What did National campaign on? It campaigned on the promise of good, open Government, and a fresh start for New Zealand. Do members remember those words? Well, they lasted about a day into the business of the House. The fresh start for Government meant doing away with the select committee process. It meant doing away with giving the Opposition adequate notice, in order for it to prepare a defence. It meant doing away with the constitutional safeguards that New Zealanders hold dear. If the process around this bill is anything to go by, let alone the 90-day Employment Relations Act amendment bill outrage that is coming later this week, New Zealanders are in for a very, very tough time.

Hey, members should not feel sorry for us. We are professionals. We understand that we are here to serve the public. We know that when the public wants us to serve them, we will be ready. Members should not feel sorry for us because we are in Opposition; that is another form of service. Members should feel sorry for New Zealanders who are going to suffer from the excesses of a Tory Government that is reverting to type on day one of holding office. They should feel sorry for New Zealanders who will suffer from the abuse of process and get bad economics delivered to them, with proposals that are ill-defined and badly quantified, do not meet regulatory impact standards, have effects that have not been quantified, and have loose and shoddy details.

This bill is a nonsense. It is about who gets what—and those who get it are the rich, and those who lose it are everyone with kids and an income of $44,000 a year or less. That is the truth of it, and that is why we strenuously oppose this bill. This Government has started the slide to 2011 on day one. This will be a one-term Government, because New Zealanders hate people saying one thing and doing another. They do not mind hardship if they have voted for it, but they really resent being sold something and getting something different from that. This bill is bad economics, it is bad for New Zealand, and it represents bad process.

CRAIG FOSS (National—Tukituki) : In speaking to the second reading of the Taxation (Urgent Measures and Annual Rates) Bill, I want to say that given the speech of the previous speaker, the Hon David Cunliffe, he may well not last quite as long as the Hawke’s Bay District Health Board did. I think his colleagues were all murmuring as he spoke, and what happened last night was very indicative of the support they have for him. Earlier speakers—[Interruption]—and I think we are hearing them again—are still fighting the battles of yesterday. They are still fighting the battles of yesteryear. I half expect something about the Viet Nam War and the Springbok Tour to come out, and maybe it will in speeches to come.

The comments about process and select committees were interesting. I think almost every bill, amendment bill, and budgetary announcement on KiwiSaver was passed under urgency—all bar one, the first bill. They were all passed under urgency. They did not go to a select committee, etc. The difference between this bill not going to a select committee and the various changes, Supplementary Order Papers, and amendments that were rammed through under the previous administration without their going to a select committee is a thing called the general election. The thrust of this bill went to the select committee of New Zealand in the general election. Part of our 100-day plan, part of our core philosophy, and part of our ongoing plan for New Zealand is, quite simply, an ongoing programme of sustainable tax cuts leading to growth.

The previous speech was very revealing. The member spoke about people reverting to their true colours, or something along those lines. I could not believe my ears when he said that everybody knows that the multiplier on a tax gain is bigger than the multiplier on a tax cut. We now see the justification for Labour taking the top marginal rate from 33c to 39c. And I will concede that it was in its programme that it put before the public—fair enough. But if we take what the finance spokesman said to its logical extreme, we find that he is saying, basically, that we should hike taxes. He spent about 3 minutes talking about the multiplier on tax cuts versus the multiplier on tax hikes. I ask whether Labour is revealing its hidden agenda, now that the election is over. Is it revealing what would have been in the mini-Budget of the previous Minister of Finance? Presumably that would have been in December if Labour had got in. I ask whether Labour would have actually hiked taxes, because the logic of the previous speaker’s speech was about increasing taxes.

Hon Darren Hughes: Why are taxes going up for people in Flaxmere?

CRAIG FOSS: The gentleman who was the previous electorate member for Ōtaki asks why taxes are going up. He should turn to his left and ask that question of the gentleman who, over the last 9 years, was responsible for the greatest tax increase in New Zealand’s history. If he wants to make some further comment, he should take a call later on.

I still cannot understand the logic. If the previous member had actually said something along the lines that conditions are such-and-such and we need to maintain the status quo, perhaps I would have found it logical. But when that spokesperson talks about multipliers, I ask whether he is talking about hiking taxes. I ask what his policy is. Is his policy to hike taxes now? The logic of what that member just said totally contradicts what the previous Minister of Finance, who is sitting behind him, said in his Budget of May 2008 when he announced his first series of tax cuts. Dr Cullen himself is on record talking about ongoing personal tax cuts, and now you are contradicting him. The factions and splits within the defeated Labour Party are starting to come to the fore.

Hon Trevor Mallard: I raise a point of order, Mr Speaker. I am sure you did not contradict Dr Cullen, as this member has indicated. Mr Speaker, the Hon Dr Lockwood Smith, has indicated that he will be very strict on the incorrect use of “you”, and I hope it will apply to the Government as well as the Opposition.

CRAIG FOSS: I thank the member for bringing that to my attention. I apologise to you, Mr Deputy Speaker. I will continue.

We are starting to see some of the splits in the defeated Opposition come through. The Opposition members are contradicting each other on core policy, contradicting each other on their vision of what may be needed to take New Zealand forward. This proposal, the core policy in the Taxation (Urgent Measures and Annual Rates) Bill, went before the public of New Zealand, and 3 or 4 weeks ago over 1 million New Zealanders voted for it.

I will make a couple of other points about something someone spoke about yesterday, during the first reading. Opposition members talk about the debt to GDP ratio, and someone made fair play of that yesterday. I would like to note that in the 1990s, which the Opposition often talks about, the previous Prime Minister, Helen Clark, would often talk about a debt to GDP ratio of 40 percent, or even 45 percent at some stages, as being prudent. Yes, good global economic conditions took New Zealand’s debt to GDP ratio down to about 17 or 18 percent. In the Budget of 2008, it was around those levels. Of course, as the skeletons started to come out of the closet, and as the ticking time bomb started to tick louder, we saw in the Pre-election Fiscal and Economic Update that it was forecast to nudge 30 percent, I think, with a decade of deficits. Of course, those deficits have to be funded in some way. It is interesting that when I point that out, the Opposition goes very quiet.

I will raise two other points. Opposition members constantly talk about low-income earners. Well, I will make just a couple of points. There are many low-income earners in New Zealand—the Opposition is quite right—and that is because of the last 9 years of a Labour Government. Incomes have come down somewhat compared with those of comparable economies around the world. That is why there are a lot more lower-income people in New Zealand than in comparable economies, and that is why many of those people voted the National Party into Government, and threw the Labour Party out. I would like the member opposite, the Hon Darren Hughes, who is interjecting, to note that.

Everyone needs a doctor at some stage. We all want police, we all want chippies, we all want plumbers, and we all want good teachers. We want all those people, and, funnily enough, all those people are on the highest marginal tax rate in New Zealand, 39c. It is those people who have been leaving this country in droves for a brighter future elsewhere, after the last 9 years of a Labour Government. That is why they have been going across to Australia. We all have friends, family, and whānau over there who are getting a higher after-tax income than they could get here after 9 years of the previous administration. Low-income earners in New Zealand have to pay more for their plumber, chippie, truckdriver—you name it—because they have all gone to Australia. We are trying to build an economy that is attractive enough to bring them home.

I will make one other point. It has not been mentioned, but it needs to be mentioned, because there has been talk of debt funding, etc. Somebody was talking about debt projections, etc. Well, I ask what the total quantum of the Accident Compensation Corporation (ACC) mess is. The people over there in Opposition must have a fair bit of knowledge of it. I ask them for the total quantum. I ask them to give it to us to the nearest $50 million. The Government accounts are not narrowed down to the nearest cent; they are approximate, and there are contingent liabilities in there. You ask us for a debt projection; I ask you to put on the table all your knowledge about all the—

Hon Trevor Mallard: I raise a point of order, Mr Speaker.

Mr DEPUTY SPEAKER: I know what the Hon Trevor Mallard is going to say. Members cannot use the word “you”. It brings the Speaker into the debate, and that is not allowed.

CRAIG FOSS: I apologise again, Mr Deputy Speaker.

I ask members opposite who have any knowledge of any other black holes, of any other ticking time bombs, to put them on the table. They should put them on the table so that we have full knowledge of them. Then, and only then, will you see the forward projections that you are demanding right now. I suspect that the reason you want those projections so badly is that you know there are more ticking time bombs to come.

There are two questions left hanging. The ACC annual report did not have anything in it about this nonsense. Under the New Zealand International Financial Reporting Standards there is an obligation to put—

Hon Trevor Mallard: I raise a point of order, Mr Speaker. It is not your report.

CRAIG FOSS: I did not say that.

Hon Trevor Mallard: That’s exactly what you said.

Mr DEPUTY SPEAKER: The member cannot use the word “you” or “your”. Please confine your debate to the subject and do not use those terms.

CRAIG FOSS: Thank you, Mr Deputy Speaker. I did not mean to use that word, and if I did I apologise. I meant to say “the report”.

Under New Zealand International Financial Reporting Standards, which the ACC’s accounts and annual reports are prepared under, this mess should have been noted. The Government accounts are prepared under those standards, so the Pre-election Economic and Fiscal Update should have noted this mess—at least in the contingent liabilities. Where was any mention of the ACC mess? Where was anything about the Government Shared Network mess? What other messes have we got coming?

New Zealanders should be very, very fearful of the legacy of the previous administration. We are discovering more and more by the day, and it is not a pretty picture. Members opposite are fighting old battles, because they do not want to talk about the future, and they do not want to talk about the appalling state they left the books in.

Hon Dr MICHAEL CULLEN (Labour) : The reason we are fighting old battles all over again is that the National Party is fighting its old positions all over again. This is 1990 all over again. What was the key phrase in yesterday’s Speech from the Throne? It was “We’re going for growth.” Well, who made that slogan up? Ruth Richardson said in 1990 “We’re going for growth.”, and frightened the hell out of everybody as soon as she said it. What were the first two things that that Government did? It abolished employment equity and it started cutting the incomes of the poorest New Zealanders. What are this Government’s first two measures? It is introducing fire-at-will provisions and it is cutting the incomes of many of the lowest-paid New Zealanders. This is 1990 all over again from the National Government.

But the most extraordinary thing today was that Mr English, the Minister of Finance, gave a second reading speech in which he failed to answer a single question that was raised in the first reading debate, because he had no answers. All he did was say “Oh, somebody in the Labour Party had some dirty tricks in the election campaign.” Well, that is pretty rich, coming from the man who organised the leak of emails about Don Brash in 2005. That is pretty rich coming from that particular member.

But he put up the most extraordinary argument, and I want to go over it again. He said that the Labour Party lost the election because it failed to put the National Party’s policies under sufficient scrutiny. In other words, Mr English said that his policies were so weak in detail that if we had debated those policies in detail, National would have lost the election. That shows real confidence in what it went to the country on in 2008. That argument says “Our policies were rubbish, and why didn’t you rubbish them and save me, the Minister of Finance, from having to move this rubbish policy through Parliament under urgency?”. That, I think, is the most extraordinary argument I have ever heard from a Minister of Finance. Indeed, it went further. He said that because we did not do so, that was a justification for passing this rubbish policy. Goodness knows what else is going to be “justified” by us in being passed.

The attitude in Mr Foss’s argument was that if something were in the National Party manifesto, it need not go to a select committee. Well, that is going to leave select committees free from the rest of the work for the next year or two, since presumably most of the work coming through is somewhere within the National Party manifesto.

These questions were not answered by Mr English. Why is National increasing taxes on low-paid workers? Why is it increasing taxes on low and middle income families compared with what is now in the law—not some announced policy by the previous Government but in the law—to take place in 2010 and beyond? We have the ACT Party, which stands for cutting taxes no matter what, voting for increases in taxes in the House today. Why is the Government cutting research and development in the private sector? Why is it cutting savings? Why is it not costing its claim of an increased take-up with the lowering of 4 percent to 2 percent, and has it considered the issue of portability with Australia?

We are told that the whole point of National’s policy is to stop people going to Australia, yet what is one of the main attractions of Australia for workers? Workers in Australia get a 9 percent payment into superannuation funds paid by their employers. Under KiwiSaver, workers are still going to pay 4 percent, but they can expect 9 or 10 percent to go into their superannuation fund. This bill will cut that back to 4 percent or 5 percent, and the worker could end up paying the full 4 percent contribution thanks to other changes that will come through later this week or sometime on Saturday. That is the reality. That is a real disincentive.

But it is worse than that. If, as I believe is likely to be the case, the Australian Government says the superannuation portability is off the table because there is no longer a match between KiwiSaver and that Government’s compulsory scheme, then Kiwis in Australia now will be locked into Australia. They will not be able to come back to New Zealand because they will not be able to get portability from their Australian scheme into KiwiSaver. Under portability they were going to be able to transfer their Australian funds into KiwiSaver; they were going to have the option of moving back. High-quality Australian professionals and managers were going to be able to come to New Zealand and continue a scheme, and be able to move back to Australia if they wanted to later in life, and that option, that choice, was important to attract people over here from Australia. So what is the purpose of doing this?

It is clear that National has never thought through that issue. It is clear that National members have not talked to the Australian Government. It is clear from the stunned mullet looks on their faces that their caucus has never discussed this issue. It is clear they still do not know what it is they are doing in that particular respect. The member, Shane Ardern, can drive his own personal tractor up the stairs of Parliament as often as he likes; that is not going to bring anybody back from Australia. But having a proper superannuation scheme with portability will bring people back from Australia, despite a National Government within New Zealand.

Of course, the other thing we learnt from Mr English—and I tell Mr Flavell that I hope Māori Party members were listening—was that there has been a blow-out on Treaty settlements. Did Mr Flavell hear that? No, he did not hear that. He, as usual, whenever the National Party is talking, now puts his ear plugs in so he cannot hear what is being said, because he does not want to know. He has been parading around the marae, and at those huge hui with 10 or 12 people, with Māori activists, because the public was not supposed to know where the meetings were being held, saying: “We’re going to deliver everything to you. We’re going to deliver the ownership of the foreshore and seabed. We’re going to deliver mana-enhancing measures all over the place.”

Well, let us go through the mana-enhancing measures in this bill. There are increases in tax for those earning $14,000 to $24,000 a year. Does that sound like a group that might have a disproportionate Māori content within it? There are increases in taxes on families—all families with kids—earning under $44,000 a year. Does that sound disproportionately like Māori families? Has this member enhanced the mana of those families in voting for those increases in taxes? He voted for it yesterday. He will vote for it today, and he will vote again and again and again. I tell Mr Flavell that the cock will not crow just three times; it will crow many times during this day today. He will not be such a big man on the marae now when he goes back. He is going to have to explain, with Mita Ririnui present, why he voted to increase taxes on his constituents. Why will he be voting for a measure that enables lower-income workers with very little bargaining power to have the employer contribution to KiwiSaver transferred to the employee? Does that sound like a group of workers who are disproportionately Māori? It sounds like it to me.

The five Māori Party MPs have sold their souls for not even a mess of pottage—for not even a spoonful of pottage. They have sold their souls for an empty promise to enhance not the mana of Māori but their own mana. That is what that agreement was about, and they are launching down the same track as the New Zealand First Māori MPs from 1996 to 1999. They will be dog tucker at the 2011 election, because their mana is not going to be enhanced. Mrs Turia can drive up with the entire whānau in the VIP car to the 2011 election campaign, and Mr Sharples can drive up to his marae in the VIP car in 2011, but they will find silence on the marae, which is the bit that will tell them they are in the most trouble. That is what they will find in that particular regard.

This bill cuts private sector research and development investment. It is a dumber economy. It increases taxes on low-paid individuals. and it increases taxes on superannuitants and beneficiaries who are earning a bit more and working a bit more, trying to make their way in the world; it cuts taxes for the chief executive of Telecom. It produces a dumber society with slightly lower taxes, lower growth rates, lower productivity, and greater inequality, and more people will stay in Australia.

Dr RUSSEL NORMAN (Co-Leader—Green) : I rise to speak to the second reading of the Taxation (Urgent Measures and Annual Rates) Bill. The Green Party will be voting against this bill for a number of reasons. The first reason is that we think we can use the tax system to incentivise activities or to disincentivise, and in the first instance this bill decreases incentives to save. Green Party members in general have supported the KiwiSaver scheme. The scheme has always had some problems; it was a far from perfect scheme. We were dubious about whether it would increase the overall savings rates or whether it would simply transfer them. We were worried about the impact on Government savings, due to the cost of the scheme. We were also worried that we were using taxes to subsidise inequality in retirement income between those who could afford to save and those who could not. Nonetheless, it seemed to us that the KiwiSaver scheme was a sensible approach to try to increase savings. We think that the good part of this bill is that it introduces the 2 percent option, which the Green Party always supported, and there was a lot of support in the select committee for that. We also think that allowing low-income earners to get the full $20 a week is a positive thing. But overall the bill decreases incentives to save.

The Green Party supports tax shifting. We support taking taxes off incomes and putting it on resource use and pollution. However, this bill does a different kind of tax shifting. It takes tax incentives off savings to give income tax cuts. In terms of a long-term strategy for a nation with a chronic current account deficit, we think that it does not make any sense to reduce incentives to save. From our point of view, we think that we need to increase incentives to save. Having a bill—one of the first bills that the Government has brought into the House—that actually decreases incentives to save does not make any sense to us.

The second reason concerns the stimulus package. Is this the best way to deliver a stimulus package? When we pass on these income tax cuts, they are going to be either spent or saved, in one form or another. If they are spent, then a good proportion of that spending will be on imported goods—that is, the Government will borrow money from overseas in order to pass on income tax cuts so that people can then purchase goods from overseas. Effectively, we are borrowing money from overseas in order to stimulate someone else’s economy. A large part of the income tax cuts will simply be used to stimulate someone else’s economy, as people purchase goods and services from overseas. It seems to us that this is not the most sensible way to set up a stimulus package.

The other thing that will happen is that if people save, that will not have any stimulatory effect, at all. That is not necessarily a bad thing, in order to increase savings and to reduce household debt, but it is certainly not a good way to stimulate economic activity. It seems to us that if we were to put together a sensible economic stimulus package to save New Zealanders’ jobs, and to keep the economy ticking over at a time of recession, then it would be much better to invest in infrastructure than to have tax cuts.

We think that the infrastructure we should be focusing on should be infrastructure that does not produce demand for imported goods. One of the best ways to have that, of course, is to build houses, and to have home insulation. This country desperately needs affordable housing. There is a tremendous shortage of affordable housing. If people could have affordable housing, they would be far less in need of income tax cuts. What better way is there to build affordable housing than to build the kinds of houses that the Prime Minister grew up in? The Prime Minister got a hand up so that he could get ahead in the world, because he had access to State housing. But now the Government has decided to cap State housing so that other people cannot get a hand up. It seems to me that we should give a hand up to people so that they can have affordable housing. Building infrastructure is a much better way to have a stimulus package than simply giving out income tax cuts. It is a much better way to stimulate an economy, and it means we get something that is worthwhile, as well.

Building sustainable infrastructure not only is a much more sensible stimulus package but means we get long-term investment in our society and our economy. If we invest in public transport, for example, we can prepare ourselves for the future in which climate emissions will be constrained, because, unlike the ACT Party, the world has understood science. The world is getting its head around climate change, and we need to invest in public transport. In the long term, also, oil prices will continue to go up, and we need a world in which we have the capacity to get around. With public transport we would be producing fewer greenhouse emissions and using less oil, so actually having a stimulus package that invests in sustainable transport is a much better option.

A much better option, also, is to invest in sewerage schemes. It is a disgrace that right around this country we have very poor-quality sewerage schemes that are pouring sewage into our harbours, and people are unwilling or ashamed to eat the food from those harbours because it is contaminated. It is not very good for our tourism industry, either. If I were the Minister of Tourism, I would be very interested in a stimulus package that improved the sewerage schemes around our country, so that tourists would not come here and discover that the beaches make them sick. That seems to me a much better stimulus package than giving income tax cuts, which will simply result in a very short-term stimulus to someone else’s economy.

We should also be investing in trees. Planting trees on eroding land would be a much better stimulus package than these tax cuts. We have a major problem across this country of eroding land and land eroding into rivers, and the best thing to do about it is to plant trees, which is good for our greenhouse emissions. One of the problems we will have is that our greenhouse emissions will go through the roof, and that will be incredibly expensive for us as a nation and it will be a major problem for our taxpayers. Taxpayers will have to foot the bill, because this Government wants to weaken the emissions trading scheme so that taxpayers pick up more of the debt. If we plant trees on eroding lands, not only will we reduce erosion into our rivers and lakes but we will also sequester carbon, which will mean that we have fewer greenhouse emissions, less debt, and less of an impact on the taxpayer. It seems to me that a much more sensible stimulus package is to employ people to plant trees on eroding land. We should be focused on the long-term future of our economy. Making the investments in infrastructure that we will need for the long term is a much more sensible way to deliver a stimulus package than having a set of tax cuts.

Then we come to the process issue about this bill. It is with sadness, really, that I see that the explanatory note says “However, due to the time frames involved, the RIA consultation requirements have not been met.”

Hon Darren Hughes: Who’s the Minister in charge of that?

Dr RUSSEL NORMAN: I think the Minister in charge, the new regulatory responsibility Minister, or whatever he is called, is of course the ACT member, the Hon Rodney Hide.

It seems to me extraordinary that the very first bill that this new Government brings in does not have a proper regulatory impact assessment. There has not been sufficient time for the very first bill to have a regulatory impact assessment. So all that talk was bunkum—it does not mean anything. When it comes down to it, it is a case of just ramming the bill through. Who cares about a proper regulatory impact assessment? After all, the Government members will just ram the bill through so they can deliver tax cuts to their mates. So that is an incredible act of hypocrisy.

Then we come to the idea of a broad-based tax rate. This bill talks a lot about how we need low tax rates and a broad-based tax system. One of the ways to do that—and it says this in the notes on the bill—is to tax investment gains. I notice that even though there is support for a low-rate, broad-based tax bill, what we are really getting are just lower rates that are not broad-based. There is no move within this bill to actually broaden the tax base to cover capital gains, which is something that is missing in the New Zealand tax system—unlike the systems of pretty much every other OECD country. The Green Party supports a capital gains tax—excluding the primary family home—to broaden the tax base, which is, supposedly, one of the objectives of this bill. But the bill does not actually broaden the tax base. We also think it should broaden the tax base by taxing resources. We would like to see some of those elements in the bill, but unfortunately they are not there.

I will not touch on the issue of research and development, because I think that has been covered extensively in this discussion, but I will note the inequity of all this. I asked the Parliamentary Library to do some work about it. I asked how much less in tax someone earning $30,000 a year will pay after 1 April 2011. They say that under this bill that person will pay $160 less per year. Someone earning $250,000 will pay $5,160 less income tax per year. So that does not seem to me to be a very fair or progressive way to run the tax system, and it looks as if the Government is just passing a bill that will benefit rich people at the expense of poor people. Why would it support a system whereby someone on $30,000 gets only $160 less tax while someone earning a quarter of a million dollars pays $5,000 less tax? That does not seem to me to be a very fair system.

This bill has not been well thought out. It is being rammed through. It is not a good bill. It gives bad incentives. Why does the Government not go and have a think about it, and come up with a better bill?

• Debate interrupted.

Mr DEPUTY SPEAKER: The House is resumed.

John Boscawen: Mr Speaker—

Mr DEPUTY SPEAKER: Is the member seeking the call?

John Boscawen: Yes.

Mr DEPUTY SPEAKER: You have not given your maiden speech. If you were to speak now, it would be deemed to be your maiden speech.

John Boscawen: Yes, it is.

Mr DEPUTY SPEAKER: Yes, it is? I take it that the member is seeking the call. If the member speaks now, his speech will be regarded as his maiden speech. He will not get another chance to make a maiden speech if he speaks now.

John Boscawen: I pass the call, then.

CHRIS TREMAIN (National—Napier) : Kiwis are breathing a sign of relief at the speed with which this new Government is addressing the work order that we took to the electorate over the election period. We have put our new bill on the Table, and we are making progress already. You know, this is what New Zealanders have been wanting for the last 9 years—a Government that is focused on its agenda, focused on the issues that matter, and making progress. Even just in the last few weeks I have been out in my electorate of Napier, talking to my constituents. Do members know what they are saying? They are saying “Thank God we have a Government in there now that is focused on the issues and on taking this country forward.” That is what they have seen, have they not?

Our constituents have seen a Government put together within 7 or 8 days—quick-smart action. They then saw a Cabinet put together within a couple of weeks—action again. Then our Prime Minister—an aspirational Prime Minister—quickly went to APEC, then to London, to get a feel for the world financial crisis and an understanding of what global leaders were doing with that crisis. Then he came back here and made sure that the promises we took to the electorate were being delivered today. So here we are in the second reading of the Taxation (Urgent Measures and Annual Rates) Bill, which delivers on that agenda. That is why constituents out there are saying “Thank goodness we are seeing a Government that is focused on the issues and taking the game forward for us.”

The second reading of this bill includes changes to personal tax rates and thresholds, and I will talk to that in some detail as we go through it. It also includes the introduction of a new independent earner credit for middle-income New Zealanders. Those are the Kiwis out there, the battlers, who have continued to be pushed into higher tax brackets—the teachers, the policemen, and the wharfies. They have been the traditional constituency of the Labour Party, but they have been forgotten about by that party over there and they have been pushed into continually higher and higher brackets. That is why those members are sitting on that side of the House today and we are sitting on this side. We are focused on the issues and on addressing those tax thresholds. We are bringing those hard-working Kiwis back to a level of taxation that is affordable for them, and where they can ensure they can put bread on the table for their families. Those families do not have access to the support that has been delivered over the last 3 years. They have continued to be pushed into higher and higher tax brackets, and that has hurt them, so we are unashamedly focused on those taxpayers in this bill.

The third area I will focus on is the changes being made to KiwiSaver, making it more affordable and sustainable. I will also touch on the repeal of the research and development tax credit.

It is important that this bill be passed into law and passed into law quickly. We made that commitment to the New Zealand electorate. Today we have heard speeches from the other side of the House saying that there is no regulatory statement, or that the bill is not going to a select committee. But we made it clear to the electorate that we had a 100-day agenda. There is no confusion out there among the public about that. We told them on countless occasions, in every newspaper in the country—except for the Melbourne Age newspaper, which was where, as my leader pointed out the other day, many members of the Labour Party were flicking around in the underground and trying to dig up dirt on our leader. No, it was not in the headlines of that paper, so they probably missed it. But our 100-day agenda was in the Dominion Post and the New Zealand Herald, andinjust about every major daily, so Kiwis knew we had a big agenda, and they are proud to see a Government standing up there now and delivering on that agenda. I think it is absolutely fantastic; I am proud of that, and it is great to see us taking this forward.

I will also talk about the repeal of the research and development tax credit, which is a tough decision we had to make when we laid out our tax cut agenda. We knew that that would cost some money, and we had to make some hard calls going into the election. Again, we stood on the platform and said that these were the things we would address. When Labour rolled out their one or two policies that had any innovation at the election, there was no costing around those. There was no “Oh, we’ll actually change this and pull that back.”. There was absolutely no costing whatsoever above the pre-election fiscal update; it was an absolute joke.

Anyway, I will focus on the tax changes we are talking about and look at the provisions of the bill. As members have heard, there are reductions to personal tax rates, and particularly to thresholds. As I said earlier, the hard workers of our community—the social workers, the teachers, the wharfies—who have got into higher and higher tax brackets will actually have those thresholds brought backwards. That will not increase tax. I do not know what papers the Government is looking at, but if we look at tables for 1 April 2009 we see that that middle-income tax threshold is coming back to $48,000, so people will pay only 21c in the dollar on an income of under $48,000. By 1 April 2010 that threshold will increase to $50,000, so again we are focusing on those in that middle-income bracket, and they will still pay only 21c in the dollar. Then from 1 April 2011 the rate for that threshold will actually move down to 20 percent.

Moana Mackey: Why are you putting taxes up for poor people?

CHRIS TREMAIN: So I say to Moana Mackey that everybody benefits from that: if they are earning anything between $14,000 and $50,000 they will benefit from a reduction from 21 percent to 20 percent. I ask Moana Mackey to tell me how they would not benefit from that. How would they not benefit from that? That is a reduction from 21 percent to 20 percent. Those lower-income earners—we are not talking only about middle-income earners here; we are talking about lower-income earners—will benefit not only from the increase in the threshold level but also from the reduction of the rate from 21 percent to 20 percent. Hold on, I will say that again: we are taking the tax level from 21 percent to 20 percent.

Hon Phil Heatley: Is that up or down?

CHRIS TREMAIN: Hold on—that is down! That is for a threshold of between $14,000 and $50,000. I would have thought that that covered a fair chunk of middle-income New Zealand, and probably an even bigger chunk of lower-income New Zealand. I ask those members to tell me how people will not benefit from that. Oh, it has all gone quiet over there now! This tax bill will actually deliver the changes we need, and I think it is fantastic. The cuts will be delivered through the PAYE system, which will be good for employees, and if someone is an independent contractor, that person will be able to have that delivered through his or her tax return at the end of the year. There will be no immediate changes to the tax rate structure that applies to portfolio investments, but that will be addressed by 1 April 2010.

I just want to talk about the independent earner tax credit. This tax credit really hits those battlers out there who have had no benefit from the Working for Families tax credits. There are 600,000 people who qualify for this—600,000 of the hardest-working New Zealanders who go out there, day in, day out, paying tax and allowing our Government to make tough decisions about how we allocate that money. Let us understand that it is not our money; it is theirs, and 600,000 Kiwis have totally missed out on that. They have been part of threshold rises the whole way, and they have just been taxed and taxed, more and more. It is time we were dealing with that through the independent earner tax credit, which will ensure that we start to deliver—and I say “start” to deliver—some rebate back to those middle-income earners. So from next year the credit will be worth $10 a week, rising to $15 per week from 2010. It will be abated at 13c for every dollar of income earned over $44,000 and, as I have said, 630,000 people will qualify. Again, I ask how that is not addressing a big chunk of the electorate. That 630,000 is a huge proportion of our workforce being addressed. They have not had even one iota of tax reduction in 9 long years.

I think this bill is a massive step in the right direction. We have gone out to the electorate and told them that we will deliver tax cuts, and here we are, within 32 days, out there actually doing that—delivering on our promises, building trust, and delivering on what John Key said he would do. This is a good bill, and in the second reading I recommend it to the House. Thank you.

Hon RODNEY HIDE (Leader—ACT) : I raise a point of order, Mr Speaker. I have looked through the Standing Orders and the Speakers’ rulings, and I can find no rule that precludes a new MP from speaking under urgency because if he or she did so, then he or she would have to forgo his or her maiden speech. The ACT Party agreed to the Address in Reply debate being broken into to do this urgency on the basis that we would be able to contribute to the debate. Mr Deputy Speaker, what you have done, I think, is make a new ruling—which is your right as Deputy Speaker—which essentially precludes the ACT Party from contributing to this important debate. I have two MPs here who are willing and ready to contribute, and I would like you either to point out to me the Standing Order or Speaker’s ruling that says that if John Boscawen or David Garrett speaks under urgency, he therefore cannot give a maiden speech in the Address in Reply debate when Parliament resumes it, or to tell the House that you are making a new ruling.

Hon TREVOR MALLARD (Labour—Hutt South) : It might seem somewhat unusual for me to come to the aid of Mr Hide, but I think the position that he has outlined is correct. There is an expectation that maiden speeches are made as part of the Address in Reply debate. That does not necessarily have to be the case, but as far as the Standing Orders are concerned, and given the times available and the approach we are taking, there is certainly that expectation. I am going a long way back in my memory, but I have vague memories of members back in the 1980s speaking on Committee stages of bills, or in fact on estimates, before they made their maiden speeches. They certainly asked questions before they made their maiden speeches. So the idea that people cannot get on their feet before their maiden speech, or that by getting on their feet they lose their right to a maiden speech, I think is incorrect. Mr Deputy Speaker, if it would help you, I indicate that the Labour Opposition would not object to a leave-type arrangement in order to protect you, but I think your ruling was wrong.

Mr DEPUTY SPEAKER: Thank you, Mr Mallard. The Standing Orders allow maiden speeches to be made during the Address in Reply debate—that is Standing Order 350—and provide for additional time to be made available for members to make maiden statements. The Address in Reply debate takes precedence over other business, and therefore in normal circumstances new members would make their maiden speeches before speaking in any other debate. One of the consequences of our adjourning the Address in Reply debate is that the opportunity for maiden speeches has been delayed. I take on board the point that Mr Mallard just made, and I am prepared to allow the member John Boscawen to seek leave to speak, if that is the wish of the House.

Hon TREVOR MALLARD (Labour—Hutt South) : I raise a point of order, Mr Speaker. I think I would prefer you to go further than that, to start with, and to rule that the speech he shall give is not a maiden speech, because it is not part of the Address in Reply debate. I think we should not have to seek leave to deviate from a ruling that appears to be wrong.

Mr DEPUTY SPEAKER: Thank you. I will seek some advice from the Clerk. I am prepared to allow John Boscawen to take the call. I make it clear that his speech is not his maiden speech. He will speak for 10 minutes, with a warning bell at 8 minutes.

CHRIS TREMAIN (Junior Whip—National) : I raise a point of order, Mr Speaker. I have a question: if this speech is allowed to occur, what precedent does that set for the rest of the debate on the items in the urgency motion in terms of allowing new members to take calls in the Committee stage and other stages of debate? I need to have that question answered first.

Hon RODNEY HIDE (Leader—ACT) : The point is that it is not a precedent. The point that Mr Mallard and I are making is that it is perfectly within an MP’s right to stand up and take a call to speak in Parliament, and then, when we go back into the Address in Reply debate, to give his or her maiden speech. The Deputy Speaker is not making a precedent with this ruling; the precedent would be to say that new MPs cannot speak under urgency unless they forgo making their maiden speeches. This is not a precedent ruling; it is simply the Standing Orders.

Hon TREVOR MALLARD (Labour—Hutt South) : I would go one step further than Rodney Hide has gone. It is not a precedent, because it is not new, in my understanding. But to answer the question the junior Government whip asked, I say that it is clear that other new members will also be able to speak in the first readings of bills, the Committee stages, and the second and third readings and not lose their maiden status.

CHRIS TREMAIN (Junior Whip—National) : I want to indicate to ACT that if that is the case, then there is not a clear ruling, and that we would deny leave for that request.

Mr DEPUTY SPEAKER: We do not need to ask for leave. There is no precedent being set. I shall seek further advice, if members will wait for just one moment. Yes, I can confirm that allowing a new member to speak now does not curtail his or her opportunity to make a maiden speech of 15 minutes during the Address in Reply debate.

JOHN BOSCAWEN (ACT) : I thank the Deputy Speaker, and I thank Mr Mallard—

Hon Darren Hughes: The Labour Opposition is here to help.

JOHN BOSCAWEN: I thank the Labour Opposition, and I say long may it remain the Labour Opposition. I am proud to be part of the new National - ACT - Māori Party Government, and to speak in support—

Hon Members: Say it again!

JOHN BOSCAWEN: I will say it again. I am proud to be part of the new National - Māori Party - ACT Government, and to speak in support of the Taxation (Urgent Measures and Annual Rates) Bill.

I will start by referring back to yesterday’s Speech from the Throne. I quote: “The driving goal of the new Government will be to grow the New Zealand economy in order to deliver greater prosperity, security and opportunities to all New Zealanders.” The driving goal will be to grow the New Zealand economy in order to deliver greater prosperity, security, and opportunities for all New Zealanders, and nothing is more fundamental to driving prosperity than a taxation system that encourages thrift, enterprise, and hard work. How appropriate it is that one of the first moves by the new National - ACT - Māori Party Government is the introduction of this tax bill, which makes a number of significant changes to our taxation system.

First of all, the bill introduces a regime where, by 1 April 2011, 80 percent of taxpayers will be paying 20c or less in every dollar in tax. Secondly, it introduces a reduction in the top marginal tax rate—initially from 39 percent to 38 percent, and then to 37 percent. I say that that is the first step, because I believe that the top marginal tax rate should be a lot lower than 37 percent. I thought it was very appropriate that the Hon Michael Cullen asked a question of the House a few minutes ago, when he asked what the main attraction was of going to Australia. What is the main attraction of going to Australia? Let me tell Dr Cullen that the main attraction of going to Australia is the standard of living in Australia, where net wages after tax are a full 25 percent higher than in New Zealand.

What a contrast there has been between the first move of the National Government and the first move of the previous Labour Government. When the Labour Government first came to power in 1999, it moved to increase the top marginal tax rate from 33c in the dollar to 39c in the dollar. Since that time we have had the Labour Government’s 2001 McLeod Tax Review, which recommended that the top marginal tax rate should drop back from 39c in the dollar to 33c in the dollar. Did the previous Labour Government listen to the advice of its own advisers on the McLeod Tax Review? No, it did not. I say that this is the first move of the National Government in this area, because we in the ACT Party believe that the top marginal tax rate should be a lot lower than 37c in the dollar.

When Dr Cullen introduced the bill in 1999 to increase the top marginal tax rate, he said that 95 percent of people would not be asked to pay more tax; instead, only the top 5 percent of income earners would pay more. That has never been the case, and over the last 9 years more and more New Zealanders have moved into the top income threshold of $60,000. More and more New Zealanders have been penalised for working hard and making sacrifices in order to get on and improve their lives. They have been penalised for doing that with the “envy tax” of 39c in the dollar. That overtaxation has cost New Zealand families hundreds of millions of dollars. It has cost New Zealanders jobs, growth, and lost opportunities. Why is that the case? It is because the taxation system has sent a message to all New Zealanders that we do not recognise hard work. It tells them we do not recognise hard work, thrift, and enterprise. It says we want to have a regime in New Zealand that penalises people who want to study, go into higher paying jobs, work hard, and try to provide a higher standard of living for their families.

My colleague the Hon Sir Roger Douglas commented on Government expenditure in his speech to the House yesterday. He talked about how the rate of Government expenditure had increased over and above the rate of inflation by $18 billion over the term of the last Labour Government—by $1,000 a month, or $12,000 a year, per capita. In order to have lower taxes, one has to first get Government expenditure under control. By allowing Government expenditure to grow by more than the rate of inflation on a per capita basis, Labour has cost the average income earner in New Zealand over $12,000 a year.

I say to Mr Cullen—who asked what the main attraction was for people to go to Australia—that the main attraction is for people to enjoy a higher standard of living, with a top marginal tax rate that does not cut well into incomes in excess of $100,000. What has the regime been under Mr Cullen’s Government? It has been a top marginal tax rate of 39c in the dollar on income over $60,000 a year.

The ACT Party, as the party that encourages individual responsibility, enterprise, and thrift, has always opposed Labour’s tax hikes. ACT has been the only party in this House that has been consistent in its approach to tax. We have advocated tax cuts since the party’s inception in the mid-1990s.

Hon Darren Hughes: Why is the member voting for increases?

JOHN BOSCAWEN: I am voting for a reduction in the top marginal tax rate from 39c in the dollar to 37c in the dollar, and I am saying that it is far too high at 37c in the dollar. I say to the member that if his Government had managed to control Government expenditure and keep increases to the rate of inflation, the average New Zealander on the average income in this country would be $1,000 a month, or $12,000 a year, better off. I campaigned at the last election on a policy that would hold increases in Government expenditure, going forward from 2009, at no more than the rate of inflation. We are five MPs, and by 2011 we expect to be a lot more than five MPS. Our forecasts show that if we can maintain increases in Government expenditure at a rate of no more than the rate of inflation, by 2018 we can have a flat marginal tax rate of 20c in the dollar.

In 2005, the Labour Party had the opportunity to reduce the tax burden on hard-working New Zealanders. If the Labour Government had implemented the tax rates that the ACT Party suggested at that time, the previous Government could have added 1 to 1.5 percent growth in the economy, which would have put New Zealand in a much better position to cope with the recession that we are now in. We have now led the OECD countries into the recession.

This bill talks about tax rates, changes to KiwiSaver, and a number of other tax-related issues. Let us talk about KiwiSaver.

Hon Darren Hughes: Yeah, let’s—

JOHN BOSCAWEN: Let’s talk about KiwiSaver, and let us talk about the people that you purport to represent.

Mr DEPUTY SPEAKER: The member cannot use the word “you”. That word brings the Speaker into the debate.

JOHN BOSCAWEN: I am sorry, Mr Deputy Speaker. We have 800,000 people enrolled with KiwiSaver, and, without doubt, KiwiSaver has been a tremendous success—far in excess of what the Labour Government expected. But we have to look at who those 800,000 people are. Are they ordinary working men and women on the average ordinary wage? Can those people afford 4 percent, or are they people who have been attracted by the massive incentives, and particularly parents who have encouraged their children—and infant children in some instances—to take advantage of the very generous incentives? As the Hon Bill English said when introducing this bill, the recession is now upon us, and we have reached the stage where we can no longer afford those incentives.

If we are to improve the livelihoods and living standards of ordinary New Zealanders, we have to increase productivity in this country. There is more to it than reducing taxes. There is more to it than the changes to the KiwiSaver scheme. There is a need to reform the Resource Management Act. There is a need to build infrastructure. There is a need to improve the roading system, and to complete the roading system in Auckland.

Thank you for the opportunity to speak. I say the ACT Party will be supporting this bill.

Hon TREVOR MALLARD (Labour—Hutt South) : I congratulate the previous speaker, John Boscawen, on taking the opportunity to make a speech on this occasion, and I say that that is about all I agree with him on.

I repeat one of the comments I made to Sir Roger Douglas last night—that is, that I am very, very surprised that the ACT Party is supporting a bill that increases tax for quite a large group of people. More than that, it introduces a big area of inefficiency and bureaucracy, in the sense that the credits involved will require an army of bureaucrats to implement. It complicates the tax system much more than is necessary, and it increases the top marginal tax rate for a very large group of people.

The very thing that Sir Roger Douglas told us was most important as far as tax rates are concerned was the top marginal tax rate, and here we have ACT making the top marginal rate higher for a large group of New Zealanders. ACT members are removing or reducing the very incentives that they tell us are so important.

I will also make a comment or two to the Māori Party. I thank those members for not taking their call, and for giving the Labour Party an extra call again. I say to Mr Flavell that we remember. We remember seeing Māori Party MPs going around the country and saying that they wanted a tax-free area up to $25,000. That was their policy: nil tax to $25,000. You know, one would think that if that was their policy, then their minimum position would be that every tax change heads in that direction. But what do they do? They vote for a bill that puts tax up for low-income people. And who are those people? They are much, much more likely to be Māori, proportionately, than Pākehā.

The Māori Party members are putting tax up especially for people who have families, people who have a couple of low incomes and have kids, and people who are struggling on incomes in the $20,000s and the low $30,000s. They are the group of people whom the Māori Party was kind enough to support in terms of Working for Families, and now they are the ones who are being punished by the Māori Party because it is following blindly behind National.

What is Mr Flavell going to say to that family whose dad earns $33,000 and whose mum earns $22,000 in a bit more than a part-time job, who have a couple of kids, and who are in KiwiSaver? Does the member know how much their net income will go down? Between $60 and $70 a week. Those people will have $60 or $70 a week less under the National-Act-Māori Government, as it was described.

I say to Mr Flavell that I want to come on to the marae with him, as well. Not only does Mr Ririnui want to do that but I want to be there, as well. I want to hear him explain how it is mana-enhancing to take $60 or $70 a week off some of the poorest Māori families in New Zealand—$60 or $70 a week from some of the poorer families, compared with what the law says they would get now, in 2011. [Interruption] What is now clear is that the junior Government whip also does not understand the difference between what is in the law now and what is being worked through.

Chris Tremain: You detail it for me, then.

Hon TREVOR MALLARD: We will. We will work throughout today, we will work throughout tomorrow, and for the next 3 years we will work our way around the poorer communities of New Zealand. We will show them what will happen because of the rise in the thresholds between the package that has already been legislated for by the previous Labour Government and this Government’s legislation. Although some of the marginal rates are coming down, the lift in the threshold hits the poorest people in New Zealand. It hits the poorest workers in New Zealand, and it hits not only those who are working.

I give members the example of the older family—a couple on superannuation. They have done the right thing, they have saved up, and they have a small income that is coming in as a result of their savings. What happens to them? Their tax goes up. Their tax goes up under the National Government.

I know that National appealed heavily to superannuitants, but what will happen under this legislation is that the tax on people who have an income of $20,000 as a result of the amounts they have saved, over and above their superannuation, will go up. They might have that income coming from another superannuation plan, but as a result of this legislation their tax will go up. Notwithstanding the small increase those people will get in their national superannuation, their total income will go down. And the National members sound like they are proud of it.

I will tell members something—Paul Quinn did not go and tell people at the Grey Power meetings that if they had some savings, then their net income would go down. He did not tell them that. I am not sure whether he knew. He did know; he is putting up his hand to indicate that he did know. Well, in that case, it is very, very sad that he misled the Grey Power people at the meetings he went to in Lower Hutt and Wainuiōmata.

I will get back to the Māori Party, in particular, and to something that those members and John Key had in common during the election campaign. That was around the relative attractiveness of New Zealand and Australia. One of the very good things that the previous Government negotiated was an arrangement for portability of superannuation back and forth. One of the reasons for that, I say to Mr Flavell, was so that whānau could bring their superannuation from Australia back to New Zealand, and so that some of the higher-income earners who were living in Australia and wanted to come back to New Zealand would not lose their superannuation as a result of coming back. It was something to bring families together, to bring whānau back, to bring leadership back into communities in New Zealand, and to allow some of the older people to get a piece of the pie by keeping the superannuation that they had earned in Australia. What has Mr Flavell has done? He is voting for the gutting of the KiwiSaver arrangements, which will result in that portability being lost.

Were Government members polite enough to ring the Australian Government, to get on the phone to Mr Rudd—John to Kevin—and tell the Australian Government that they were walking away from the superannuation portability? Did they do that? No. They did not even think of it. So what do we have here? We have legislation that removes the incentives to do research and wrecks the portability of superannuation. We have legislation that increases the marginal tax rate for some poor and middle-income people and increases the taxes paid by a significant group of people who have kids and have joined KiwiSaver. It is just not fair, and we are going to fight it right through.

DAVID BENNETT (National—Hamilton East) : I congratulate you, Mr Deputy Speaker, on your election to your new role. It is great to see somebody from the Waikato in such an esteemed role, and I say well done. I am sure you will follow in the footsteps of other great people in that role, such as Margaret Wilson before you, who also had Waikato links. I say well done and congratulations.

When we look at what we are passing today, we see that the Taxation (Urgent Measures and Annual Rates) Bill is very important legislation. It is legislation that goes to the heart of many New Zealand individuals and families who are struggling, who know there is a world economy out there that is very tight, who know they need some help from their Government in their time of need, and who want to see a Government that listens and is aware of the issues that are involved in the way they have to live their lives at the moment. They want a country and a Government that will deliver something to help them through this tough time.

The National Party has listened to the people. The National Party went out to the people during the election campaign and said we understand the dilemma they are in, we understand they want a better future, and we understand they need a Government that will understand and work in their best interests.

This is what we are seeing here today. This bill is the first step in building a better future for New Zealanders, and building a stronger economy that will actually deliver that future for our people. Our people know it is going to be tough out there. They know there are going to be some major economic issues that we have to deal with as a country. They also know they want a Government that will make decisions; a Government that will go out there and not just look around the world and try to say we are leading on social and environmental issues but not actually do anything. They want a Government that will do things, and that is what they will get from the National Party.

The National Party will deliver constructive solutions, and we will deliver them now to the people of New Zealand. We have a 100-day plan, we have a plan of action, and we know what is needed for the New Zealand economy to turn it around. The New Zealand economy is in recession. I invite anyone who does not believe that to look at what is happening around the world. The US and the Australian economies are teetering on the edge of recession, and those countries are looking at ways of avoiding going into that situation. New Zealand has been in recession under the Labour Government that was in power before the election, and now it is time to turn that around. Now it is time for the Government to make some constructive changes that will deliver a stronger economy.

This bill is the first step. It is the first legislation the National Party has put through in Government, and it will deliver some relief for hard-working New Zealanders. Hard-working New Zealanders want to see a reduction in the taxes they pay to the Government. They need to see a reduction in taxes because they are struggling out there. They are struggling to pay their bills and meet their mortgage payments at the high interest rates that have been inflicted on them for many years under the previous Labour Government. They are struggling to pay the high expenses that have been inflicted upon them by the previous Government through the high inflation it controlled in this economy.

It is time now for a change of approach. It is time now for relief for hard-working New Zealanders. It is time now for these tax cut packages to come forward, and for New Zealanders to see a Government that cares, acts, and delivers something constructive to hard-working Kiwis. That is what they are going to get under the National Party. They will get a Government that delivers, that looks forward, and that promotes solutions. That is what this bill is about today.

Let us look at the personal tax cuts. They are significant tax cuts. They are the first step, but they are significant. When we look at those percentage and rate decreases, we see it is in the best interests of New Zealanders to give them that money so they can deliver to their families the future they want. Those cuts will deliver the right signals and incentives for New Zealanders to go out there and get a good education, take risks, and progress their lives and the lives of their families. That is the whole point of a tax regime. It is to provide those signals and incentives, at the same time as providing the Government with the revenue to deliver its social services.

This is a robust tax regime that takes into account the need for New Zealand families and individuals to have some tax relief at this point in time, and the National Party will deliver that tax relief over the next week or so. The independent earner tax credit is an initiative for many New Zealanders who have missed out, who want to get into the home ownership market, who are struggling through getting an education and into the workforce, and who want to build up a future for themselves so they can have a family and deliver what we need in New Zealand—strong and sustained growth for our economy. It is good to see the National Party coming out and delivering for those people and giving them the independent earner tax credit, an initiative that will deliver much-needed finances to individuals who are working hard, doing the right things, making the right decisions, and need to get that support from the Government as they make those investments in their future and the future of this country.

Let us look at other parts of this bill, which are very important for New Zealanders. The KiwiSaver changes enable a lot more New Zealanders to get into the KiwiSaver regime. At the moment it is a regime that is dominated by people who are putting their families into it and taking advantage of a system. We need to let more New Zealanders have the ability to get into KiwiSaver and into the savings regime. The Labour Party’s attitude is that it knows what is best for New Zealanders. That is not the case. New Zealanders can make their own decisions. They need to have the opportunity to make those decisions, and by lowering that percentage this bill gives more New Zealanders the chance to get into a regime where they can save for their future and deliver what they need to deliver for themselves and their families.

The research and development tax credit is another important part of this legislation. We have to look at what is important for the research and development industry, and that tax credit was not delivering what was needed. That was never going to be what was needed. Let us look at what was happening. The Labour Government members just sat there while AgResearch laid off staff. They were not interested in research and development. It was all about the mantra of what they thought sounded good, and the reality is we need to do constructive work in the research and development industry and deliver real solutions. The biggest solution we can deliver for research and development in New Zealand is to have a stronger economy. Without a stronger economy companies will not engage in research and development, and, if we are in a recession, like the Labour Party has delivered us, then it does not matter how many tax credits are given, people will not go into research and development. If they do, they will be using it only to project something that is different from what they are doing in their business.

The National Party understands what is good for the New Zealand economy. We understand what would benefit research and development. It is to give a strong, vibrant economy. That is what this tax cut package is part of. It is part of delivering that strong economy. We need the economy to function and grow, and in order to deliver that we must take some important steps. This is the first step in that process, and a very good step it is. We are looking at an approach that is constructive, well meaning, and in the best interests of New Zealand. We will not take the approach the Labour Party is taking this morning of coming to the House and trying to use fear and scare tactics and saying that this is not in the best interests of hard-working New Zealanders. No, we will actually go out there and deliver constructive solutions for New Zealand.

People in the street have come up to us and said that they are confident and very supportive of the National Government because they see a Government that is making decisions, a Government that is actually willing to go out there and build a better future for New Zealanders, a Government that is not trying to project fear, to put people down, and to say that it knows best, which is what the Labour Party does in this House time after time. It is time for a different direction in New Zealand. It is time for a direction that actually delivers solutions. It is time for a direction that looks at what economic fundamentals are required in the country to deliver the growth we need. That is what we will get under the National Government. We see the previous Minister over there laughing away. He does not care about growth; he never has. He never delivered it. He just waited for somebody, or for some other world economies, to deliver him economic growth. He was not taking the steps, but National, through this bill, has taken the first steps towards delivering that stronger growth economy.

Hon CLAYTON COSGROVE (Labour—Waimakariri) : I seek leave to table a report in the Waikato Times of 28 October, in which one Mr David Bennett stated: “I don’t think that our”—that is, the National Party’s—“(R & D) policy is as good as it could be, but we need to invest in our infrastructure to boost the economy.”

Mr DEPUTY SPEAKER: Leave has been sought to table that document. Is there any objection?

MOANA MACKEY (Labour) : The one thing clear from that speech from David Bennett is that he has not read the legislation before him, because it does none of the things he says it does. It does not deliver for all hard-working New Zealanders. In fact, it penalises some of the poorest families in this country, and it comes off the back of a campaign during which National members went around the electorates smiling at everyone, saying: “It’s OK. We’ve changed. We’re different. We know that people don’t want cuts. We know that people want support for their families. We know that people don’t want the same old tired policies and failed arguments of the 1990s all over again.” And what do we see? On this first day of business in this new Parliament, with this new National - ACT - Māori Party Government, what do we see? We see the putting up of taxes on the poorest New Zealand families, compared with the tax cuts they would have got—and were already legislated for—under the previous Labour-led Government’s tax policy. I say to the National Government “Shame!”.

If the Government thinks for a second that this Labour Opposition will roll over and let it destroy the economy and destroy the finances of some of our poorest families, then it has another think coming. Its members think that we do not know we have lost the election. We know it when we stand here and see legislation that once again attacks some of our most vulnerable families. The difference is that—unlike that party—it will not take us 6 years in Opposition to get stuck in. We are getting stuck in from day one. We will be here today, tomorrow, and—as Mr Mallard said—for the next 3 years holding this Government to account on every promise to the electorate that it breaks.

Hon Dr Wayne Mapp: This is actually delivering the promise.

MOANA MACKEY: Mr Mapp need not worry; I will get to him soon.

Let us remember the context in which this bill comes to the House. The outgoing Labour Government left the economy in a very good position for the incoming Government. We had halved debt from 35 percent to 17 percent of GDP. We left this National Government with a very good position in which to move. The previous National Party leader, Don Brash, agrees. He said New Zealand is in a very good position to weather this storm. We have seen international credit agencies agree. New Zealand is in a very good position to weather this storm, because of the fiscal prudence shown by the previous Minister of Finance, the Hon Dr Michael Cullen. And what is the first thing we see on day one of this Government? We see legislation—if those members opposite will ever show it to us—that puts us on a track back to the 35 percent debt we inherited when we became Government in 1999.

I refer to the Speech from the Throne in relation to this bill. There were lots of nice words in that speech. We heard that the Government is going to look after people, we heard about turbocharging, about protecting, about enforcing, about innovation, about aspiration, and about individual responsibility, but nothing in this bill will assist vulnerable New Zealand families through the recession, nothing in this bill will help our most innovative businesses bring us through the recession, and nothing in this bill will help bring liquidity into our capital markets through our savings in this country. In fact, not only does this bill not do those things; it destroys them. It undermines the gains we have made as a country over the last 9 years.

I want to talk a little about the research and development tax credit. I am very glad that the Minister of Research, Science and Technology, the Hon Dr Wayne Mapp, is in the House now, because he has made a big deal about how great he will be for research and development. I wonder whether Mr Mapp is aware that with this bill New Zealand will go straight to the bottom of the OECD when it comes to research and development. In one go this legislation puts New Zealand straight to the bottom of the OECD when it comes to research and development, and this is at a time when one would think it would be sensible, prudent, and common sense to provide incentives for our most innovative companies—those that are most likely to bring New Zealand through the recession faster, those that are most likely to be exporters, and those that are most likely to employ people on higher salaries and therefore provide higher take-home incomes for families. One would think that a Government would want to provide incentives for those companies to invest in more research and development. [Interruption]

Dr Mapp says it is a tax rort. The Australian Government thought that. A year later it had to bring the research and development tax credit back because it realised that getting rid of it did much more damage than these kinds of tax rorts that people talk about and never prove. Of course, Australia is meant to be the nirvana that we are following, so why, with one stroke of a pen in this legislation, are we putting ourselves at a competitive disadvantage to Australia?

I want a guarantee from Dr Wayne Mapp. He promised that a third of the money that would have gone towards this research and development tax credit would go to our Crown research institutes. He promised. Will that continue?

Hon Dr Wayne Mapp: It’s broader than that.

MOANA MACKEY: Oh, it is broader than that. No, Dr Mapp promised in the election campaign, as did Dr Hutchison, that a third of the money saved by scrapping the research and development tax credit would go straight to funding science directly. I think that is what he called it; he said it would be a third. Will they get that money? Will the Crown research institutes get that money?

Hon Dr Wayne Mapp: You haven’t read the policy.

MOANA MACKEY: Well, I say to Dr Mapp that we will be getting out the policy; he need not worry. The policy was very clearly that the Crown research institutes would be directly funded with a third of this money.

Hon Dr Wayne Mapp: I didn’t say that at all.

MOANA MACKEY: Oh no, what a great day for science! Not only are we scrapping the research and development tax credit, but we have just heard here on the floor of the House that the $330 million promised to the Crown research institutes by Dr Paul Hutchison and by the new Minister, Wayne Mapp, will not be given to them—they will not get it. What is it going towards? It is going towards paying for tax cuts that disadvantage some of our most vulnerable families and do nothing for our economy.

Research and development tax credits are a common tool around the world for lifting rates of private sector research and development investment. Just about every country has them. All the countries the National Party compares us with have them, yet we are getting rid of them at the one time in history when we need them more than anything else. Well, I am sure the scientists and the manufacturers around New Zealand are saying: “Thank you for a very merry Christmas, the National - ACT - Māori Party Government. Thank you for a very merry Christmas, Dr Wayne Mapp, our new Minister.”

We know that the research and development tax credit was supported by all of National’s mates. Business New Zealand’s Phil O’Reilly pointed out that many companies had made long-term investment plans based on that research and development tax credit, and they will be out of pocket now that the National - ACT - Māori Party Government is getting rid of it. They are going to be out of pocket. We know that when National announced its tax policy, different groups, such as manufacturers’ organisations, flew all over the country to meet with Bill English to try to convince him to back down on the research and development tax credit abolition, because they knew how important that single policy was for our economy, especially going into a recession.

So I say to Mr David Bennett, who said before that the National Party does not want to lead on anything in the world—he does not think it is important to be a world leader on anything—that his mission is accomplished. We are now, with one stroke of the pen on this legislation, last in the OECD on research and development. The member might not think that that is particularly important. He thought it was important during the election campaign, when he was in his own home area, because, of course, there are lots of manufacturers in the Waikato. There are Crown research institutes and lots of scientists. It is a fabulous area for science innovation—it is a hub. He got up during the election campaign and said that he did not agree with abolishing the research and development tax credit. He has obviously realised that that has got him seated somewhere further back in the Chamber than he was during the last term, so he has come down here with a mea culpa, road to Damascus speech. He has suddenly realised the error of his ways, and that getting rid of the tax credits is a really fabulous idea.

We have just heard from Wayne Mapp that the money he was promising the Crown research institutes was, kind of, so that they would not feel so bad about his getting rid of the research and development tax credit—which they may have got money from through contracts they have in the private sector—because he will give them $330 million to tide them over. Of course, they were very happy with that. Well, that has gone. That has gone out the window as well, and what for? To pay for cuts to KiwiSaver that will limit the level of liquidity we have in our venture capital markets, which is important for our research and development. National will cut KiwiSaver. It will cut taxes for the people who need it the least. It will raise taxes on some of our most vulnerable families.

I genuinely want the Māori Party to think very seriously about its support for that legislation, which raises taxes on some of our most vulnerable families. Thirty-five percent of families in the East Coast electorate earn under $40,000 and they will get nothing—they will get absolutely nothing. In fact, for some of them their taxes will go up. Well, I say merry, merry Christmas from a National Government, which from day one is showing its true colours—a National Government that campaigned on being softer, campaigned on being friendlier, and campaigned on being smiley—their smiley selves. Well, once again we are seeing the cold face of reality behind the friendly mask of John Key and this National - ACT - Māori Party Government.

Hon Dr WAYNE MAPP (Minister of Defence) : Congratulations, Mr Deputy Speaker, on your elevation. One of the disappointing things when listening to Opposition members is that apparently they cannot read. If they had read our policies they would know that the statements they are making are simply not correct. I could actually say something else but I will not, because it would be unparliamentary. But I remind members that if they are going to make assertions about another party’s policy, they at least should take the trouble to read it before doing so.

Extraordinary things we have been finding in Government are all the problems the previous Government left for us. For instance, one of the very first briefings I received related to the issues around AgResearch—all its redundancies. Did the previous Government tell the public that—did it tell the scientists that? No, it did not. It was actually a great relief—and I know that my colleague Mr Bennett knows this particularly well because he comes from the area—that that, in fact, has been ameliorated quite substantially. I know that that has been a substantial relief to the people in AgResearch. One would not hear that from Labour members, would one? One would not hear that Labour’s legacy was going to be redundancies rolling out for ever. That was Labour’s policy when it was in Government. That is what it was going to do about protecting New Zealand’s science, research, and technology bases. So it was a good result to see that the effects of that were being ameliorated substantially. I know that that was appreciated within AgResearch itself and within that community. So let us not hear from the other side about all the work it did for science, research, and technology. When one measures the facts against Labour’s rhetoric—actually, that was a feature of the previous Government: rhetoric on the one hand was always noble, grand, and highfalutin; reality on the other hand, well, that was a bit different, was it not?

Hon Darren Hughes: How about the whales, Wayne? How are the whales getting on?

Hon Dr WAYNE MAPP: Let me just remind the senior whip on the other side to look at the Defence Force.

Hon Darren Hughes: How’s the frigate?

Hon Dr WAYNE MAPP: That member should ask the former Minister of Defence about all the problems in defence that he has left with the current Minister of Defence. I tell that person that he had better be quiet on that particular issue.

I just want to bring the Opposition to a reality check. We explicitly campaigned on this bill. The public knew exactly the nature of the tax programme that National is offering not just in terms of personal income taxes but also in terms of KiwiSaver itself. The public made a judgment on Labour’s programme and made a judgment on National’s programme. That is why we are on this side of the House today and that is why we are moving this bill. We told the public that this was part of our 100-day programme, and that is why we are implementing it in this way.

Hon Clayton Cosgrove: You don’t want it to go to select committee?

Hon Dr WAYNE MAPP: The former Minister knows full well that tax rate issues never go to select committees. They are always dealt with by this House. I remind that member that that is what happened in December 1999. There is a good reason for that, in fact. It is because the public have actually made a judgment. They voted for specific tax rates. We have a specific promise and there is no point putting that specific promise to a select committee, because the issue has already been judged, and that is why we are implementing it in the way we are doing.

I just want to go through some aspects of the detail. Labour always goes on about its tax package being better than ours. Well, the first point of which I need to remind Labour is that the public has made that judgment already, and Labour was not on the winning side of that. But the second point I make to the Opposition is this: the major difference is that we put our priority into middle New Zealand families and their aspirations. So our focus was shifting the 21 percent rate up from $40,000 through, ultimately, to $50,000. That is where the vast majority of hard-working, aspirational New Zealand families actually fit. We are not talking, obviously, about people who have just entered the workforce, we are talking about people who have built experience and are going into careers and looking at opportunities for the future, and looking at opportunities in other countries.

This is the key point in the New Zealand tax system. One only has to look at the whole group of people that Labour often talks about—teachers, nurses, and so forth. This tax rate affects them more than any other tax rate. So we have aimed this package right at aspirational New Zealanders who are building skills and building careers. We are saying to them that our tax package will make it easier for them and their families. Our tax package will make it easier for them to decide that “Yes, perhaps I should stay in New Zealand.” I also remind the Opposition of this: at this point in time, with the economy in the situation that it is, right now stimulus is exactly what is needed on 1 April 2009. What would the public have got from the other side? Zero! Actually, zero was Labour’s tax package for 1 April 2009. That is one of the reasons Labour lost the election. The public understood that in this difficult financial situation, which not just New Zealand but much of the rest of the world is involved in as well, stimulus is what is required. Every country, in fact, is undergoing that process, and this bill is part of the National Government package to deliver stimulus to the economy.

Labour members might talk about savings and all of that. That is not the core issue right now in the New Zealand economy. The core issue is getting money into the economy by 1 April next year to keep demand up, keep aspirations up, keep jobs going, and keep hope going. That is the difference between us and them. Their package for 1 April next year was zero. Our package will stimulate the New Zealand economy at a time when it will count.

Dovetailed to that is that it is pitched at those New Zealanders who have been crying out for some relief in the tax system. In 9 years under Labour they got zero. National is delivering. That really sums it up. National in Government is delivering, we are honouring our promises, and we will deliver this in the next day or so when the bill comes into effect. That fundamentally pitches the difference between this side, a Government of action, and that side, an Opposition of failure.

Hon CLAYTON COSGROVE (Labour—Waimakariri) : As I reflect on the debate of the last 24 hours, a question comes to mind and it is simply this: in that speech, Mr Tremain’s speech, Mr Bennett’s speech, and all the speeches we have heard from the Government in defence of this bill, which increases taxes for the bottom end, why have we not heard any rebuttal of the allegations the Opposition has put on front of them?

When Phil Goff used the example of a family on $50,000, with one child, and investing in KiwiSaver, losing $70 a week—that is seven-zero, for Mr Bennett’s benefit—as a result of this package, did we hear one denial from Bill English, or Mr Tremain, or Mr Bennett, or that tax expert Mr Foss? Did they deny it? I remember that last night Mr English grinned as if he had been caught like a kid with his hand in the cookie jar. Did any of them get up, deny it, and say: “No, that is not true. The facts are other than what is being put forward by the Opposition.”? No, they did not deny it, because they cannot deny it.

Last night we saw the Māori Party members look as if they could have leapt into the desks in front of their seats as they stuck their hands up and gave their party vote in support of this bill. Every one of their constituents earning under $40,000 will be getting either zip from this or an increase in tax. A couple on $55,000 a year with three kids will have to pay $14 extra a week because, in effect, they get a tax increase. If Hone Harawira could have shrunk himself and dived into his desk or under it to get away from this debate, he would have. Mr Flavell is piling the computer and the boxes higher and higher on his desk because he knows he has to answer his constituents, probably in a couple of months when they rock into his office and say: “Mr Flavell, we voted for you. Why are we paying more? You never told us about this.”

Here comes the man himself, Bill English. He is the architect of this bill. Not once in any of his contributions in the last 24 hours did he say: “No, the Opposition is wrong. As the National Party promised in the campaign, everybody will do better out of our tax policy.” That is what National said. They talk about aspiration. I ask Mr Bennett, that learned gentleman on the other side of the House, how it is aspirational if a family that is on $50,000, is in KiwiSaver, and has one child, loses $70 a week.

The only National Party response last night was from that genius Nick Smith, who, when he decided to stop holding his breath, said that that is the politics of envy. That is what he said. I have the Hansard, and I am going to blow it up. I, along with Maryan Street and the troops on this side, will come to Nelson and find all the families on $50,000 a year who are in KiwiSaver, who have one child, and who lose $70 a week. We will line them up in front of that genius’ electorate office and let him say, on behalf of National: “Oh, you $50,000 parents with one child losing $70 a week—that is the politics of envy.”

As I said last night to Mr Bennett and Mr Tremain, that is the politics of betrayal, not envy. Where is the aspiration when dad is on $35,000 and mum is on $22,000, they have three kids, and they have to pay $14 a week extra in tax? Where is the aspiration in that? Or does aspiration and the so-called choosing a brighter future apply only if one is at the top end? We know that Mr Bennett and Mr Foss, wherever he is, and Mr Mapp—and I now know the anatomical impact of peroxide on the cranium—will get a big tax rebate of around $100 a week. Apparently, aspiration applies only to those who are pretty far north of $40,000.

I looked at the Dominion Post this morning. It said that those on $42,000 a year will get $4.62. Those members criticised us for the so-called block of cheese tax cuts. Well, that is one slice of Chesdale without the plastic wrapping. Apparently, aspiration and choosing a brighter future applies only to their mates at the top end. I do not think it is the politics of envy to stand up, as we are in this House, do our duty, and point out that this bill was not signalled in its entirety before the election campaign.

Dr Mapp got up and said: “You don’t need to send this bill to a select committee. You don’t send tax bills to a select committee.” I say to Dr Mapp: “Wake up!” I used to chair the Finance and Expenditure Committee, and we did tax bills—we did a lot of them. We can send this bill to a select committee, and why? Because it comes into effect in April. That is plenty of time to send it to a select committee for a week or a couple of weeks. But, oh no, Dr Mapp does not want to do that, because, then, the tax experts and the venerable social services agencies such as the Salvation Army and others would come in and point out the things that we are pointing out today.

Moana Mackey: And the manufacturers.

Hon CLAYTON COSGROVE: And the manufacturers, of course.

My colleague Moana Mackey talked about the research and development tax credit. She made reference to a meeting that happened with Mr English. I know for a fact that manufacturers flew from all around the country to have a meeting with that member in Auckland, and they worked him over. They got the blowtorch out and did the rotisserie on him. Do members know what he said to them? He said: “Ah look, do not worry, we will fix it some other way.” They did not believe him, and they do not believe him now.

The justification for doing away with the research and development tax credit was this, which appeared in the New Zealand Herald: “National leader John Key, in announcing the move to drop the scheme yesterday as part of the party’s tax policy, said…‘It’s clear that the tax credit has created a lot of business for tax accountants and tax advisers, but evidence of real increases in R and D is harder to find.’ ” Hang on; there is a problem with that. That sound business person and good guy, the chief executive officer of the Canterbury Manufacturers Association in my area, John Walley, said that Mr Key’s comment was “daft”. Another member of the House was called daft—the electorate chairman of the National Party for Gisborne called Anne Tolley daft, I think.

Hon Darren Hughes: No, Nick Smith.

Hon CLAYTON COSGROVE: Oh, Nick Smith.

So Mr Walley, of the Canterbury Manufacturers Association, said that Mr Key was daft because the research and development tax credit applied for the first time in the 2008 income tax year. Unless Mr Key is a clairvoyant—and he portrays that he has the powers of a miracle worker—or unless Mr English is a clairvoyant and can see into the future and into the mists of time, they cannot predict what will happen. Of course, the Aussies do not agree with Mr Key. He said it all has to be a rort, but it is a rort that has not happened. So National will get rid of it, although it actually has no evidence. That is the truth.

Then we had the great betrayal of Dr Mapp. As my colleague pointed out, $330 million was to be the compensatory factor to go to the Crown research institutes. That is up in the air. That is disappearing really quickly. One would think that members of a new Government would be so proud of their tax policy, the benchmark document that they say they campaigned on, that they would get up and say: “No, the Opposition is wrong. Dr Cullen is wrong, Mr Cosgrove is wrong, Ms Mackey is wrong. You and all the examples you have used are all wrong.” But that has not happened once. Even the great guru, Mr English, has not once got up and admitted it. Even the Dominion Post worked it out on the front page today. A large number of people in our community will get nothing from this or, worse still, they will be grossly disadvantaged.

I again say to the Māori Party members that there is still time for them to get themselves out of the pickle they have got themselves into. There is still time to come down to the House and oppose this bill, as there are a lot of votes to go and a lot of water to go under the bridge. I would love the Māori Party to do that. We know that National Party does not care what its constituents think when they rock up and ask why they are paying more when National said during the campaign that people would gain out of this measure. But there is still time before the Māori Party constituents rock up and ask: “Why are you supporting the National Party in this?”.

On every marae, and at every kōhanga reo when the parents come to pick up their kids, the explanations will have to be given. I do not think the Māori Party members will have their research people write them a word for word speech, as they do, and then come down to the House and read out an explanation and a justification for supporting the National Party in this. Even the research unit will not be able to come up with that one. The Māori Party members did not campaign on it. They were against it. They should be against it, because they represent some of the poorest people in the community, who will be hit hard by this.

I invite one of the geniuses over there to get up and negate what the Dominion Post has said, what Dr Cullen has said, and the examples that I, Phil Goff, and others have given. There are large groups in our community that are disadvantaged. [Interruption] Mr Bennett can shake his head, but why in that great oratory he gave us did he not say “That is wrong, and here is why.”, and give us the proof? It is because the member does not have the proof. Well, there could be another explanation—it was not in big print. But the member does not have the proof, nor does he have the evidence. It is now apparent to us that it is aspirational if one is at the top end. If one is the chief executive officer of Telecom, my word, that person is brimming with aspiration. It is just pouring out of every pore. But if someone is at the bottom end, that person is in trouble.

LYNNE PILLAY (Labour) : As I was saying before the lunch break, the personal tax cut part of this bill is actually a redistribution of wealth; a redistribution from working New Zealand families, from modest-income earners, and from beneficiaries to the wealthiest, who are the biggest beneficiaries of this bill. Every worker earning under $44,000, and particularly those who have families, will be worse off, yet those are the people who need tax cuts the most. Over 2 million New Zealanders—65 percent of New Zealanders—will not benefit, and some will be disadvantaged by this bill. That shows how out of touch the National Government is.

Let us look at the 800,000 people who have signed up to KiwiSaver. They have committed to saving 4 percent of their incomes, with fair employer contributions—and 4 percent is a fair employer contribution—[Interruption] Yes, this change is on top of the tax cuts. Now the employer contribution will be slashed to 2 percent, and that will have a dramatic impact on those people’s ability to save for their future, on their children whom they have signed up to KiwiSaver, and also on their dream of having a sizable deposit for a new home. National members have said they will maintain Working for Families; after their calling it “communism by stealth” and pouring vitriol over us for introducing that policy, they are going to maintain it. But, indeed, working families are going to be much worse off under National’s tax policy.

I think many, many Kiwis have been conned. They are expecting a sizable tax break. When Kiwi battlers get their first pay cheque in April they will realise that, oh my goodness, the future is not very bright for them, and they will wonder what they are going to do. They are on a low income, and they have not had a tax cut. Their income has been cut—not their taxes. They may think that State housing can help them get ahead, but guess what? Building new State housing has ceased under the National Government, as well. They may think about compensating for the cut in their income that, effectively, the tax increases have given them. They may try to get a better-paid job, so that they can break even and be where they were before. If they get a new job, they may get an extra 50c an hour, but guess what? They will have no security of tenure in that job. Under National’s policy, in the future they can be sacked any time within 3 months after being hired. That will be a big risk for them to take, if they want to better their income, to get ahead, and to get back to where they were before. Kiwis have been conned. They believed that there was going to be a brighter future. I say that if this is a brighter future, I would hate to see a gloomy future for Kiwis.

Another implication of the tax cuts is that we will have less money in the tax take. There will be a big drain of money from the tax take, because of the big tax cuts for those on high incomes. People such as members of this House will benefit tremendously, at the cost of low and modest income earners and Kiwi families. The implications of the tax cuts will affect us all. They will affect health spending. They will affect education. They will probably affect early childhood education, tertiary education, and apprenticeships—all the trade training that started under this Labour Government.

NATHAN GUY (Senior Whip—National) : I move, That the question be now put.

Hon DAVID CUNLIFFE (Labour—New Lynn) : Now we come to the heart of this bill. How is it funded? The goodies that are being handed out, apparently willy-nilly, have got to come from somewhere. They come from two substantial sources. The first is $3.5 billion from KiwiSaver, which we will be talking about in the debate on a subsequent part. The second is the cancellation of the 115 percent research and development tax credit. Through that measure, $1.5 billion will be saved. We believe that the Government will come to regret the day that it moved this part.

It is very interesting to begin with the analysis set out in the explanatory note of the bill. It recognises that there are significant externalities associated with research and development. The company undertaking the research and development can never capture all of the benefits. Innovation benefits the whole of society, the whole of our economy. It lifts the game, it improves productivity, and it drives us all forward. The data we have shows that companies that invest intensively in research and development tend, on average, to employ more people, to grow more quickly, to register more patents, to have higher productivity, and to export more products and services. Why would the Government not want to encourage such companies? Moreover, how could it begin its year with the commitment that it will do everything it can to focus on productivity and growth, then cancel one of the better growth tools in the innovation tool box—the research and development tax credit?

The second issue we have is one of trans-Tasman equivalence or business diversion. It is accepted that our colleagues in Australia give their Government a much more proactive role in boosting research and development, both directly—historically—through the magnitude of its subsidies to the Commonwealth Scientific and Industrial Research Organisation and many other organisations, and indirectly through significant subsidies and tax concessions for innovative firms. One of the principal reasons why New Zealand’s research and development tax credit was brought in in the first place was to ensure equivalence between New Zealand’s innovative firms and those of their colleagues across the Tasman—to make sure that the Government’s footprint was not accentuating any trend towards trans-Tasman business migration. That theme was picked up by the current Government—then Opposition—during the election campaign. The bogey of New Zealanders moving across the Tasman was repeated at every opportunity, like a mantra. So what has happened? On the first business day of the House, the National Government attempts to repeal the research and development tax credit, which has been one of the sources of guaranteed trans-Tasman equivalence.

The reaction has been completely predictable. Selwyn Pellet, the chief executive of one of the Deloitte/Unlimited Fast50 fastest-growing companies—Imarda—said: “We are right this minute deciding where we do R&D whether it’s New Zealand or Australia and the removal of the tax credit here negatively incentivises the decision to bring it back to New Zealand.” The Manufacturers and Exporters Association has been highly critical of this bill. It has been highly critical of the removal of the research and development tax credit—which was, to be fair, signalled before the election. It has been highly critical of the environment that New Zealand manufacturers, exporters, and innovators have to cope with. This move makes it worse.

When we look at the ledger of what is being done and what is being undone, we have to ask why. On the one hand we have the removal of something we know is generating sound returns; on the other hand it is going in order to fund a consumption tax cut that is both highly inequitable and badly designed. It is so badly designed that the explanatory note of the bill states that neither the proper consultation nor the regulatory impact assessment has been completed, and the impacts have not been quantified.

Some of the key issues, as we debated in the debate on Part 1—[Interruption]—9 years to do it—are, first, that this is a long-term fix for a short-term problem. It is a structural tax change to address a recession trend. Second, we are putting in place a consumption tax cut—funded largely by borrowing and these productivity tools—whereas what we need is something that will lift productivity itself. In that respect, this cut is in extremely stark relief.

I think the reaction of general commentators is instructive at this point. John Armstrong from the New Zealand Herald said the winners from this package, taken on balance, are easy to identify: working singles and couples without children. The comparative losers are families or those on below the average wage. Jenny McManus from the Independent said: “Voters awaiting National’s grand plan for managing the effects of the global financial crisis will be disappointed at the tax and economic package …”. Jo Doolan from Ernst and Young said that she is “gutted” at the package: “The whole thing is hurried and ill-conceived. … We need to develop a savings culture and this sort of thing doesn’t help.” Gordon Campbell said: “Putting tax cuts ahead of science and research neatly underlines the lack of vision, or sensible strategy for growth in the National package—”.

I know from walking around the press gallery that journalists—and, no doubt, soon the public—know what is going on. They know that, despite the rhetoric of the election campaign, on this first business week of the House certain things are being done that deliver certain benefits to constituencies that have it “owing to them”. Surprisingly enough, it is not our innovative exporting businesses that are getting the nod here; it is the financial sector and top-income earners who will be the general beneficiaries of the package. It is our poorest Kiwis, our struggling families, and, oddly, our innovative businesses that will pay for it.

Leaving aside the equity arguments that we discussed in the debate on Part 1, the lack of logic between the negative productivity impacts of this move and Government members’ stated aim—even if we take them at their word—is extraordinary and compelling. Mr English, in speaking to Part 1, said: “Well, we poked and prodded at your plan. We campaigned on ours. Our having been elected, there is no need for our plan to be scrutinised.” So there is no need for it to be scrutinised, no need for the select committee process, and no need for bills to be tabled? The bills to be debated in the rest of the week are still not on the Table. That one has gone through an election campaign is justification, apparently, for setting aside the normal process of Parliament. Of course, we have seen the lie to the proposition that “No one is worse off, because certain changes have not happened yet.” This bill undermines measures that have already been passed into law, and therefore the Opposition is fully justified in showing that people are worse off.

In summing up, taken as a whole, the retrenchment of this research and development tax credit will be bad for our best businesses, and bad for New Zealand. It will be bad because it is a poor source of funding for a misguided bill. But even if one takes the Government at its word and swore for a moment that these tax changes are necessary, funding them by removing the research and development tax incentive does not serve even this Government’s stated ambition of lifting productivity and growth.

Dr PAUL HUTCHISON (National—Hunua) : I am grateful for the opportunity to speak on Part 2, “Research and development tax credits repeal”. This is a very sobering part and it has been undertaken with great thought over a period of time—

Hon David Cunliffe: Minutes!

Dr PAUL HUTCHISON: That is quite wrong. This move was indicated quite clearly in National’s pre-election policy, and the great concern was about the quality of the investment. If we look around the world, we see one of the points made in Australia’s innovation policy of 2002 is that unless the basic business environment is optimal, it is very hard for research and development and innovation to thrive. This is underlined in the foreword to the policy where the point is made that it is very important to have a low, broad-based, simple tax system, that it is important to have a flexible labour market, and that it is important to have an optimal regulatory regime.

All these things will be carried out by the National Government, and the direct opposite happened, unfortunately, under the Labour Government. Nevertheless, there was a question, at one stage of events, of whether 10 percent of this tax credit would remain. However, due to the extraordinary circumstances—the legacy of the Labour Government—that were established in the pre-election fiscal update whereby the seriousness of the international crisis was beginning, at last, to be felt, and certainly was ignored very largely by the Labour Government, the realisation was that it was inappropriate to continue with this tax credit.

It is important to remind the Committee that in the select committee, prior to this tax credit coming into being, it was opposed by the major accountancy firms, it was opposed by Treasury, and it was opposed by Business New Zealand. However, once it did come in, the major accountancy firms set up a travelling roadshow, around the country, to give people an opportunity to use the tax credit. The great danger was that it would not be a quality investment, research that was going to be carried out anyway would be carried out, there would be new business activities that were inappropriate to research and development, and, on balance, it was felt that, in these dire economic times—times left as a legacy of the poor management of the Labour Government—it was appropriate to repeal the tax credits.

I for one am absolutely committed to championing the evolution of research and development in New Zealand into the future. But we want to ensure that the spend is a quality spend, and I am quite sure that over time the National Government will achieve exactly that. I remind the Committee that in the Hon Bill English’s media release of 9 December he stated: “We firmly believe in the importance of research and development to keep New Zealand internationally competitive, but the tax credits aren’t the most effective way to ensure that. We will work with business to better target government expenditure on innovation.”

I am sure that Mr Hodgson must feel very disappointed, given the fact that he worked on this matter for about 9 years. I think it was back in 1988—or maybe 1998—when he proposed that such a thing should happen. Once again it took 9 long years and more. It was almost equivalent—

Hon JIM ANDERTON (Leader—Progressive) : The really scary thing about that speech is that the member said that it had taken a long time and a lot of thought to come up with this policy. I would have been much more comforted if Government members told me they gave it no thought and had no time to spend on it. The fact that they spent a lot of time and thought on it and came up with a dog of a policy like this is almost beyond belief. But the incredible thing is that we are told that we cannot afford to have research and development tax credits at a critical time for the New Zealand—let alone the world—economy, but we can have, and we can afford, in the face of this enormous financial crisis around the world, personal tax cuts that deliver 132 times more for the most affluent New Zealanders compared with the poorest. We can afford that, but because of the world crisis we cannot afford to have research and development in New Zealand.

Then we are told that we really want a quality spend. Well there is one thing that is slightly worse than that and that is no spend at all, which is what this bill proposes. Part 2 is about destroying research and development capability in New Zealand. This part is an example of a Government that has put class warfare ahead of the need to grow our economy. We heard a lot about growing the economy yesterday—going for growth! The Government is going for growth one day, but the next day it is cancelling all of the research and development credits proposed in previous legislation. On day one it is going for growth; on day two it is cancelling the possibility of growth by having no research and development credits.

The most incredible thing of all is that it is not about punishing all businesses in New Zealand, it is about punishing the most innovative and creative businesses in New Zealand—the businesses we depend on for our economic growth and development. Those are the very businesses the Government is targeting with this bill. It will target those companies in a way that is almost beyond belief in that, at the same time, someone who is earning, say, $750,000 a year will be 132 times better off than someone who earns $25,000 a year. So even if the Government is going to target the most innovative businesses in the community, one would think it would help those who are the poorest, but, no, it is doing the reverse.

The National Government is clearly opposed to innovation. It can say what it likes, but it is opposed to it. The Government is opposed to business success, because the very businesses we want to succeed are the ones this bill punishes. The National Government is opposed to the agricultural backbone of our economy. I never thought I would have all the evidence to say that in this Chamber, but this bill is clear evidence of it. The bill is what it looks like when we have a Government run by sneering city financiers instead of people who understand the real productive economy.

Allan Peachey: Oh, ha, ha!

Hon JIM ANDERTON: I will prove it to the member then. Can Government members answer three questions? How many times in the Speech from the Throne was the word “agriculture” used? None. There was not one mention of it in the Speech from the Throne. Where was the Minister of Agriculture in having any input into that? How many times in the Speech from the Throne was the word “exports”, on which the First World standard of living of this country depends, mentioned?

Hon Ruth Dyson: How many?

Hon JIM ANDERTON: None. There was not one mention of exports. How many times were the words “scientific research” mentioned in the Speech from the Throne? Scientific research is what our First World standard of living will depend on for the future in terms of the quality of the processed goods we produce and export to the world.

Hon David Cunliffe: Twice?

Hon JIM ANDERTON: No.

Hon David Cunliffe: Once?

Hon JIM ANDERTON: No, none. In the Speech from the Throne there was no mention of scientific research, which will set up this ambitious, visionary Government for New Zealand. There was no mention of the most important backbone of the economy of New Zealand—our agricultural production—which members opposite suggest they represent. There was not a mention. I wonder what I will hear from Federated Farmers tomorrow. I got a framed certificate for putting agriculture at the top. Government members are not even putting it at the bottom. It does not get any mention whatsoever. Despite all the cant we had from Dr Hutchison, scientific research could not even get a mention in the Speech from the Throne.

CRAIG FOSS (National—Tukituki) : I will totally ignore the previous speech, as will most of New Zealand probably, because it was not particularly relevant. [Interruption] That has woken the Opposition members up. I am sure those members had a very good lunch. Part 2, “Research and development tax credits repeal”—

Hon Dr Michael Cullen: Tukituki—farming, horticulture, viticulture?

CRAIG FOSS: If members opposite want to have a bit of a go, I can tell them that there is an interesting provision in clause 20(2) that makes a change to the Income Tax Act 2007, which came before the Finance and Expenditure Committee. The current Opposition spokesman on finance may have further advice on that, because clause 20(2) states: “The definition of district health board is repealed.” He may want to speak on various other ways of doing that later on.

Hon David Cunliffe: I think you need to focus on finance.

CRAIG FOSS: Yes, I will focus on finance, because this is a financial bill.

When the 2007 bill came before the Finance and Expenditure Committee there were many, many submissions on the research and development tax credits. From memory, most of the submissions were along the lines that the tax credits would create tax arbitrage and accounting arbitrage. Of course, everyone argued that he or she should be included and that perhaps someone else should not be included. In fact, I remember that an organisation that is partially funded by the Crown came before the Finance and Expenditure Committee and told us the truth. It told us what was really going on. Then I subsequently found out that the organisation had a very interesting phone call from a Minister’s office not long after that, telling it that it should never appear before a committee like that without the Minister knowing, and that he did not like what it had said. But, anyway, I digress a wee bit.

Hon David Cunliffe: A wee bit? How about coming back to the bill?

CRAIG FOSS: I mentioned the words “accounting arbitrage” before, and I will explain that term to the member later. What is going on here is that the higher the tax burden is and the more imposing the tax structure is on an economy, the greater the incentive is to find ways around it, through it, to plead for a credit, and to take something from someone else and get a credit for oneself. That is what happens, and it is what is going on with regard to the research and development tax credit.

Some members have argued that the tax credit has only just started, so how can we say all these things? Very simply, as my colleague Mr Hutchison noted earlier, there were roadshows going around the place. Companies were going to them and they were being told: “Show us your expenditure sheet, show us your models, and we will try to make them fit the new definition of research and development in order to get you a tax credit. We will try to do that. Of course, we cannot do it straight away, but we will go through your books and try to find what we can to get you some benefit out of this.” So the roadshows were being entrepreneurial if one likes, but it was to the detriment of the New Zealand economy because it did not add to the quantum of research and development in New Zealand.

About 3 months before the election I had a very interesting meeting with a company that had started to set up some research and development under the model in the existing legislation. It was looking to invest the money and to take some benefits from it with its 15 percent. That was OK, but then the company told me about the problem. The problem was that it could neither attract to New Zealand nor keep the people here to do the research and development, because of New Zealand’s high personal tax structure. It was, quite simply, because of that.

The finance spokesperson on the other side of the Chamber, David Cunliffe, alluded at the start of this debate to the fact that these research and development tax credits have been—or at least will be—repealed in order to help fund the personal tax cuts that we announced long before the election, and that were resoundingly endorsed by New Zealand. The point is that we can have all the credits we like, but if we do not have the people who are attracted to New Zealand stay here, who can be rewarded for the risk they take in being here and being involved in research and development in New Zealand, it actually does not matter. Unless we have those people here adding to our economy, we can have all the research and development tax credits we like, and it will not matter. Some of the stuff I saw going on was stuff that was being structured in New Zealand to utilise Australian people to whip over here and do the research and development, so that local companies could enjoy the research and development tax credit, and of course the individuals concerned were located in a lower tax environment—that is, in Australia.

The research and development tax credit part of the bill—the clauses here—is about priority, because there are some hard choices to be made. Once the books were opened—or at least partially opened—in the pre-election fiscal update, and when they continued to be opened a bit more recently with all the other shenanigans going on, it actually made it even more pertinent that we repeal these credits right now.

MOANA MACKEY (Labour) : Well, we just learnt from Mr Foss in that extraordinary speech that he does not want highly qualified, skilled, educated people coming from other countries to work in New Zealand because of the research and development tax credit to help grow our economy, to grow our tax base, and to pay for all the things that New Zealanders want paid for. The research and development tax credit has, apparently, been keeping people away from New Zealand and if we get rid of it—dumbing down our economy—as this legislation does, that would be good for New Zealand. Well, that kind of falls in line with the Speech from the Throne from the Prime Minister that we heard yesterday. We can gather from that that the only turbocharging we will get is a turbocharging of empty slogans and empty rhetoric. For all their talk about innovation, for all their talk about turbocharging everything, nothing in this bill does that—nothing. In fact, it does the complete opposite.

I wish the Minister for Research, Science and Technology were in the Chamber so that he could speak to this issue. We asked him questions earlier because we wanted to confirm that the third of this money that is being saved from cutting this research and development tax credit will still go to Crown research institutes and universities to fund research; he refused to answer earlier on. He refused to answer, but I think that the scientific community deserves to know whether that money will still go there. I am sure if Dr Paul Hutchison were in Cabinet he would have an answer like that, because that is the kind of man he is. I am very sad that he did not get that portfolio; he worked very hard in it when he was in Opposition, but, no, it was whisked away from him and given to someone else.

Hon Pete Hodgson: What’s his name?

MOANA MACKEY: Oh, I cannot remember. He has a lovely new haircut, though. I say to Mr Foss that it is appalling that he stands up in this Chamber and says that he will not respond to the speech made by the Hon Jim Anderton. He deliberately said he would ignore his speech. Why? That is because he has no answers to that speech. He has no answers to answer why, when we are going into a global crisis and when liquidity in the capital venture market will become more restricted, we will be penalising and raising taxes on our most innovative companies. These are the companies that we should be putting front and centre, and the companies that we should be saying are the ones that will help lift us out of this global recession, and that on average export more, pay more highly, and grow our economy more.

What is the National Party’s answer to that? The National-ACT - Māori Party Government will raise the taxes paid by those companies by getting rid of a research and development tax credit, which is supported—for all that Mr Foss may say—by all their friends. We know that when National announced their tax policy people were flying all over the country to meet with Mr English to say: “Don’t do this. This is a huge mistake.” It is a mistake for the economy, it is a mistake for our exporters, it is a mistake for our manufacturers, and it will be a mistake for New Zealand when it comes to growth and coming through this recession in a positive way.

What Dr Hutchison says is that they just rort it—scientists just rort it. This is a member who went around the country campaigning on how we need to trust scientists, we need to let them do their own thing, and that there is far too much management of what they do. Then in the Chamber today he stands here and says that the scientists just rort it—it is not new stuff, they just write down stuff they are already doing as new stuff, so they are just rorting it. He also, by the way, wants to get rid of the $700 million Fast Forward Fund and direct the way that that goes as well, and direct that solely to try to get out of the mess National has got itself into on the emissions trading scheme.

I refer to Jacqueline Rowarth, who is the Massey University director of agriculture. She said that she is incredibly concerned about the ramification of the removal of the research and development tax credit, and she says: “Australia removed its R and D tax credit because it thought people were fiddling the books.”—as Dr Hutchison thinks—“Then it reinstated it within a year because the downturn was worse than that fiddling.”

So when Dr Hutchison gets up and talks about how this is the way the world is going, he is actually not telling New Zealanders the truth. The fact is that the Labour Government brought in this tax credit to make New Zealand internationally competitive. Members on this side of the Chamber understood that these kinds of policies will assist our small and innovative businesses, our businesses that are going to lift our economy, and our businesses that do a significant amount of exporting. Even Business New Zealand chief executive Phil O’Reilly, who has been quoted by Dr Hutchison as saying he was opposed to it, has said that we need to give this research and development tax credit time. John Key said that no one has taken it up yet.

Then we heard from the Manufacturers and Exporters Association’s Mr Walley, who said that that was a daft statement, as the tax year has not even finished yet. How would John Key know unless he had the power of clairvoyance—and I am not saying that he does not claim to have the power of clairvoyance—how many people will take it up?

DAVID BENNETT (National—Hamilton East) : When we talk about the research and development tax credit it is important to remember some of the history of what has happened in the Labour Party.

Hon Pete Hodgson: You come from the Waikato, remember?

DAVID BENNETT: Yes, let us talk about the Waikato and what the Labour Party has been doing there. It is pretty rich for these guys to come into this Chamber and talk about research and development tax credits, when AgResearch was laying off staff before the election and they did not do a thing. Where did we see the Labour Party in the election campaign? In Hamilton East we campaigned against the Labour Party. Labour members would come along to campaign meetings and say “Look at our research and development policy.” All I had to ask them was why they were laying off people at AgResearch. They would not come to the support of scientists.

The reality is that scientists have never got anything out of the Labour Party, and they never will. Scientists’ incomes are about 15 percent lower than any other profession, and the Labour Party did not come and help them, did it? It had 9 years of talking about how it loves science, how it loves research and development, how that is the future of New Zealand, and how we will have a knowledge wave and a global economy. What did it do? It gave up on the knowledge wave and it did not give those increases in wages. In fact, it put AgResearch in a position where it had to lay off staff to meet its budget. That is what the Labour Party does: it says one thing and then it does another. Reality speaks, and the reality is that the National Party has come to the aid of scientists, helped out, and made sure that we do not have the degree of job losses that the Labour Party started out with.

There has been a great change in mood, because people realise that reality is more important than words. Labour members are bringing out words today—look, they have all gone silent now! They know they are in trouble. They know that they cannot go out there and say what they have been saying, because it is not true. They know that they were the ones screwing the research and development budgets by making sure it was hard for AgResearch to employ people, and that is the reality of the situation. How dare the Labour Party come in here today and try to say how it is the research and development party and how it is there for agricultural research! Labour should have put its money in front of it when it was in Government; it did not, so it should not come in here and try to do it now. It had its chance and it blew it—it will not get another chance to do it again.

The reality is that the biggest thing we can do for the research and development sector is to give it a growing economy. That is what it needs. If there is growth in the economy, businesses will invest in the future. That is the reality. These tax cuts are the first step in providing that growth economy. This is what the National Party is about. We have a programme for growth, and these tax cuts are the first step. If we really want to look at what will be best for research and development in the future, we see that it is the growing economy that the National Party will produce. We will invest in this country’s infrastructure, and we will give people money in their hands so that they can spend it in this economy.

We will not invest all our money in the US stock exchange, just as Mr Cullen did, and lose it. We will look after our people in our country, and we will build a stronger country. This is what will happen. The reality is that New Zealand will be stronger, we will have a growing economy, we will have a position where businesses want to invest in research and development, and we will be able to deliver to the agricultural, the research, and the scientific sectors the vision they require. They will actually see a future ahead of themselves, because they will see corporates and enterprises making money that will be able to be invested in research and development. This is not a question about the tax credit as such; this is a question about how we provide the environment for research and development to flourish. To create that environment we need a growing economy, and the National Party is committed to that.

Labour members are sitting there now and trying to attack this legislation on the basis of research and development expenditure. Well, that is not the case. The case is that the Labour Party did not come to the aid of research and development, did not come to the aid of AgResearch before the election—you just let them go. You were quite happy to see those people go out of work; you went through an election campaign not actually doing that—

Hon Trevor Mallard: Point of order—

The CHAIRPERSON (Lindsay Tisch): I know what—

Hon Trevor Mallard: If you are aware of it, you should be stopping it.

The CHAIRPERSON (Lindsay Tisch): The member cannot use the word “you”.

DAVID BENNETT: The Labour Party did not come to the aid of that sector. It did not come to the aid of those people who were going to lose their jobs.

Hon Dr MICHAEL CULLEN (Labour) : Parts of this bill are either unfair, dishonest, incompetent, or plain stupid. This is the plain stupid part—the abolition of the research and development tax credit. The member has just been talking about tax cuts. Let me enlighten him: this is a tax increase. This is a tax increase of $330 million a year on business. This part claws back what is getting on for half of the corporate tax rate cut. Why should we be surprised? Which Governments have ever cut corporate taxes in New Zealand? Only ever a Labour Government has, in 1998 and in 2008. Those are the only times in the last 50 years that corporate tax rates have been cut in New Zealand, and both times were by Labour Governments. National has never ever cut those rates.

So when we cut it, this was yet another one of those bitter little things for Mr English, which he had to reverse some way or another, because he was not allowed to let Labour have any credit for anything. So he is clawing it back, but is he clawing it back off everybody? He is clawing it back off the most innovative, productive, and exporting firms in the country. Let me tell Mr Bennett something else. What was he referring to as Agriculture New Zealand?

David Bennett: AgResearch.

Hon Dr MICHAEL CULLEN: No—that is a Crown research institute. AgResearch is a Crown research institute that has been underperforming, actually, for some years. But that is public sector research and development. If the member knew anything, he would know that New Zealand’s underperformance is in private sector research and development. Why? That is because we are about the only country in the world, up until recently, that has not been offering any inducement to private sector research and development. In an ideal world no country would offer incentives for research and development. In an ideal world we would have a level playing field, and decisions would be made by the market, and nothing would happen. But once some countries have research and development incentives, it becomes very hard.

You see, National is still playing the early 1990s’ trick. It is still Star Trek in reverse for National. Its members still want to go where no man will follow. They still want to go down a route with no research and development tax incentive, and they will be surprised that firms will shift research and development to Australia where there are research and development tax incentives. What have we heard for years from National members? “Everybody who is bright has gone to Australia.” And looking over the other side of the Chamber whenever they said it, I thought maybe it was true, because what was left, from what I could see, was not bright. They said: “We’ve got to stop people going to Australia.”

So what do they do? They do something to threaten portability of superannuation, and they remove the research and development tax incentive designed to get research and development in New Zealand and to keep it here, because they want it to go there. And what are they going to make it up with? They are going to put more money into the State’s research and development. When they go up on the platform and slaver in front of Business New Zealand, the Chambers of Commerce, and the Business Roundtable, dripping sincerity, say, in the way only Tony Ryall and others can: “It is the private sector only that creates wealth in New Zealand, so what we will do is take money out of the private sector and put it in the public sector.”

That is what is called Logic 101 for the National Party—just follow the logic: “Only the private sector creates wealth, so let’s take that wealth away and give it to the public sector. And if a public sector identity or entity is not performing particularly well, and not managing to live within budget, we’ll just give them more money. We won’t ask any questions about what they are doing. We won’t say whether other CRIs, such as HortResearch, might be doing better research. We won’t say whether they should work better with the private sector. No, we’ll just give them some more money.”

That is what the Government has done. So that is wise, is it? That will grow the economy? I listened yesterday to the sorts of clichés, in a kind of National Film Unit documentary for the 1950s way, that finished off the Speech from the Throne, and I heard about the turbocharging of the New Zealand economy. I now understand it. We are going to have a turbocharged 1953 Morris Oxford, and we will call it the New Zealand economy. I have to tell the Committee that a modern Japanese mini-car can outstrip a turbocharged 1953 Morris Oxford. It is no wonder that the leading agricultural scientist in the National Party was not allowed to be a Cabinet Minister. He was parked on the Speaker’s bench, instead, because in fact he might know too much about some of these areas to be involved in making decisions.

Do we really want to grow this economy, and how do we do it? We do it in the modern world by developing human capital, by investing in research and development, and by investing in new products. In New Zealand we do that particularly in the primary sector industries, because that is where our comparative advantage lies. So what is the Government doing? It is abolishing what was going to be a $2 billion Fast Forward Fund to invest in agriculture and to invest in the primary sector, and it is giving a lick and a promise that it will increase funding for the Crown research institutes.

But, of course, Mr English is about to work on a Budget. He is about to work on a Budget that will project cash deficits in excess of $10 billion a year by the end of the forecast period. So do Mr Hutchison and others think they will get this extra money in large amounts for Crown research institutes? That will be a lick and a promise; it will get pushed out and squeezed, and will not look like the Fast Forward Fund. But that fund was there, it was locked in, it was provided for, and it was going to happen. The Labour Government was getting ready to do it. It is a bit like broadband, where people are lined up ready to put their stuff in. They have made the applications, but now they will have to wait 18 months or more for National to work out how actually to operationalise its funding in that area. We will wait ages.

We have firms working in research and development, but we are told they are rorting the system. Well, how do we know? Nobody has had a research and development tax incentive approved by the Inland Revenue Department yet. They have yet to apply. Indeed, the only complaints that I have heard of is that it is too hard to get the incentive. It is not too easy to rort it; it is too hard to get it. Indeed, we will find that out after April when people apply, but they knew. Indeed, National members did not put lots of thought into this. It was not a well-developed policy to abolish the research and development tax incentive. National announced its policy months ago. The policy was to cut the incentive to 10 percent—which is at the lower range of international comparability, whereas the 15 percent was at the higher range of international comparability—to save a bit of money.

Then, of course, those members had the preview, and for some peculiar reason they did not think the preview was going to show a worsening situation compared with the Budget. They knew what was going on in the world. It was pretty obvious to anybody that the world was slowing down faster than we had all thought in April of this year. Then they said: “Oh, my gosh!”. We promised the average person on the average wage a $50-a-week tax cut. Well, we can pretend that it is not on top of Labour’s package, so that will save us a lot of money. And now we need to squeeze and push. So what goes?”.

What goes is the remaining 10 percent of the research and development tax credit. This is called going for growth—$2 per week, on average, per taxpayer to pay for the research and development tax credit. That, I tell Mr Bennett, will really turbocharge the New Zealand economy. It will be an extra couple of dollars a week of spending power in the average taxpayer’s pocket, but no doubt it will be spent in large part on imported consumer goods. It might provide about the equivalent of one drop of petrol for the South Chinese economy, not for the New Zealand economy. The Government should be investing in the private sector to gear up. The private sector has been woefully inadequate in New Zealand in investing, in almost any way, in future development—such as research and development, human capital, and new plant and machinery. So the Labour Government lowered the corporate tax rate. We increased depreciation rates. We brought in the research and development tax credit. We put forward an integrated Skills Strategy, and improved the investment in that Skills Strategy in the workplace.

Those are the drivers of economic growth, not piddling little tax cuts going into consumption to buy stuff not even noticed—not even a block of cheese, barely a slice of cheese, not even a half of the kind of loaf that Paul Hutchison would buy every day. He would not buy the $1 loaf at the garage; he would buy the $6.99 special loaf down at the Italian bakery. This tax cut would not even buy half of one of those loaves of bread a week, and we are somehow going to turbocharge this economy. Well, we might be slightly heavier, we might be slightly weightier, but we will not have a faster-moving economy as a result of this part of the bill.

National is reducing savings, and investment in research and development and human capital, and calling that turbocharging. This is National going for growth. I say this is the worst of all possible nightmares for anybody with any aesthetic sense. This is Ruth Richardson without a tracksuit.

Hon BILL ENGLISH (Minister of Finance) : Well, Dr Cullen is wrong about one thing. I do give him quite a bit of credit—or whatever the terminology was that he used—as easily the most competent member of the previous Labour Government. He did all the hard work, and he has something to show for it, but none of the rest of the members of that Government do, including the previous Prime Minister. I give Dr Cullen full credit for the huge effort he put in while he was the Minister of Finance.

That does not mean, of course, that he was right about everything, and it does not mean that when the Government changes there will not be different priorities. That is really what this debate on the research and development tax incentive is about. It is an idea with some merit. The question is whether it has sufficient merit to be put ahead of all the other calls on the Government’s resources, including what was National’s top priority in Opposition, and what remains its top priority now that we are in Government, and that is to reduce personal income tax rates. In the situation that New Zealand is in, with the economic outlook that we face, we have to make choices about priorities. Opposition members think the world is always the way that they experienced it when in Government; they experienced a fiscal tsunami every year of waves of money crashing on to the Government beach, where they lazed around, deciding among themselves how to give it out to someone.

Hon Tony Ryall: Like some sort of version of From Here to Eternity.

Hon BILL ENGLISH: That is right. It may well be that any Government in that situation would behave in the same way. I happen to think that Labour is more partial to enjoying giving out other peoples’ money than perhaps other Governments would be. But that was the business of Government. That has now changed. Now we have to make decisions about priorities. In the case of economic growth, we did not believe that this tax incentive would be a sufficient driver of it. The Opposition believes that it would be. All I can say is the Labour Government floundered in the knowledge wave. After 7 or 8 years, and hundreds of millions of initiatives driven off the idea that the economy could be transformed, we ended up with a conversion on the road to Damascus whereby the only member of the Progressive Party suddenly decided that New Zealand was about primary production. Well, that was fantastic. It just happened to contradict all the policy that that Government had tried to implement for the previous 6 or 7 years.

The reality is that a National-led Government with a good understanding of, and strong representation from, the whole productive sector of the New Zealand economy is focusing on lower tax rates, less regulation, better infrastructure, and higher education standards. Certainly, we could focus on 16 other objectives. Every strategy of the previous Government that I read had about 16 other objectives—all contradictory, none of them achieved, but lots of meetings that gave the impression of action. Well, we will not go down that path.

We have discussed the research and development tax incentive with people who are using it, and, actually, we get contradictory stories. One of the strongest advocates owned up in my presence that he had spent $70,000 on the accountant, and it turned out that the research and development tax credit was only $50,000. The deal he had was to give the accountant 40 percent of any recoverable credit, which I gather is the upper end of the going rate. Most accounting firms are pitching themselves at 20 percent to 30 percent. They turn up to a business with their Australian supervisor, go through the books, work out what the tax credit might be—it is turning out to be quite a bit smaller than many companies had expected—then take about one-third of it as their fee. Well, that is innovative, but it is not what we would call innovation.

In Australia, it is not 3,000 highly productive companies that get this credit; banks and mining companies make up by far the largest number of claimants of this incentive. In New Zealand, the banks have their own ideas of what they regard as research and development. They now represent themselves as being essentially information technology companies, because they are based on information technology, and any development that they do in that area must count for the research and development tax credit—and how would one say no to that?

A research and development tax credit is not a bad idea; it is just that it is not the priority of the newly elected Government. We are focusing on basic things that will affect every organisation, company, and household, such as lower taxes and better infrastructure.

Hon PETE HODGSON (Labour—Dunedin North) : I did hear the Minister of Finance say that we have to make choices about priorities. I did hear him say that. In fact, that is what Governments do all the time; they do it all the time. I would like to suggest that the choice that the Government has made to eliminate the tax credit for research and development is simply the wrong choice. I want to adduce a little bit of evidence to that effect.

Members will be aware that New Zealand is a poor performer in the research and development stakes. The normal way of measuring research and development effort is to measure research and development expenditure as a percentage of GDP, and to look at it in the public sector and in the private sector. Compared with countries around the world, in the public sector New Zealand underperforms a little. We are around about three-quarters of the Western World average. It would be good if we could get ourselves up to 100 percent or, indeed, 120 percent of the Western World average, but we are below the Western World average in the public sector. However, in the private sector we are not at 75 percent of the Western World average; we are at 33 percent of the Western World average. New Zealand private sector investment in research and development is amongst the lowest in the world. The good news is that it used to be even lower. In 1999 it was not 33 percent of the Western World average; it was 25 percent of the Western World average. A number of things have contributed to that increase, such as the Venture Investment Fund, Technology for Business Growth, the Pre-seed Accelerator Fund, the law around venture capital, and the establishment of the Incubator system, and on and on it goes. Throughout the past 9 years a lot of private sector effort and a lot of Government effort have gone into improving private sector investment in research and development. It has gone from 25 percent of the Western World average to 33 percent. That is progress, but it ain’t much progress.

When the Labour Government decided to introduce the tax credit at 15 percent—and it came in on 1 April 2008—the Inland Revenue Department had to determine how much money it would forgo. It had to do the modelling. It knew that it would take a while for private sector entities to get used to the new system. It knew that it would take a while for companies to gear up their research and development. It knew that it would take a while for companies to stop oozing offshore and to start coming onshore with their research and development. It knew that it would take a little while, so it did a 4-year projection, and at the end of 4 years the amount of money forgone—the amount of money going to businesses for innovation—would have been $332 million a year.

The point is that if we do our sums and work out how much research and development would have to come to book in order for $332 million to be forgone, we see that New Zealand’s private sector research and development would rise from 33 percent of the Western World average to almost exactly twice that—to almost exactly 66 percent of the Western World average. That is still below 100 percent of the Western World average, but way better than 33 percent. Of course, we know that it would include some research and development that was under-reported. That is known, that is taken into account, and that is modelled. It is also known, to give the case cited by the Minister of Finance, that the banks might call themselves information technology companies and claim that their software development was somehow eligible for a research and development tax credit. So we put a cap on that. We said that a company could not claim more than $2 million per year for software. That was a black hole that we would not let the Inland Revenue Department fall into. So the tax credit was designed to be both generous in terms of rate and limiting in terms of rorts. It was designed that way.

We had long enough to design it. As the previous Minister of Finance, the Hon Michael Cullen, said, he wished he had done it earlier. But, you see, if the Inland Revenue Department predicts that New Zealand’s reported private sector research and development expenditure will go from one-third of the Western World average to two-thirds of the Western World average over the next 3½ years, then I suggest that if we are to pass this legislation, we have to be prepared to acknowledge the fact that that expenditure will stay at 33 percent over the next 3½ years, that therefore the economic base of New Zealand will stay at a lesser amount than it would otherwise have been, and that therefore the taxable base will be a lesser amount than it would otherwise have been.

This is fiscal nonsense. This is, as Dr Cullen said, the stupid part of the legislation. To have the good Dr Paul Hutchison get up and try to defend it—well, all I can say is that I saw him wringing his hands, and he wrung his hands for the whole 5 minutes that he spoke. I heard Mr Bennett, the member of Parliament from the Waikato—I am sorry; I have forgotten his first name—get up and tell Labour members to put our money where our mouth is when it comes to primary production research and development. My retort, rather obviously, is that we did—$0.7 billion. It was called New Zealand Fast Forward, and this Minister of Finance swiped it. He swiped it. He got rid of private sector involvement, got rid of the fact that there would be a legacy fund, got rid of the fact that there would be certainty about the money, and replaced it with nothing. Labour members think that that will be very, very bad for New Zealand’s economic development future.

The tragedy is that 3½ years from now this $330 million, if it is divided amongst 4.1 million New Zealanders, will put about $1.60 in the pocket of every man, woman, and child per week—$1.60 a week. That is the price we pay for a dumb economy. Every person in New Zealand will get it, except, of course, the poor people—they will get nothing. The rich people will get, let us say, $3.20 a week in their pockets, and we will have a dumb economy, a slower-growing economy, a less export-oriented economy, and a less innovative economy, and we will have a bunch of firms that will not be able to grow faster, because they do not have a tax credit and therefore cannot fund their own growth as quickly as they otherwise could have done. It is a really dumb policy. It is one that I am really sad about. And when I am not sad about it I am angry about it. I think New Zealand will be a worse place as a result of this decision, I think $1.60 per person per week is a very, very low amount of money, and I do not think the decision that this Government has taken—it says that it has to make choices about priorities—is the right one. I think that if it is going to prioritise an extra $1.60 per person per week for consumption over an innovative future, if that is its priority choice, then clearly it has taken the wrong choice.

Dr PAUL HUTCHISON (National—Hunua) : Thank you, Mr Chairman, for the opportunity to speak again on Part 2, “Research and development tax credits repeal”. I think it is important to reaffirm that central to the Australian innovation policy was getting right the basic business framework, in order to carry out research and development innovation and in order for that country to benefit from it. Australia’s priorities were clearly spelt out as getting taxes down, getting the regulatory regime right, and having a flexible labour market. There is no doubt that this Government’s programme does exactly that, and in terms of the scientific field it will be helped by the improvement of the Resource Management Act and the Hazardous Substances and New Organisms Act.

I acknowledge very much the fact that the Hon Pete Hodgson put a lot of effort, thought, and time into research and development over the last 9 years. I think that some worthy programmes were brought in, such as the Incubator phenomenon, the Venture Investment Fund, the Pre-seed Accelerator Fund, and numerous others. However, this question of the quality of the tax credit has certainly played on the minds of many thinkers throughout the world for many years. The Hon Jim Anderton might say that to remain competitive we have to do what the rest of the world has done. But Finland, one of the countries that have demonstrated high economic growth year after year, and prominence in innovation, does not depend on tax credits, at all. In fact, it has targeted funding of research and development.

I emphasise once again the press release that the Hon Bill English put out the other day. It pointed out: “We firmly believe in the importance of research and development to keep New Zealand internationally competitive, but the tax credits aren’t the most effective way to ensure that. We will work with business to better target government expenditure on innovation.” This is one of the areas that I, for one, will make sure I keep reminding the Minister of Finance about.

But I also think it is important to point out that it was the Hon Pete Hodgson who said that New Zealand was underfunded in terms of investment in research and development, both in the public sector and, certainly, in the private sector. Well, it is a bit rich for Labour members to talk about this. They had 9 years, and, as a percentage of GDP, investment in the public sector actually went down slightly over the last 9 years. It went down at a time when New Zealand had the greatest opportunity to grow investment in this crucial area. After all, it was Helen Clark who said in the Speech from the Throne in 2005 that research and development innovation was critical to driving New Zealand’s economy, yet the next Budget spent billions of dollars on areas that will only cement in intergenerational welfare dependency, and a mere $19.4 million was put into research and development. Here they were, at the eleventh hour, setting up the Fast Forward Fund, which we will be replacing with exactly the same amount of funding but far, far less bureaucracy. We have committed to the initiatives that are of high quality, and to spending very much the same amount, but we will avoid the duplicative bureaucracy that Jim Anderton managed—inevitably, with his Pavlovian, socialistic reflex—to put into that fund. But we think investment is very, very important, and I accept that.

The other point, which Moana Mackey made, was regarding the $315 million over 3 years. That $315 million is absolutely committed to go to secure funding for the Crown research institutes, something which has been recommended by the OECD and many others for many years. That was very much the point made by my colleague the good Mr Bennett from Hamilton East, who said that one of the legacies of our pre-eminent Crown research institutes, AgResearch, is the fact that it is having to make 50, 60, or 100 scientists redundant as a result of its poor performance under the watch of the Labour Government. That is a particularly important point. The other 50 percent of that $315 million will go to the Health Research Council, the Performance-based Research Fund, and the Marsden Fund. Clearly, those are funds that are very much in need of support from Government, because they will not get it from anywhere else.

In terms of private research and development and the effect of the tax credit, there certainly has been a very mixed reaction on behalf of businesses. Many of them have said to me—and I personally am involved in two businesses that carry out research and development—that they are going to carry on with the investment despite the repeal. They will carry on and they will most likely increase their investment, because of the fact that a new National Government will improve the business environment so that many thousands of businesses in New Zealand, particularly innovative businesses, can indeed thrive. We will continue to decrease taxation, we will improve the regulatory regime, and we will make the labour market more flexible.

As Bill English said, there is no doubt that this is a matter of choice, and in the circumstances where we had dire warnings in the pre-election fiscal update, this was the only wise choice to make. After all, this Labour Government has left us the legacy of 10 years of deficits, and it did not even have the honesty to disclose the huge accident compensation losses. When Dr Cullen says this particular part of the bill is dishonest, unfair, and plain stupid, I would reply to him that he is myopic, in denial, and the man responsible for taking New Zealand two steps further down the ladder of the OECD. There is no doubt that research and development are vital for New Zealand, that they absolutely will play a part in the economic growth of the future, and that National will be committed to high-quality investment in this area.

Hon JIM ANDERTON (Leader—Progressive) : Unlike Mr Foss, I want to deal with some of the idiocies trumpeted by the last few speakers. If the National Party thinks that private sector investment and public sector investment are important for the future of this economy, I ask why on earth it would throw away the first and most important partnership between the Government and the private sector in our most important economic base—agriculture and horticulture, and the scientific research and development that backs it up—to the tune of $2,000 million, comprising $1,000 million from the Government matched dollar for dollar by the private sector. Here is the challenge: can Dr Hutchison or anyone else, Mr Bennett and all of them included, guarantee to me that the private sector will put up $1,000 million over the next 10 to 15 years without the Fast Forward scheme and without the research and development tax credit? If those members can, let us hear all about it.

Hon Dr Nick Smith: They never promised that.

Hon JIM ANDERTON: Here comes Mr Smith again. Mr Bennett says that science is very important to National. It is so important that in the aspirational and visionary—as National members describe it—Speech from the Throne it was not mentioned once. That is how important science is to National. I think it came as a surprise to Dr Hutchison and a few others over there that it was not mentioned. They could not believe it; they know how stupid that was. The agricultural sector was not mentioned, and exports were not mentioned. I ask how that fits with a Government that is “going for growth”.

Mr Bennett says that tax cuts will lead to equal growth in science. I see. Will someone on $750,000 who gets a $264-a-week tax cut invest that money in Crown research institutes, or in research and development to support agriculture? They are more likely to go for a holiday to Bali, actually. That is the truth of it.

This is a terrible indictment on a Government that claims that it wants to “go for growth”. What does this mediocre, visionless Government propose to do? The first act it takes in this Parliament is to introduce the largest tax increase on business in New Zealand’s history—the largest tax increase on business in New Zealand’s history. Never before has any Government come into this Parliament and massively increased tax on innovation.

Hon Dr Nick Smith: It’s not as much as the Alliance wanted.

Hon JIM ANDERTON: Mr Smith would not know anything about it, of course. Never before has any Government come into this Parliament and carefully targeted tax increases at not just any businesses but the most innovative and creative businesses in New Zealand, the ones that we need the most for our economic development. What are the chances that this aspirational and visionary policy and leadership are going to succeed?

Dr Paul Hutchison: Very good.

Hon JIM ANDERTON: Very good, are they? I see. The title of an earlier part of the Taxation (Urgent Measures and Annual Rates) Bill was “Personal tax cuts”. If we are consistent, the title of this part of the bill should be “Business tax increases”. That is what the title should be, because that is the reality.

Before the election, a very creative and successful Auckland business leader took out a full page advertisement in the New Zealand Herald. Members may have forgotten it, so I will show it to them. The advertisement said: “I’ve voted as many times for National as for Labour. I’m a founder of five successful companies selling globally to more than 30 countries.” Then he went on: “The party that should get your vote is the one with the best policies for real economic growth.”—the one “going for growth”. Well, I ask members to guess which party it was. It was not the party now on the Government benches. If people want to know why, they just have to look at this bill. He goes on to say: “Borrowing for tax cuts”—which is what this Government is doing—“going into a global recession is an attempt to drive a consumer spending recovery, and frankly that is placing our kids in debt without addressing the financial crisis in any meaningful way.” I have heard today that we can afford tax cuts for the richest people in New Zealand, but we cannot afford research and development investment for companies in New Zealand to develop our economy. I ask how that squares with “going for growth”. The truth is that it does not. I suspect that most of the members of the National Party know it. Most of its members outside Parliament know it, and most of the people here in the House know it.

Hon Dr Nick Smith: They voted against it.

Hon JIM ANDERTON: Yes, I am quite sure that the National Party told people “Don’t worry about it; we’ll fix it.” I think removing tax credits on research and development undermines our manufacturers and our exporters and their ability to compete against global competition. The global competition they are competing against has tax credits. Most of them do.

Members can say that the previous Government brought in the tax credits late in the piece. That is fine; I will accept that. I had been arguing for them for some time, to be honest, and others had been too. Anyway, we got there. We were late, sure, and we should have done it earlier, sure, but we got there. We had not only research and development tax credits but also a partnership with industry whereby industry would put in $1,000 million. What does this visionary, aspirational Government do? It cans the lot. Research and development investment and Fast Forward are gone. Where does the replacement come from? It comes from $262 a week extra for someone on a salary of $760,000. Well, that will do it! It is like that Tui ad: Yeah, right!”. That will fix it. That will give us the visionary economy.

By abolishing the research and development tax credits as well as Fast Forward, National is telling New Zealand that we have enough research and development in this country already. Do we? We know that is not true. It is saying that it will work against companies that are thinking about doing more investment in this vital area. It is going to work against them. It is going to punish them for doing it. It is going to punish the most creative and innovative ones—not the rest, but the ones who are actually doing the job now.

In the last election—perhaps more than in any election in recent history—the economic management of this country was a critical issue. I accept that. People expect that we will make decisions for the long-term future of New Zealand. How is the long-term future of New Zealand benefited by $260 a week for, say, the richest New Zealanders versus research and development tax credits and investment in Fast Forward?

I can give the Committee one simple story. The best and brightest student at Massey University—the best and brightest—had a scholarship to go to the UK. When our Government announced the Fast Forward scheme, he announced, without any influence from anybody, that he was going to leave that scholarship after 6 months and come back to New Zealand because he could see a future here for scientific investment, research, and development, particularly in the agriculture and horticulture sector. What are we saying to him now? We are saying: “Don’t worry, it will be all right, because when you are on a salary of $760,000 a year you will get another 262 bucks a week.” That is not what he said he was coming back for. He was coming back to be a part of a future for research and development industry in New Zealand, as the best and brightest student at Massey University.

The National Government is closing the door on students like that. If it wants to see the best and brightest New Zealanders leave this country—and it claims it is against that—then it should just carry on with policies like this one, and it will succeed. Countries are going to the IMF for loans, and banks are closing all around the world. New Zealand, I must say, is in a much better position than most of those countries. We have a much better opportunity, particularly as the world’s most efficient country in terms of food production. Our future, in my view, is much more secure than that of many countries, but it will depend on the quality of the research and development investment we make at both public and private levels. In my view, right now in Wellington, in this Parliament, the National Government is closing the door to that future, because it is saying “No” to investment and it is saying “No” to long-term development, in favour of a short-term return that it thinks will garner it support.

I say to the Māori Party in particular and to United Future that their constituencies did not vote for this kind of future. Many of the Māori incorporations and developing Māori companies will be hit because of this research and development close-off. The challenge for the Māori Party is to work out what it is going say to the Māori companies and corporations, which are starting to be an important element in New Zealand’s economic development.

It seems to me that this legislation is the most short-sighted that I have seen in Parliament for a very long time. It is short-sighted in inspiration, it is short-sighted in aspiration, and it has no practical hold on the reality of what our country desperately needs. This side of the House will fight for the next 3 years to make sure that the National Government and its acolytes, if they vote for it, are held accountable for what will happen as a result of this failure.

CHRIS TREMAIN (Junior Whip—National) : I move, That the question be now put.

Hon SHANE JONES (Labour) : Tēnā tātou katoa. Firstly, I say greetings to you, Mr Chairman, and I acknowledge the status that has been bestowed upon you. No doubt you sought something else, but your very dry and balanced approach from the deep south will balance our liveliness from the north. Tēnā koe. To those who have been made Ministers, I say we look forward to ensuring they earn their keep and to returning all the favours they sought to send in our direction—including Mr Hide, who occupies the seat of Winston Peters and who no doubt celebrates his success in politics, such as it is, by wandering around Auckland and claiming to be the man who buried Winston. He, of course, will in good time learn that what goes around comes around, and I look forward to enjoying many lively whakataetae with him.

Hon Rodney Hide: I raise a point of order, Mr Chairperson. There are two things about the Hon Shane Jones’ speech. First, he is not actually addressing the Committee stage of the bill, which he is required to speak to even at this late stage under urgency. Secondly, I have always been quite clear about it being Mr Peters who buried himself and the Labour Party. I did not do anything.

The CHAIRPERSON (Eric Roy): That is not a point of order.

Hon SHANE JONES: There were three points coming out of the Speech from the Throne, crafted for the Prime Minister. It stated that it is “very clear that at all times strengthening the economy will be front and centre of … priorities. For it is this growth agenda upon which my Government’s vision for New Zealand rests.” Other than the mangled and worsening style of speaking—obviously John Key is the worst presenter we have seen in terms of a Prime Minister—the first thing we see today is the stripping away of the capital base of New Zealand’s industry by this mean-spirited attempt to take away the research and development contributions, imagining that somehow the funding will materialise when it has not been there for nigh on a decade. Where is it going to go? It will go to reward the partisan interests of those who have quietly plotted away to bring John Key forward, and surely John Key will bring out his foul scheme.

Not only do we see a complete absence of anything in that speech about how we are to inject greater strength in the capital base of New Zealand’s economy but we see absolutely nothing to grow exports and to grow value-added industries. Rather, it is a revision, a return, back to Ruth Richardson’s approach, which is, firstly, to strip people of their labour rights, and, secondly, to reward those who are doing well and in some way to make the vulnerable and the anxious more insecure, as if that will stop the flow of Kiwis going to Australia. And to ensure that the Kiwis whom the Government is supposedly apprehensive about disappearing go even more quickly, the Government says it will destroy the KiwiSaver scheme, and make it a skeletal, anaemic version of what the Aussies enjoy.

So it is a disappointment, Mr Chairman, that you, so early in your tenure, should be exposed to such falsehoods. First, the savings regime is being gutted. Secondly, this measure is very mean and short-sighted—it fits with Mr English’s Cheshire cat, Lewis Carroll style of enigmatic smile, which we have tolerated. But the reality of point number two is that these research and development tax credits are indeed business growth credits. When they are stripped away, that weakens the firms that are supposedly to grow the jobs and grow the wealth of New Zealand. National is scaring further people away from coming back here, because that reduces our competitive advantage to a dreadfully low scale. Thirdly, I note a great line here from the Speech from the Throne: “Honourable members. In going for growth”—permanent growth—“my Government will be acutely conscious of the fact that it is … to the detriment of us all, to allow an underclass to develop in New Zealand.” I say that without jobs, without ongoing investment in firms, without the creation of a flow of goods and services through excellent research, and without income within the class of those people in our society who are vulnerable and anxious, that rhetoric there will be made into a dreadful lie.

So it will be great over the next 3 years, as invidious as this position is proving to be personally, to remind all our iwi that the Māori Party is actually supporting a set of initiatives that not a single Māori on the Māori roll voted for. Secondly, it will be great to remind that party that it is supporting a group of people who are rewarding a very narrow, partisan group within society, without a skerrick of concern for the broad base out in the pastoral farming areas and in industry, and in the knowledge that the Aussies have double the performance in relation to research and development as a percentage of GDP that we have in our country. Without an initiative of this nature, we will never recover. Of course, National does not want us to recover. It actually wants to reward that narrow group who are doing reasonably well as it is. One does not send this type of Christmas present without being rewarded with a harsh response.

DAVID BENNETT (National—Hamilton East) : I move, That the question be now put.

• A party vote was called for on the question that the question be now put.

The CHAIRPERSON (Eric Roy): Before I announce the result of the vote, I just remind members that votes are to be taken in silence for two reasons. The first is that it is hard for the Clerk at the Table to hear at times if he or she is computing, and, secondly, no member in this Chamber will vote under the duress of having other people speaking for whatever reason when he or she is voting. So I just remind members, and say there will be no tolerance about breaches of that rule.

The CHAIRPERSON (Eric Roy): We come now to Part 3. This part sets the rates of income tax for the 2009-10 year—that is, clause 29 does. Standing Order 333 requires the Committee to take such a provision as a separately debatable question, unless the Committee, by leave, decides to do otherwise. As clause 29 sets the annual rates of income tax, we will take it first, before the other provisions of Part 3. It is, in fact, the first clause in Part 3. The question is that clause 29 stand part.

CHRIS TREMAIN (Junior Whip—National) : I raise a point of order, Mr Chairperson. I am seeking clarification. Are you saying that clause 29 is to be taken as a separate, debatable motion?

The CHAIRPERSON (Eric Roy): Yes.

Hon Dr MICHAEL CULLEN (Labour) : The member is probably not aware that this is a new provision in the Standing Orders. It actually came in with the changes made just before the election, as a result of Standing Orders Committee deliberation.

The CHAIRPERSON (Eric Roy): I hope that is clear. I think members ought to be cognisant of the fact that the debate should pertain particularly to the tax rates for the 2009-10 year. That is what the debate is about. It is not a wide-ranging debate.

Hon Judith Collins: It is a wide-ranging debate.

The CHAIRPERSON (Eric Roy): Well, it is wide ranging but it is about taxation issues.

Hon Dr Michael Cullen: It should be about the rates of tax.

The CHAIRPERSON (Eric Roy): Yes, exactly. Do we all understand?

Hon DAVID CUNLIFFE (Labour—New Lynn) : I will restrict my comments to one brief call on this very specific clause. It sets the rates for the 2009-10 tax year, and as such it brings us to the heart of a point formerly made by the Minister of Finance. His suggestion was that nobody would be worse off, because the progressive tax reductions that had been put in place by the previous Government had not been implemented yet. Well, if that were the case, there would be no need for this part, which changes the tax rates for the coming year. This particular clause is necessary because Labour’s proposed rate reductions are already part of our law.

That takes us to why significant proportions of the New Zealand public will, in fact, lose. Before I return to the specifics of the mechanisms that mean that many New Zealanders will lose, let me clarify a very important prior point, and that is the difference between the average-income earner and the median-income earner. We know that the “average” income is $45,000. It is very interesting that in my electorate of New Lynn 66 percent of all taxpayers earn less than $40,000—earn significantly less than the average income. Two-thirds of people on less than the average wage? What is that about? It is because the average is skewed by a small number of very high earners who drag the average above the median. So when we say that the average-income earner gets $1.92 out of the National Government’s tax reduction, and anyone on below $44,000 with children gets nothing or loses, we are actually saying that two-thirds of all taxpayers in my electorate of New Lynn are either not affected or worse off, and only one-third gains. In Mr Tremain’s electorate of Napier 71 percent of all taxpayers earn less than $40,000, so 71 percent of his taxpaying constituents—if they have children—potentially are worse off as a result of this tax change. Why is that? When we get into the mechanics of the bill—

Hon Steve Chadwick: Is that “nobody”?

Hon DAVID CUNLIFFE: That is nobody who will be voting for Mr Tremain next time.

This issue is of particular importance to the Māori Party. The Māori Party is supporting this bill. If two-thirds or more of all taxpayers across the country earn less than the average income, and therefore are going to be losers under this bill—if they have children—imagine the implications for Māori communities, whose incomes are skewed below the mean. The vast majority of Māori New Zealanders will be hurt by this bill. We know, as a start-off, that most people who voted for Māori Party candidates gave Labour their party vote, so this is a sensitive matter for the Māori party members anyway, given that they have gone into coalition with National—all for two seats outside Cabinet.

Hon Clayton Cosgrove: Mana-enhancing!

Hon DAVID CUNLIFFE: Mana-enhancing for the individual Māori Party MP but not for the community. Those people will be asking their representatives why they have done this. Why have they inflicted upon them, in the first business week of the House, a tax increase?

What is the mechanism? I see that Mr Tremain still does not understand. If one is on an income of between $14,000 and $20,000, by April 2011—following the period during which this clause applies—one would, by law, have been on a marginal tax rate of 12.5 percent under Labour; under National those people will be on a rate of 21 percent. That is a big difference. That is a big, big difference. Merry Christmas to all of those people who thought that they were going to get a tax cut!

Hon Clayton Cosgrove: They did not tell us that before the election!

Hon DAVID CUNLIFFE: They did not tell us that before the election. I think this measure is a symbol of a much, much deeper problem, and, of course, it is a problem that the Māori Party will have to wrestle with, and that is that National campaigned on the glossy idea that everybody would have everything that he or she would have had under Labour, but with a few fresh faces to carry it forward. It was a very palatable suggestion. It fed into that old idea that it was time for a change—“But we actually quite like you guys, so we do not want too much change.” Mr Key understood that, and he campaigned on not making too much change.

But the rhetoric did not match the reality. On the first business day of the House, in comes a tax bill that gives a tax rate cut and a threshold lift to upper-income earners, and, of course—supported by the financial sector—penalises real businesses, our innovators and exporters, which lose their research and development tax credit, and penalises low and middle income families, the heartland of New Zealand. It disproportionately penalises Māori and Pacific Island New Zealanders. Good luck to Mrs Turia, good luck to Dr Sharples, and good luck to all the Māori Party MPs in their next round of hui as they explain what is in this bill for ordinary Māori people, who will be paying more, not less, tax during the period to which clause 29 applies.

Hon Dr MICHAEL CULLEN (Labour) : This is an interesting clause—and in ways a somewhat unusual one—which is a kind of historical relic. We have to pass legislation to confirm the annual tax rates, even though in Part 1 of the bill we have set the annual tax rates for 2009-10. In Part 3 we have another provision to confirm that we have actually set those annual tax rates for 2009-10. One may well ask why on earth we have to do that. Well, the historical reason is quite simple: we are confirming the Sovereign power to tax, and we are not allowing the King, or in our case these days the Queen, to levy monies without the consent of Parliament. Although in one bit we have said that those are the tax rates, in this bit we confirm that it is the intention of Parliament, and we have the authority of Parliament, to levy those particular tax rates.

This is interesting because this is the one year in which nobody loses—2009-10—because the current tax law provides for a series of tax cuts in 2010-11. In 2010 the bottom threshold will move from $14,000 to $17,500, and then to $20,000 on 1 April 2011. On the other hand, the changes made in Part 1 will remove that increase to that threshold, so on incomes from $14,000 to $20,000 a year, a higher level of tax will be paid. But that change will not occur until 1 April 2010, so for this one brief year of glory the National Party will be able to parade around the country saying that nobody is worse off as a result of its tax changes.

But wait—help is on the way from this side of the Chamber, as has so often been the case so far in this Parliament. We have had to help those members procedurally, and we are now going to help those members in terms of what they will try to tell everybody up and down the country. Very shortly we will come to an amendment when we get on to the next question. It will continue the ability to ensure that nobody is worse off as a result of this bill, by providing a mechanism where nobody will see themselves worse off than they would have been under the provisions in place before this bill is enacted and comes into force.

That is where it will be very interesting to see how people vote. I am particularly interested to see how the Māori Party votes both on this clause and on later clauses. The Māori Party has been calling, I think, for a kind of expansive policy—for the first $25,000 to be tax free, for the lowering of GST, and for an enormous range of things, which add up to a vast and gob-smacking sum of money that would clearly have to be raised by an enormous number of raffles being run up and down the country, because it would run into many, many, many billions of dollars a year. What it had to do with Māori needs is by no means apparent to many of us. Those members now have the chance to decide whether they really want to vote for big tax cuts at the bottom or big tax cuts at the top, because this tax bill provides for tax cuts at the top and increases in tax at the bottom.

I do not think the Māori Party members understood that. I do not think they were properly briefed on that. I do not think that when they signed up to something that was supposed to be mana-enhancing, they thought they were signing up for the exact reverse of what they had promised their constituents. We will be happy to help their constituents, as well. We will be happy to remind them of how their members have voted, because we know that for small parties of only five members it can be very difficult communicating with their constituents and telling them what they have done. We will be very happy to assist in that and make sure the Māori Party’s constituents are properly informed about how their members have voted within Parliament.

We will also be very interested to see what judgment those constituents make upon that party. It is not beyond the realms of possibility that those constituents will decide that having seen a tax increase over what they were expecting to get, that is somewhat mana-reducing from their perspective rather than mana-enhancing. It may well be goodbye to the Māori Party at the 2011 election, which will solve a lot of problems for a lot of people. But of course Mrs Turia has a way of making up the difference. She believes that Māori own the foreshore and seabed; no doubt she will be charging for entry to that at some point in the future under a National Government, and that may well make up some of the difference for some of the families involved.

I think not; I do not see the National Party going down that route. The polling tells us—amazingly—that people believe that any change to the current law should reduce Māori rights, not increase them. So I strongly advise the Māori Party to adopt the route that Ngāti Porou has taken, and to advise people to negotiate very strong agreements that will give proper recognition of those rights rather than hold out a false impression that something more significant can be gained from a National-led Government, which will certainly not be the case when reality sets in. Like the Resource Management Act changes, it will be the reverse of what many people were hoping to see.

Therefore, this small part confirms those annual tax rates. For this one brief year of glory nobody will lose, and then the losing will begin.

Hon DAVID PARKER (Labour) : I rise to take a brief call on this particular section of the Taxation (Urgent Measures and Annual Rates) Bill, as well. As has been said by the previous speaker, this section of the bill sets the tax rates for the forthcoming years at the rates that have been set out earlier in the bill. In other words, this entrenches for the future a decrease in taxes that is weighted to those who already earn the most, and a tax increase for those on lower incomes. It is exactly the opposite of what Māori Party members say that they stand for, given that Māori are disproportionately among those who are low earners. Their already low socio-economic status will be hurt by the provisions in this bill that will entrench tax cuts for those who are better off and tax increases for lower-income earners.

This also entrenches the somewhat inconsistent position taken in the legislation, compared with the National Party rhetoric in prior years. Over prior years they have continually said that the price point or the income point at which the highest tax rate kicks in should be raised. The Labour Government legislated for an increase to $80,000, above which the higher tax rate kicked in. This new tax rate kicks in the highest tax rate at $70,000. This seems to me to be yet another broken promise by the National Party compared with the rhetoric of yesteryear, on what is but day two.

Here we have a National Government doing exactly what the Labour Party predicted it would do; that is, prefer the interests of those who are already well off over those who are less well off. Far from being the friendly face, from being all things to all people as National members tried to present themselves over the last period prior to the election, they are already being exposed as preferring the interests of those who are better off over those who are less well off. It seems unimaginable at a time when we have rising unemployment, as that means that there will be more people on low incomes, as they are reliant on part-time rather than full-time work. They will fall within the low-income bands rather than the high-income bands. Against that reality that we know is real at least for a short period in New Zealand, given international events, those members are proffering a tax package that reduces the tax entitlements of people who are on lower incomes and prefers those who are on higher incomes. It is funded, of course, by the research and development tax credit cuts that were spoken of recently, and also by the gutting of KiwiSaver. So we have fewer jobs in the economy, and those on shorter hours of work as a consequence, with lower incomes, will be among those who suffer the tax consequences of a lower taxable income. It is a matter of some concern for me that the first act of National Party members is to visit the cost of their unwise tax cuts upon those least able to afford the loss of income that will accrue.

Hon CLAYTON COSGROVE (Labour—Waimakariri) : Earlier in the debate I took out a copy of the National Party’s taxation policy. In referring to this part of the bill, I note it confirms the tax rates going forward for 2009-10. I reflect on Dr Cullen’s words and those of my colleagues Mr Parker and Mr Cunliffe, when they talked about fairness. I look back at the National Party’s weighty document of propaganda and recall how all the National members—some soon to give their maiden speeches, some from Māori constituencies as well; and now supported, aided, and abetted totally, sycophantically, by the Māori Party—went around and said National knew that New Zealanders wanted a tax system that was fair. I reckon we could probably all sign up to that; we all say we want a tax system that is fair. The problem lies in the definition of fairness. If members look at the confirmation of these rates, they will see that what we would define as fair, and what most ordinary New Zealanders would define as fair, is not something that the National Party defines as fair.

National Party members told everybody before the election, not about these rates and how they would be confirmed today, but that the tax system would be fair. The document also states: “National’s tax package will give households confidence and some cash in their back pockets.” I just ask, as the Government confirms these tax rates, what is fair about what we have heard today, when, for instance, a person with no children and an income of $23,999 a year will get nothing? I wonder what Mrs Turia and Ms Parata, the new member who will purport, I suspect, to represent a Māori constituency, will say to their constituents when they go back to the marae. As the National Party confirms these rates, they know that those at the very bottom will get no assistance at all, or will end up paying more tax than they currently pay. I wonder how those members will respond when somebody on the marae stands up, probably quotes this document, and asks Ms Parata or Mrs Turia: “How do you define fairness?”

To be charitable to the Māori Party—let us be a little bit charitable—maybe it got sucked in by this bill. Maybe the Māori Party members did not read it or it was not explained; maybe they were hoodwinked, or maybe they were not told. Let us be as charitable as we can. But they have been told today and they were told yesterday about this measure; it has been explained over and over again. What will be etched in my memory is the face—and I have some sympathy for him—of poor old Hone Harawira, as he buried himself behind the desk yesterday and put up his hand to vote with the National Party—

Hon David Cunliffe: Trembling!

Hon CLAYTON COSGROVE: —knowing that morally this is wrong. He knows that all the constituents he works for—and I am told he is a damn hard-working MP and is respected, as Mr Mallard said last night—will be sold out by this measure in toto. I am going to find the situation very interesting, as we deal with the confirmation of these rates, when some of the Māori members go back to their marae and their communities and somehow explain this measure to them. It is going to be an interesting course of events.

It shows me that this is a traditional National Party move: to have an election, promise fairness, equity, aspiration, love, peace, and happiness to all, and then to do people over—put the sword into them and slash at the most vulnerable part of our communities. The National members are doing that before Christmas under urgency, with no select committee scrutiny, in the vain hope that people are tired of politics. They hope people will want to get out to the barbecue and go to the beach with the family, to have a few sausages, play a bit of golf or whatever else, and be with their kids, and will not concentrate on politics. They hope and pray that our communities are thick. Well, I say our communities are not thick, and when people open their pay packets in the months and years to come, and when they try to do some good for their children and their loved ones—

Chris Tremain: I raise a point of order, Mr Chairperson. Clause 29 is a very narrow clause. The member is an experienced speaker. He is way outside the scope of clause 29, which is very narrow.

Hon CLAYTON COSGROVE: Speaking to the point of order, I have consistently referred to the confirmation of the tax rates, and I am now explaining the consequences of confirming them. That is in order.

The CHAIRPERSON (Eric Roy): The Hon Clayton Cosgrove.

Hon CLAYTON COSGROVE: Thank you very much. The National members may not like that, or course. They do not like to hear that. They do not like it when Dr Cullen repeats that. A couple of them over there grin and laugh, and they do not like it when we repeat what the consequences of the actions taken in this Parliament over the next few hours will be. They can jeer and they can laugh. Mr Dunne is a straw man who blows with the breeze—the great man of common sense. I suspect that deep down—although he has his backside in the LTD, I have respect for the member—even he knows this is wrong. Even he knows this is wrong, deep down.

It is very interesting, I say again, as we confirm these rates, that not one member in the National Party has contradicted Dr Cullen, me, David Cunliffe, Mr Mallard, or Mr Parker, when we have stood up and given case after case of situations where injustice will occur as a result of confirming these rates. Not one of them has contradicted that. I would have thought that if we were wrong, OK, we were wrong. But the National members should tell us that, give us the evidence, stand up, and justify their position. They cannot do so; they will not do so. They have no evidence. I look forward to holding up this document around the country and inviting people to say whether, in their communities, they have been treated with fairness, with dignity, and with respect. Have they had their aspirations warmed and supported, and have they chosen a brighter future, when those who need some dough and some help are being sold out by those guys over there?

• Debate interrupted.

Hon DAVID CUNLIFFE (Labour—New Lynn) : 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.”

Hon Ruth Dyson: That’s what he said.

Hon DAVID CUNLIFFE: 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.

Hon Ruth Dyson: Wouldn’t that make them worse off?

Hon DAVID CUNLIFFE: 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: He’s sitting behind you.

Hon DAVID CUNLIFFE: 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) : 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.

Chris Tremain: Then there was the road to Damascus.

CRAIG FOSS: That is right. The independent earner tax credit—

Hon David Cunliffe: There are 9 billion reasons to be generous.

CRAIG FOSS: Did the previous speaker say he was looking forward to Sir Roger Douglas’s maiden speech?

Chris Tremain: He doesn’t get another one.

CRAIG FOSS: He does not get another one. I think he is about 30 years too late.

Hon David Cunliffe: 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.

CRAIG FOSS: 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: 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): 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.

CRAIG FOSS: 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: Better believe it.

CRAIG FOSS: 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) : 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.

Chris Tremain: But they are in the tax threshold changes.

Hon Dr MICHAEL CULLEN: 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.

Hon Ruth Dyson: Turbocharge it.

Hon Dr MICHAEL CULLEN: 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 Darren Hughes: What!

Hon Dr MICHAEL CULLEN: 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) : 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: 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): Yes, I know it is. I was hoping he was going to terminate. Will the member get on with his speech.

Hon Ruth Dyson: I was hoping he was going to terminate, as well.

DAVID BENNETT: 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) : 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: Unfortunately, his teachers never told his parents anything.

Hon RUTH DYSON: 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) : I move, That the question be now put.

Hon DARREN HUGHES (Labour) : 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: Oh, that never happened under you lot—outrageous!

Hon DARREN HUGHES: 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: 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): That is not a point of order.

Hon DARREN HUGHES: 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.

Hon Tau Henare: He would talk about veterans pensions.

Hon DARREN HUGHES: 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.

Hon Tau Henare: And what did you do about it for 9 years?

Hon DARREN HUGHES: 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) : 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.

Hon Tau Henare: The Māori Party, the Māori Party.

Hon DAVID PARKER: 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) : Mr Chairman—

Hon Members: Hooray!

Hon Sir ROGER DOUGLAS: 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) : 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: That’s not right.

Hon Dr MICHAEL CULLEN: 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) : I move, That the question be now put.

Hon DAVID CUNLIFFE (Labour—New Lynn) : 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: You can’t read Roger’s handwriting when he does it.

Hon DAVID CUNLIFFE: 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): I call the Hon Pete Hodgson.

Hon John Carter: 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): 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) : 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.

Hon Member: How much?

Hon PETE HODGSON: 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) : I move, That the question be now put.

Hon ANNETTE KING (Deputy Leader—Labour) : 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) : I move, That the question be now put.

Hon Dr MICHAEL CULLEN (Labour) : 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): 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) : 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) : 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): 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:

To insert the following new clause:

30A Section LC2A Compensatory Tax Credit for low-income earners and others.

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.

Hon DAVID CUNLIFFE (Labour—New Lynn) : 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—

Craig Foss: 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): The member makes a fair point.

Hon DAVID CUNLIFFE: 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: Not quite!

Hon DAVID CUNLIFFE: 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: How miserable is that!

Hon DAVID CUNLIFFE: 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.

Hon Bill English: So Labour got it wrong?

Hon DAVID CUNLIFFE: 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) : 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) : 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”—

Craig Foss: No.

Hon Dr MICHAEL CULLEN: 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.

Craig Foss: Yes, they were.

Hon Dr MICHAEL CULLEN: 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) : 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) : 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) : 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.

Hon Annette King: About half.

CHRIS TREMAIN: 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.

Hon Annette King: You can have those answers.

CHRIS TREMAIN: 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.

Darien Fenton: Rubbish!

CHRIS TREMAIN: 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.

Hon Annette King: What a load of rubbish!

CHRIS TREMAIN: 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: So why isn’t the Government budgeting for an increase in savings?

CHRIS TREMAIN: 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) : 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—

Hon Bill English: We had an election.

Hon PAREKURA HOROMIA: 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) : 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) : 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.

Hon Darren Hughes: No go for growth!

Hon DAVID PARKER: That is right, there is no go for growth. As a result of this, 800,000 New Zealanders—the 800,000 people who are already in the scheme—will be worse off. But even more significant is the difference between us and Australia. For a long time the National Party has been rattling on about people moving to Australia for higher incomes. Australians have higher incomes because they have higher total factor productivity and they own more of their own country. If we have less sophisticated plant because we cannot afford as much, because we have a higher cost of capital in New Zealand, or because we do not save enough, productivity in New Zealand will never get towards the productivity increases seen in Australia and the income gap will continue to grow. That gap stopped growing under the Labour Government. We had it halted, but, just watch, it will grow again.

Hon STEVEN JOYCE (Associate Minister of Finance) : It was strange coming into the Chamber tonight and hearing Michael Cullen look for Roger Douglas’ endorsement of what he was saying. I do not think I have seen that in 20 years. I thought that I must have walked into some sort of time warp, because Michael Cullen was citing the approval of Roger Douglas for what he was saying.

The other thing I was concerned about was that I wondered whether Labour members actually realise why they lost the election. It was because they stopped listening to New Zealanders. One of the things they stopped listening to New Zealanders about was KiwiSaver. On the subject of KiwiSaver, up and down this country stacks and stacks of hard-working New Zealanders were saying to politicians who would listen that they could not afford and did not want to put 4 percent of their income into the scheme. Up and down the country people were saying that to all the politicians who would listen. Unfortunately for the country the only ones who were not listening are the ones who are not listening now, and that is the Labour members. The reality is that a lot of people are saying: “Give us a 2 percent scheme. We will participate and join in a 2 percent scheme.”

Hon Darren Hughes: Who is saying that?

Hon STEVEN JOYCE: The people who were talking to the politicians who were listening before the election were saying that. Labour members were not listening and that is why they lost. There is still an excellent chance for people to contribute to their superannuation. The $1,000 has improved the whole scheme. As Mary Holm said today, it is a very good scheme now for both employers and employees.

The more important thing, which the Labour Party does not want to think about, is the long-term economic growth in this country. That is the bit it does not want to think about. It successfully drove long-run productivity growth in this country right down, over the 9 years it was in Government. Labour successfully drove down our economic growth projections, over the time it was in Government, and it does not know why. It simply does not know why. The reason it happened was that, fundamentally, Labour tried to control too much of people’s incomes. Whatever way Labour did it, it put taxes up, it spent people’s money, and it refused to give back to people more of their own money so that people had their own incentives to control their own lives, to work hard, and to get ahead under their own steam. That was the problem, and that is, ultimately, why the people of Auckland, in particular, voted the Labour Party out. Labour was imposing high tax rates on ordinary Aucklanders and people up and down the country, and 82,000 people voted with their feet and left this country because Labour would not listen and realise that people wanted the right to spend more of their own money, to make their own decisions on whether they would save or consume. “Nanny Labour” was not the deal for controlling their income and the way that they spent it.

There is only one solution to the economic challenges that we face in this country, and that is to grow a whole lot faster. The only way we will grow a whole lot faster is not by sitting here in Wellington and arguing over which percentage of people’s incomes we will control; it is by reducing the amount we control, and giving people the opportunity to work and get ahead under their own steam. That is the only way we will do it, and that is why we have made the choices that we have made about KiwiSaver and the research and development tax credit—to give New Zealanders a chance to have more of their own money.

They are not the easy calls. They are the calls that were never made by the New Zealand Labour Party while it was in Government, and that is why the growth rate was so low when it left, and that is why the long-run productivity growth was so low. Frankly, we could not afford to have those members any longer. The people of New Zealand knew that. They voted for change because they wanted a crowd that would listen to them and understand.

Hon DAVID CUNLIFFE (Labour—New Lynn) : This has been an extremely insightful discussion—insightful because of the complete claptrap that the Government is reciting, having dredged the barrel for anything resembling an economic argument. David “Cliché” Bennett fell back on the last press release that he read, which must have been a pre-election one, and then his lookalike twin brother, the Parnell yuppy, rehearsed his Crosby/Textor lines. This, apparently, is the man who is the king of listening: whatever the punters want, give it to them. What they did not want was their superannuation contributions, their savings future, capped at 2 percent. Nobody asked the National Government to cap employer contributions, nobody asked it to take away the $40 overhead subsidy, nobody asked it to take away the superannuation tax credit, and nobody asked it to take $3.5 billion out of the best savings scheme New Zealand has ever had. The ghost of Muldoon is stalking the Government benches: “Find a good savings scheme and scrap it—heh, heh, heh!”.

To get back to economics for a moment, we have witnessed tonight David Bennett saying that the whole reason he is in this House is to care for low-income New Zealanders.

Hon Darren Hughes: And a brighter future.

Hon DAVID CUNLIFFE: And a brighter future. It almost brought tears to my eyes, but my enthusiasm for his religious conversion was tempered by the fact that the Minister of Finance not an hour ago had to withdraw, through embarrassment—his butt having been saved by Hone Harawira—a financial veto relating to a $750 million kick in the guts for low-income Kiwis just before Christmas. So when David Bennett goes home and rereads his clichés, he should think about how what Mr English has done affects the people he purports to serve.

But, getting back to economics for just a second, I wonder whether anyone on the Government benches understands the savings gap. I hate to do Economics 101 on my first week in this job, but it seemed to me that the fact that Kiwis were spending $1.20 for every $1 they earned, because they thought they were becoming wealthy because their house values were going up—that is called dissaving—was offset by the surpluses that our Government was running. If members opposite do not run Government surpluses, and are now spending us into debt, they are borrowing to pay for these tax cuts. If Kiwis are not saving, do members know what happens? Our current account blows out even further. Our current account deficit is the difference between what Kiwis are borrowing overseas, and what we are earning through exports, and what the Government is saving on Kiwis’ behalf. So the consequences of this ill-fated move go beyond taking away ordinary Kiwis’ nest eggs. They gut the Government saving on Kiwis’ behalf, and KiwiSaver was the one tool that was fixing that long-run problem. And now, by National members’ own admission, they have killed it, because their own books make no provision for new enrolments, and they are too scared—where is the point of order for my saying they lack bottle—to put the future debt track out there so that all New Zealanders know how far in the shtook this is going to get us.

Hon Steven Joyce: The debt track’s yours.

Hon DAVID CUNLIFFE: Oh no, sir! When we were elected we inherited a gross debt to GDP ratio of—wait for it—35 percent. We got it down by half. Can Mr Bakshi do those sums while he is still here? That is half. My great fear for New Zealanders is that through the ill-fated efforts of the new Government, the debt track will go back to the 35 percent that we inherited in 1999.

Craig Foss: Decade of deficits.

Hon DAVID CUNLIFFE: It was not a decade of missed opportunities, because we did a hell of a lot to cut the ratio in half, but members opposite have squandered in a week what it took New Zealanders 10 years to build up. And why? The media, the press gallery, and the public know that the real reasons for this bill are not economic, and they have nothing to do, I say to Mr Bennett, with helping low-income New Zealanders, because those members have just kicked them in the guts by three-quarters of a billion dollars at Christmas. This bill has everything to do with rewarding constituencies. That is why the lion’s share of the tax cuts go to the best-off—they happen to be the voters who are the most faithful to the National Party—and that is why those members have penalised real businesses and rewarded the financial sector’s soft-shoe guys. The games that have been played to cover this up, the half-truths that have been told, and the rubbish economics that have been paraded would make one wince.

Some of those members cannot tell the difference, but I fear for New Zealand, because I know that the Minister of Finance is better than that. He can tell the difference, but he did it anyway. He knew all along that there was a billion-dollar kick in the guts in this bill, but he did not tell us until Dr Michael Cullen forced him to by putting an amendment that asked him to insure low-income New Zealanders against the effects of his policy. And then he said: “Oh, you got me. OK, I will veto it. Here is the financial veto.” Stupidly, he made it public; stupidly, he signed it; and, stupidly, he gave us the number. It is now on the Internet—$750 million, with the Minister’s signature beside it. You are too late—sorry, not you, Mr Chairman. The Minister of Finance then withdrew it, throwing National’s new coalition partner deeper into mana-depressing territory, because its mana was used to bail out your lack of honour. You did not tell New Zealanders what was coming. You surprised them—

Hon Bill English: I raise a point of order, Mr Chairperson. The Chair is obliged to enforce the conventions of the House. This member has been using the term “you” incorrectly, as have other members of the Opposition yesterday and today. I suggest that you let the Opposition members know that they are not to bring you regularly, and generally in a derogatory way, into the debate.

The CHAIRPERSON (Lindsay Tisch): I thank the member.

Hon DAVID CUNLIFFE: Mr Chairman, I certainly withdraw and apologise for drawing you into the debate. There was no intention to do that, and it was quite inadvertent.

The Minister of Finance is the one who has trashed the mana of the Māori Party. Our team has tonight provided to New Zealanders the fact that something like 71 percent of all Māori earn incomes of less than $40,000. That means some 71 percent of Māori people, if they have children, are in the category of people who are net losers from this bill. They are part of the crew that is paying the $750 million bill.

Chris Tremain: I raise a point of order, Mr Chairperson. The member is an experienced former senior Minister. We are talking to Part 4 of this bill, and he has gone back to Part 3. I ask you to ask him to talk to Part 4, which has the provisions relating to KiwiSaver.

Hon DAVID CUNLIFFE: Speaking to the point of order, Mr Chairperson, I respectfully submit that earlier there was a very similar point of order from Mr Foss on exactly the same point. Because of the interdependencies between the spending provisions of this bill and the funding provisions, your alternate Chairman ruled that it was in order to draw those links.

The CHAIRPERSON (Lindsay Tisch): Continue.

Hon DAVID CUNLIFFE: Thank you, Mr Chairman. New Zealand has a historical problem of a savings gap. It was held off by the fact that the Government was saving on New Zealanders’ behalf. The structural solution to that problem was KiwiSaver. It has worked a dream. It has exceeded all expectations. There is no justification for the Minister of Finance to even raise the suggestion that it has not increased net saving, because 827,000 New Zealanders who were not saving are now saving massively through this scheme. OK, there may be some diversion, but the chances of it being 100 percent are nil—absolutely nil. That is a red herring, one of many floated by the Government tonight, because it knows that it is on very shaky ground here. It knows there is no economic justification. There is no logical linkage between undermining one’s savings programme and one’s incentives for innovation in order to fund a short-run consumption increase.

Hon Ruth Dyson: So why would they do it?

Hon DAVID CUNLIFFE: Well, the politics are plain. National does it because it rewards constituencies that have been faithful to it. Upper-income earners and the financial sector are the beneficiaries, and they just happen to be the main donors to the National Party. Do we see any potential connection here? After years of trying to get National elected, they have finally got that, and on National’s first business day it has put the interests of its core constituencies ahead of the interests of the many New Zealanders who are going to pay the bill.

The strategic mistake that National has made is that it is just a bit too obvious. If National members had waited until some time next year to introduce this measure, perhaps they would have snuck it through with less public concern—but actually I think we would have called them on it. The fact that they are trying to ram it through without select committee consideration, with an enormous lack of mana—in fact, lowering the mana of this whole House and of every Minister of Finance who has gone before Mr English—is what is truly sad about this legislation. It is bad economics; it is bad, I say to Mr Bennett, for many low-income New Zealanders, because many of them will lose; and it is bad for Māori.

JO GOODHEW (National—Rangitata) : I move that the motion be now put.

DARIEN FENTON (Labour) : It is a pleasure to make my first contribution on this bill. I would call this a very disastrous bill, particularly Part 4. This is a bill that gives big tax cuts to people on high incomes but increases in taxes to people on low incomes. Part 4, which I will endeavour to address—unlike lots of members of the Government—guts KiwiSaver by halving employer KiwiSaver contributions. It caps workers’ contributions at 2 percent, rather than the choice that workers had before of 2 percent or 4 percent under the Labour-led Government. Of course, employer tax credits are abolished. I want to explain to Government members, who have tried to say this is about helping low-paid workers, and who have terribly misrepresented the union movement’s position on the 2 percent contribution, that what the unions were advocating was an option of 2 percent as a minimum. No one supported removing the 4 percent minimum. What happens under Part 4 of this bill is that employers will not be contributing 4 percent. They will be contributing 2 percent.

Hon Member: As a maximum.

DARIEN FENTON: That is right. Over a lifetime, that adds up to hundreds of thousands of dollars for many low-income and, indeed, many higher-income workers. That is the objection that members on this side of the Chamber have to the changes to KiwiSaver. There are many others, but that is the main objection I want to point out.

The problem with this is that many unions and employers have already gone in and made agreements around the previous KiwiSaver scheme. Many have agreed to 2 percent plus 2 percent, with an agreement that in future it will go to a 4 percent contribution. The problem with this bill is that in the future it will be really hard to persuade employers to contribute more than 2 percent. It will mean that some employers are going to put pressure on workers to fund the employer contribution out of a wage increase. Workers should be able to choose a 4 percent supported option, and already hundreds of thousands have. The implementation of the changes under this bill will mean that these workers will be significantly disadvantaged.

Let us talk again about low-income workers, the workers who are going to be paying more under National’s tax plans. These are the workers that I am particularly concerned about; for example, the caregiver in aged care who earns $12.50 an hour, who is going to pay more in tax in 2010 and 2011 under National. Now, those workers’ chance of having a savings scheme that will help them when they are older is being gutted.

I do not accept the argument that low-paid workers have not signed up for KiwiSaver. In fact, there has been specific research done on it by the Inland Revenue Department. That research is on the website, if members choose to look at it, and it shows that a large number of low-paid workers have signed up to KiwiSaver. Do members know why? It is the only chance they have ever had to have a superannuation fund where the employer is making a contribution. I know that thousands of workers have tried for years and years to negotiate an employer contribution in their bargaining. Those workers who do not have any power and who struggle to get a decent wage increase year in and year out have suddenly, thanks to the Labour-led Government, had an employer contribution that was going to see them enter their old age with a decent pension on top of the State pension. As I have said, those workers stand to lose hundreds of thousands of dollars over a lifetime of saving.

To add insult to injury, we now find out they are going to have to pay the fee of $40. How mean, how miserable is that! It has taken years and years to get this scheme. When was the last one? Was it 1975, the one that Muldoon abolished?

Hon David Cunliffe: About then.

DARIEN FENTON: They have waited all of those years to get a compulsory workplace savings scheme, and here it is being gutted by the National Party in its first week in Government. It is absolutely shameful.

The other thing that is very concerning is National’s intention to allow employers to take KiwiSaver contributions out of wage rises. That will result in employers putting more pressure on workers to forgo wage increases in order to cover the employer contribution.

Hon JOHN CARTER (Minister of Civil Defence) : I move, That the question be now put.

Hon DARREN HUGHES (Labour) : The Taxation (Urgent Measures and Annual Rates) Bill is another example of a bill the Opposition has received just as the debate has started. If there is not going to be select committee consideration of these bills, and if the Opposition is not going to get the opportunity to read them before the debate starts, it is important that we get the chance during the Committee stage to ask questions of members and of the Minister in the chair, Bill English, in particular. If we cannot do that, it will mean these important bills go right through the legislative procedure with no proper scrutiny—because we can guarantee the Government caucus will not have asked any questions when Cabinet took it to the meeting. There will have been no proper chance for transparency on this legislation. We need to use this opportunity to do that.

I have some questions to ask the Minister of Finance when he has finished sending text messages and smiling about how smart he is. My first question to him asks how many extra people will join KiwiSaver because of this change in Part 4. I am asking the Minister of Finance how many extra people will join KiwiSaver because of the changes he is introducing in Part 4. Can he give me a number?

Chris Tremain: How are you going to know that?

Hon DARREN HUGHES: Chris Tremain asks how we are going to know that. Every single speech that National Party members have given tonight, including the speech made by Chris Tremain, has said that halving KiwiSaver contributions will open the floodgates to low-income workers wanting to join KiwiSaver. When I ask Government members whether this will lead to 10,000 or 20,000 extra people joining a year, they laugh and say nothing about it. They have no answer. Chris Tremain used the basis of his speech to tell us that this change in Part 4 will make sure that lots of other people will be able to join, but those members will not answer the question.

Hon Bill English: Ask the question again.

Hon DARREN HUGHES: I have already asked the Minister the question. The Minister knows what it is.

Hon Bill English: How many people voted against you in the Ōtaki seat?

Hon DARREN HUGHES: Not many. I tell the member that, yes, I was defeated. Oh yes; “Mr Comedy Show” over there thinks he is David Letterman, but that is about half an hour away. The only joke Bill English knows about defeats is the 2002 one, because out of every member sitting in here, there is only one man who had the worst defeat in 100 years, and it is not me; it is Bill English.

Hon Bill English: I’m back.

Hon DARREN HUGHES: He says he is back. He thinks he is the leader of the Government. He thinks he is the Prime Minister of New Zealand, but we know he is not. He is the also-ran, and when I asked him a serious question about people joining KiwiSaver, he had nothing proper to say, at all.

The KiwiSaver scheme is the one that National members said was nothing more than a glorified Christmas club. They voted against it in droves after we introduced it. John Key said that the only person it would be good for was his pool boy, which I thought was an extraordinary revelation. Those members said the scheme was a glorified Christmas club and not worth anything whatsoever. Then New Zealanders joined, and they joined not just in the numbers we thought they would—and we were an optimistic Government, a sunshine Government; we looked at things and said this would work—but in numbers four times that amount. Tonight the number of New Zealanders who have joined the KiwiSaver scheme stands at 827,000.

We are told that if the benefits of KiwiSaver are reduced, if the entitlements people get from KiwiSaver are halved, as in Part 4, then, somehow, more people will join. National has no answer, except to say that halving the contribution will make more people join—and Annette King said that if it is zero plus zero, then even more people will! If four plus four is so terrible that two plus two is better, then maybe zero plus zero would be better, or, even better, maybe 2 percent from the worker and 4 percent from the boss. But National members did not want to go for that one, either. Why is National not giving a choice in Part 4? I thought National was the party of choice. It could have said it would introduce a third level into KiwiSaver, which could be either “2 plus 2”, “4 plus 4”, or “8 plus 4”. National could have put more choice into KiwiSaver, but, instead, it is shutting the door on it.

This whole bill is a disaster. We are opposed to the whole thing. It is amazing that some of the parties in Parliament are voting for it. It is amazing that the Māori Party is voting to put taxes up for some people. It is amazing that the ACT Party is voting for it. Roger Douglas wrote books about the fact that the scheme he helped with back in the 1970s was abolished. He said it was one of the biggest missed opportunities, yet, on his first week back in Parliament, he is voting out another scheme that is for savings, for the economy, and for working families across our country. So it is amazing to see the number of parties that are lining up to vote against it. What they are doing is a mistake.

Out of all the parts in the bill, this part is the worst. The reason is that this part will have an effect on New Zealand for the worst in 20 years’ time. This part of the bill changes the choices people can make in their working lives, and in 20, 30, or 40 years’ time they will not be able to go back and change those choices. People cannot go back and save more once their working lives are over. Tax rates go up and down, of course, with political debate. We know that. That will happen throughout political history. But those members opposite are shutting the door on a chance for working people to build up their savings over their working lives

Hon PANSY WONG (Minister for Ethnic Affairs) : I move, That the question be now put.

Hon DARREN HUGHES (Senior Whip—Labour) : I raise a point of order, Mr Chairperson. The closure motion, of course, is in your purview, and yours alone. I make the point—

The CHAIRPERSON (Lindsay Tisch): It is. I refer to—

Hon DARREN HUGHES: My colleague Moana Mackey has been calling all evening trying to get a call.

The CHAIRPERSON (Lindsay Tisch): I refer to Speakers’ ruling 60/7.

Hon DAVID CUNLIFFE (Labour—New Lynn) : It is appropriate in the Committee stage debate of the title clauses to recall the overall significance of the measure that they represent. This has been an extraordinary debate so far on an extraordinary bill. What is clear, which will no doubt carry through into the third reading debate, is that thanks to the loss of mana by the Māori Party the Government will have the numbers, sadly, to pass this bill, and thereby these clauses will be enacted. That, I think, we can take as a given, based on the voting patterns so far.

What has become equally clear through the debate is that there is neither a valid social justification nor any valid economic justification for the measures that are proposed. There has been a growing recognition throughout the House, in the media, and amongst the commentators that when we strip it all away the bill is about politics, it is about who gets what, and it is about rewarding constituencies. It is not about growth, it is not about savings, and it is not about good policy design.

Let us recall that the bill that these clauses represent is going to cost New Zealand about $5 billion. Of that $5 billion, $3.5 billion comes from gutting KiwiSaver: providing not a 2 percent option but, effectively, a 2 percent cap, and thereby taking away with it not only the best chance working New Zealanders have ever had to have a nest egg—a big nest egg on retirement—but the hopes and dreams of many New Zealanders who had just started to believe that maybe they too could have a pool attendant like Mr Key one day. But those dreams are gone. So has the dream of paying off the mortgage when they can cash in their KiwiSaver, because 2 percent plus nothing will not go very far. It will cost the average income earner, starting at 30 years of age, about a quarter of a million each by the time he or she retires—thank you, National Government!

So the real losers today are ordinary New Zealanders, but the other loser here is actually the National Party, interestingly—and ironically—enough. Up until today National had done a pretty fair job of telling New Zealanders they could have everything they had under Labour. The polls were very clear. We were not a Government that was reviled by New Zealanders; they just thought maybe it was time for the other guys to have a go. We will find out in 2011. All of the data is showing that most New Zealanders thought that the economy under Labour was well managed, that the Government was doing a good job, and that overall it acted in New Zealand’s best interests. It is just that they were a bit bored and thought they could have all of that and some new faces.

The real problem with this bill—the bill supported by the title clause—is that the title should be the “Emperor’s New Clothes Bill”, or the “Wolf in Sheep’s Clothing Bill”, or the “New Zealanders Start to Come to Their Senses Bill”, because it dashes the hopes of the million New Zealanders who were KiwiSavers and it gives a kick in the guts to those Kiwis who were paying the self-admitted veto-driven $750 million loss that Bill English first confessed to, which is now on the Internet, and which he then withdrew—that was extraordinarily inept for his first week on the job. That is almost historic. I have never seen a financial veto withdrawn and taken off the Table after it has been posted on the Internet. Extraordinary!

Those people will not forget this. They will not forget this, because on our first day of business National dropped all pretence and reverted to type, just like Ruth Richardson’s first week on the job. Bill English once presented himself as the centre candidate in the leadership race against John Key—and why is it, by the way, that Mr Joyce is sitting right behind Mr English? We will figure that out.

Hon Dr Michael Cullen: He gets to stab Bill before Bill stabs John!

Hon DAVID CUNLIFFE: I figured that might be something to do with it.

So we know who the losers are. I actually think one of the biggest losers here is the Māori Party. We had been hoping to build a working relationship with the Māori Party because I think there is some stuff we need to work on together. I fear that those members are not going to be here in 2011, because the majority of Māori Party voters, who voted Labour with their party vote, are not going to be impressed by the fact that the only reason that this veto was not needed, and the only reason they are not getting the $750 million insurance cheque from Michael Cullen’s amendment, is because Hone Harawira and his mates supported that bill. It is the beginning of the end for the Māori Party. It is like the foreshore and seabed legislation in reverse. This is the beginning of the end of the Māori Party, because it has put itself, let us hope unwittingly, in the situation of propping up a National Government that is already showing itself to be different from what it told the electorate—

Hon Parekura Horomia: And what they told the Māori Party.

Hon DAVID CUNLIFFE: —and what they told the Māori Party. So I feel kind of sorry for them in this because they have been taken for a ride.

This bill could also be called the “Bad Economics Tax Reform Bill”. It is bad economics for four principal reasons. The first reason is the savings gap is one of New Zealand’s enduring structural economic problems, and it is one of the most important legacies of the outgoing Government that there was a structural solution that was working well. This guts it.

The second principal reason is because the measures in this bill are the opposite to productivity enhancing. They are funding a tax cut that will be either frittered on consumption or, perhaps, squirrelled away and have no multiplier. But either way—and Mr Bennett cannot count it twice—it does nothing for the drivers of growth. It does nothing for technology; in fact, it does the reverse. It cuts the research and development tax credit that was being used to good effect by our most innovative businesses.

The third reason it is bad economics is because it was never going to be an appropriate solution to a relatively short-run cyclical recession problem. It is a structural tax cut, which Treasury itself has confirmed was inappropriate. Members should read the bill, which says it was inappropriate. The briefing to incoming Minister states it was inappropriate. The flow-ons have not been quantified, and the briefing to incoming Minister makes it clear that after $9 billion of stimulus from the Labour tax package in Budget 2008, another $5 billion was imprudent. Between Budget 2008 and now—wakey, wakey!—the world financial markets have gone into a tailspin. That means it will be harder to borrow and banks are having to get expensive credit guarantees.

Against that background the last thing we need is to be driven further into debt. I tell New Zealanders that the fear is that we will be driven so far into debt that the decade of prudent management inherited from the outgoing Government will be wasted. We started off on 35 percent sovereign gross debt to GDP. We got it down to 17 percent. My bet is—

Chris Tremain: At $48 billion. How can that be?

Hon DAVID CUNLIFFE: I tell Mr Tremain that National will not actually tell us. National will not publish the forward debt track. My bet is it is back up to 35 percent, in part as a result of this bill, and in part, admittedly, as a result of factors beyond the control of all of us. But it is not an appropriate solution to a cyclical problem.

Finally, this does not maintain a prudent stance in the markets. Both this and talk about driving the New Zealand Superannuation Fund to override good process and forcing it to buy assets in New Zealand will push up the price of assets, it will push up the price of debt, and it will make the borrowing problem worse. It is bad financial economics as well as bad real sector economics.

But let me conclude as I began this summary under the title clause. I think New Zealanders now know it is not about economics, it is about who gets what.

CRAIG FOSS (National—Tukituki) : I would like to talk to the title of this bill, and to suggest some other titles that perhaps we could consider. It is the Taxation (Urgent Measures and Annual Rates) Bill. It is actually very, very urgent. Perhaps, when the Minister of Finance was drafting this bill, he considered naming it the “Labour Still In Denial Bill”. Those members are totally in denial. They are still not listening, as my colleague the Hon Steven Joyce pointed out before. They are not listening. They have not been listening for the last few years, they were not listening during the election, and they most certainly are not listening now. In every speech from the minute we started to debate this bill yesterday until now—and, no doubt, during the third reading—they have been totally in denial. They have been furiously looking around, trying to make themselves busy and trying to find a couple of academic points here and there. They are actually contradicting themselves from speaker to speaker. From the previous finance Minister to the current finance spokesperson, they are totally contradicting themselves.

Then we got some lecture from the spokesperson over there about cycles and all that. With regard to the denial part, he said something about a short recession. The Reserve Bank predicted New Zealand would go into recession late last year and early this year, and New Zealand followed its prediction and forecast. The Labour Government led New Zealand into recession long before any other country went into recession—in particular, the countries we compete with. New Zealand is still in recession and, sadly, it looks like we will stay in recession for a bit longer. None of us in this Chamber wants that, of course, but that is the situation, and members opposite should not deny it, because by denying it they are not doing their—probably short—legacy any good at all.

Something was also said about the forward debt track. Perhaps those members are in denial about the forward debt track. As I noted in an earlier speech, members opposite are asking what the forward debt track is. Well, I ask members opposite what revelations are still to come. What ticking time bombs have been set up in other portfolios, in other ministries? I cannot understand members opposite. One of them talks about before the Pre-election Economic and Fiscal Update, and another one of them talks about after the Pre-election Economic and Fiscal Update. They have talked about the debt to GDP ratio, etc. Yes, it is down to 18 percent, but the Pre-election Economic and Fiscal Update took it out to about 30 percent, and possibly even higher—and that was before the revelation about the accident compensation scheme.

Those members should get in the real world today and get out of denial. Why do they not celebrate this bill, which will mean that at long last New Zealand has an ongoing programme of personal tax cuts, of rewarding New Zealanders for their hard work? After 9 long years a bill to bring in personal tax cuts will be voted on; after 9 years—about 3,100 days under the previous regime—it will be in law very shortly. The first tax measure of the previous regime was to hike the top marginal tax rate from 33c to 39c, and 3,000-odd days later they admitted that, yes, they were wrong, and they brought in their tax cut plan when they were about 17 points behind in the poll. New Zealanders saw right through that. Labour members are still in denial in every speech.

One point I note is the disgraceful and disgusting attempt in the last few days by the Hon Trevor Mallard at wedge politics aimed at the Māori Party and low-income New Zealanders. Some of the language and the rhetoric that have been used are absolutely disgusting. Anyone reading Hansard will see it as simply disgusting and disgraceful racism.

Hon Dr MICHAEL CULLEN (Labour) : Diddums is all I can say to the poor member Craig Foss, who has just spoken. Let me get this right. New Zealand is in a recession. That is not surprising—so is the United States, so is Germany, so is Japan, so is most of Europe, and so are all kinds of other countries around the world. The member says that the answer to the recession is as follows—and let me get this right. Firstly, we cut long-term savings; secondly, we reduce innovation; thirdly, we increase taxes on people on low incomes. Then, of course, we have the really brilliant part of the growth strategy: we get teachers to tell parents, in plain English, how their kids are doing. This in itself will drive increased productivity throughout the economy. This is the growth strategy. On top of that, the real big driver, the real turbocharger for this 1953 Morris Oxford that the National Party is putting up, is a $10 a week tax cut. People will flood into work for that; they will work so hard that the economy will take off and exports will double! We will be in the top half of the OECD within 3 years, thanks to a $10 a week tax cut! Does anybody believe this rubbish? Do people believe that that is a growth strategy in the 21st century? It would not have been very good in the early 20th century; it is hopeless in the early 21st century.

So what does this bill do? It increases taxes for many people. There is nothing urgent about this bill. The only thing that is urgent is that it is being taken under urgency. That does not make it urgent. The bill also provides for annual rates. Actually, it talks about KiwiSaver. I do not know why the Office of the Clerk approved KiwiSaver being in this bill, because there is no reference to it in the title of the bill. It says “Taxation (Urgent Measures and Annual Rates) Bill”. I would like to know how cutting KiwiSaver contributions come within that particular heading. National has got away with stuff I never got away with when Dave McGee was Clerk, I might say in that regard.

We know what the increased tax on low incomes is. The increased tax on low incomes is $730 million over the next 5 fiscal years. It is worse than that sounds, because the increase does not take place until 1 April 2010. So it is actually $730 million over about 3 tax years. It is actually about $230 million a year in increased taxes. On whom? On those earning $14,000 to $24,000 a year, on all families with kids that earn under $44,000 a year, and on quite a lot of families with kids that earn over $44,000 a year. They will pay higher taxes than under the current law. That is what this bill does.

The second thing it does is reduce innovation. It abolishes the research and development tax credit. We are told that this is because companies are rorting it. Well, not a single company has got a research and development tax credit yet, because the first tax year that it applies to has not yet finished. It is all very well that PricewaterhouseCoopers and all these people have been vetting these lovely schemes, but nobody has actually tested anything. I have heard complaints from accountants that the Inland Revenue Department is being too tough around the rules for the tax credit. Far from the tax credit being too easy to get, the complaint is that it is too hard to get.

What we do know is that if we do not have one and Australia has one, we will continue to see research and development sucked out of this country. I do not like tax credits in these areas any more than I like bank guarantees. We had to have bank guarantees because everybody else had them. If we did not have them, then we did not get the money linked to New Zealand banks, and we would not see New Zealand retail deposits in New Zealand banks. If everybody else does it, unfortunately we have to do the same thing. The same is unfortunately true with research and development tax credits. If everybody else is doing it and we are not doing it, that is an incentive to site research and development elsewhere.

What is research and development? It is the brightest brains, the highest-value jobs, the companies that produce the most, the companies that export, and the companies that are more innovative and pay higher salaries. National says that it is going to turbocharge this economy by taking those jobs away and exporting them across the Tasman. This is part of its great strategy for bringing people back to New Zealand. Can anybody explain the logic of this? Nobody in National can explain the logic of this. Basically, it is the same as with all the rest: the Labour Government did it, and therefore the National Government will reverse it because it hates stuff that looks good. That is what it has done. It is like Working for Families and it is like KiwiSaver.

Then, of course, we reduce KiwiSaver in this bill. We turn it from a scheme in which the average worker accumulates savings of 10 percent of his or her wages per annum, of which the worker pays 4 percent, to a scheme in which he or she accumulates savings of about 5 percent per annum, yet many workers—particularly the low paid—will still pay 4 percent, because the employer will shift the cost on to the employee. Mr English claims that lots more people will join, but he failed to answer the question. In terms of the money that National has calculated—and it has calculated money; it has come up with costings, and those costings are based on assumptions—one of the assumptions has to be what the increased uptake of KiwiSaver will be compared with the status quo. The fact is that National has not budgeted anything in that regard. It does not expect an increased uptake, at all.

Yes, the unions wanted to retain the “2 plus 2” entry point. But they were not arguing to stay at “2 plus 2”; they were saying that people could go in at “2 plus 2”, then gear up for “4 plus 4” with annual wage increases, so that they did not feel the initial pain quite as much. That is enormously different from sticking at “2 plus 2” over the lifetime of savings. The sixty-eight members of this House who voted for this are all entitled to an employer’s superannuation subsidy of between 8 and 20 percent on their superannuation scheme. They all voted to lower the subsidy for ordinary workers to next to nothing, and they conned the media into believing that they would get $1,040 a year. They will not—only if they contribute 4 percent continuing. At 2 percent, many will get a tax credit that is a great deal less than $1,040 a year, as a result of these changes. And the threshold of the employer’s superannuation tax payment has been lowered. It goes down from 4 percent to 2 percent. So if the employer continues to pay 4 percent, instead of 4 percent going into the employee account, 3.4 percent goes into the employee account.

Time after time after time, at every step, there is a cut in savings. This is a country with an appalling savings record, with a chronic current account deficit, with an excessive reliance upon foreign capital, and with endless debates about foreign ownership of the New Zealand economy—and this Government decides to cut savings. There is in an international financial crisis, partially driven by the growing gap between the debtor countries—the borrowing countries—and the savings countries, and the National Government has firmly nailed its flag to the mast of more borrowing and more spending. This is not an economic programme that makes any sense: a dumber economy, lower private sector research and development funding, more taxes on low incomes, fewer savings—that is the National Government’s formula. Somehow or other, a little tax cut in the middle and the top will make up for it!

We are not actually lowering marginal tax rates for most people; they barely change for the vast majority of people. So the incentives are not there, because economists tell us that the incentives are in terms of the marginal tax rate, not the average tax paid. Once one lowers the average tax paid, people just bank the difference—that is a given. It just becomes part of the family budget from then on. It does not change incentives to work from that point on.

The final point is the betrayal by the Māori Party of its constituents. Those members are voting for a bill that discriminates particularly against their constituents. The low-income people who lose under this bill are disproportionately Māori. Māori disproportionately benefited from, and were enthusiastic about, KiwiSaver, because it was particularly geared to helping low to middle income earners get a regular savings habit at work. For the first time for decades we were seeing significant Māori uptake of work-based superannuation. And the Māori Party voted for this. That is why the financial veto was withdrawn—the National Government was worried that the Māori Party members would abstain on, or vote against, the measure. The National Government leant on them and they caved in. Their so-called mana was not enhanced, at all. Their mana is knocking around somewhere in the gutter at the present time. They are feeling about this big. Mr Harawira said that he wants to kill Trevor Mallard because Trevor Mallard dared to point out that he has betrayed his own constituents. Well, utu time has a date: it is probably November 2011.

It is already launched; the blogs are turning against National. When one of National’s favourite journalists, the daughter and sister of National Party MPs, is attacking it in her blog today, we know that the worm is turning. The honeymoon is over. I say to the National members that it is time to get out of bed, boys and girls, and start trying to defend where they are, because the honeymoon is over as a result of the legislation that they are pushing through. They should listen to Checkpoint tonight, as group after group is lined up to attack the National Government. This is the real world those members are in. They will go back to their offices, wait for the officials to turn up and scare them with the latest frightening story, panic again, rush in, blame everybody in sight, and try to pretend they are not the Government. Well, they are the Government. We know where we are—we are the Opposition. They are the Government, they have to do it, and what they are doing at the moment is cutting the taxes of the wealthy, increasing the taxes of low-income people, cutting savings, cutting innovation, and betraying the very people who voted for them in this election.

Hon BILL ENGLISH (Deputy Prime Minister) : Dr Cullen just cannot stand the idea that the National Party put a plan for the economy to the New Zealand public and they voted for it. It is a different plan to his plan. In fact, people who are voting for the KiwiSaver changes tonight are voting for a KiwiSaver that will be fair. It will be fairer for the simple reason—

Hon Member: Fairer?

Hon BILL ENGLISH: —it is—that Labour has never understood that most of the working-age population is not in KiwiSaver. Labour has always believed that the great battling New Zealand public should put their hands in their pockets to fund Labour’s latest little vote-catching scheme. We have changed the rules so that those New Zealanders get an opportunity to join KiwiSaver, because if they are able to join KiwiSaver they will get the benefit of the subsidies provided by the Government. If they cannot join KiwiSaver, which most working-age New Zealanders have not done, they do not get one cent to help them with their saving. If they are working on the average wage, trying to pay off a mortgage when interest rates have been rising, and cannot afford to join KiwiSaver because they cannot give up almost 6 percent of their net pay each week—which a lot of people cannot; and they are the ones who did not vote for Labour, because Labour would not listen to them—those people, who are struggling to keep their heads above water on their mortgages, now have a better chance. Because interest rates are dropping, they may now be able to enter KiwiSaver at 2 percent.

See, Labour did not listen to those people. They listen only to the people who take the cash and say they are grateful. Those are the only people they listen to. Also, through this debate, we found out that Labour always intended KiwiSaver to replace national superannuation. That is why they have been talking about—

Hon Member: We did not!

Hon BILL ENGLISH: Dr Cullen has been saying that his intention for KiwiSaver has been to make it like the Australian scheme. The Australian scheme is 9 percent, KiwiSaver is 10 percent, and that is how we should have it! The Australian scheme—as I pointed out to the House—replaces the public pension. It is viciously income-tested and asset-tested. New Zealand does not have income and asset-testing. We had a 20-year debate over it, we have settled on universal superannuation, and now, in addition to that, we are pre-funding it. So every year the New Zealand taxpayer puts $2.5 billion into the New Zealand Superannuation Fund to pre-fund national superannuation. That is staying where it is. That is part of the deal for retirement income. The KiwiSaver arrangements Labour had simply cut too many people out, so we have changed them.

The other example of Labour listening only to people who take its cash and are grateful is that of all those people in New Zealand who over the last 4 or 5 years have not benefited from Working for Families. The benefits of Working for Families for households with children have been significant: big increases in their net income—$100 or $150 a week in some cases. But people who earn under $44,000 who have no children, of whom there are 630,000—battling Kiwis who voted Labour loyally for 10 years—got nothing. The strongest economic growth in a generation, and they got nothing. Tonight we have listened to them, and we have given them something, so alongside families they now have the tax cuts and the share of the economic growth they should have had 10 years ago.

Dr RUSSEL NORMAN (Co-Leader—Green) : I stand to speak to the title clause of the Taxation (Urgent Measures and Annual Rates) Bill. Of course, the use of the word “urgent” in the title is rather perplexing. It does not seem to me that there is anything so urgent that this bill has to be rammed through the House tonight or tomorrow. What is so urgent about this bill that it could not be considered by a select committee? What is so urgent that we could not have a proper public debate about the content of this bill? What is so urgent that we could not let civil society, which is the foundation of our community, have a look at the content of this bill? And what are the urgent things that are not in this bill?

The UK Tory party, the Conservative Party, has become very interested in climate change, because it thinks that is quite an urgent thing. It has started to embrace the idea of using the tax system in order to move our society towards a more sustainable direction. Its leader, David Cameron, has talked a great deal about it. It seems to me that climate change is an urgent issue, and if we want to take urgency to deal with something urgent, then why not deal with climate change? Surely that should be at the top of the agenda, like green taxes are now at the top of the agenda for discussion by the Conservative Party in the UK. But there is nothing in this bill about climate change. There is no transition for the tax system—to shift taxes off income and on to resources and pollution. Instead, the only discussion we are having about climate change is that maybe the taxpayer should pick up more of the costs, because the Government is about to weaken the emissions trading scheme. Every time we weaken the emissions trading scheme, the taxpayer is going to hand over more money to pay for the pollution of other people. It seems to me that if “urgency” is what this bill is meant to be about, then we should be looking at climate change and what we are going to do about it.

What about discussing something else that should be dealt with in this bill? I think the state of our rivers is quite an urgent issue and is something that our tax system should look at. There is nothing in this bill about making sure people pay in that respect. There is the issue of a tax on commercial water-use. This bill is a tax bill, so it could have talked about a tax on commercial water-use. It could have something about that as an urgent issue. Then there might be a financial incentive to use water efficiently. Instead there is no financial incentive, because this tax bill does not really deal with the urgent issues that are facing our country.

What about another urgent issue that should be addressed by this bill—that is, inequality and poverty in our country? We have a major problem with inequality and poverty, and this tax bill will actually make it worse. Instead of the tax bill that we have already passed into law that would give tax breaks to lower and middle income earners, particularly lower-income earners, this bill reduces the tax breaks that we are going to give to those people. The tax cuts we were going to give to lower-income earners are being taken away.

But it seems to me that what is really urgent in this bill, and why it is so important that it is passed quickly, is that next year people are going to get tax cuts of one sort or another. Now, when they get those tax cuts, most of them will say: “Oh look, National gave us tax cuts, just like they promised to do.” That is what most people will say. They will not realise they were already going to get bigger tax cuts, particularly for lower-income workers. The reason this bill is so urgent is the politics of it. The Government needs to get it through quickly, before people realise what is being done. That is what is urgent about this bill and that is why it is being pushed through. The reason we are having this debate at 10.30 at night, and going through to midnight, is the politics of it, so that people do not realise.

What about the savings problem? That is another urgent problem that I would like us to address. The fact is that we have a massive current account deficit, most of which is an investment deficit, because we are highly indebted. We borrow lots of money so we can trade each other’s houses. What about dealing with that problem? Instead, this bill does not deal with that. It makes the problem worse. We have a bad savings culture. We are trying to do something about it.

KiwiSaver was very, very far from perfect but it was a step in the right direction. The Greens support the 2 percent but it should be “2 plus 4”. Why does the Government not do “2 plus 4”? Why does it have to be “2 plus 2”? Why not go to “2 plus 4”, if the Government really cared about savings? We have a savings problem and we all agree about that. What about “4 plus 4”? Why do we not go that way? Let us give people the option of 2 percent but let us support it. It seems to me that an urgent problem that we have as a country is our savings culture. But this bill puts things backwards.

We have another big problem, an urgent problem—because it seems to me that the bill should be about our urgent problems. We have another urgent problem, which is research and development. We do not do a lot of it in New Zealand. Most of it happens in universities and the public sector. Very little of it happens in the private sector. We had this idea of a research and development tax break in order to get more research and development in the private sector. It was not necessarily going to work and it was not perfect but it was trying to address one of the fundamental problems of our economy, which is that we do not do enough research and development in the private sector. That is an urgent problem, which we should be doing something about. Instead, we are going in the opposite direction with this bill.

It is urgent that the Government has another look at it, and that the Minister of Finance thinks whether this is really what he would want to be responsible for, or whether he really wants to put down as his first bill through the House something that does not deal with the urgent problems we face like climate change, water quality, inequality, savings, and research and development. In fact, it starts to put some things backwards. In terms of the urgent problem of the economic stimulus package—which is an urgent problem, I give you that—I ask whether we want to have a stimulus package that consists of tax cuts. A large part of those cuts will be spent mostly on imports, although not entirely. Therefore we will be stimulating the Chinese economy with our tax cuts. Some of those tax cuts will be saved, which is good. But if we really wanted a stimulus package to deal with the urgent problem, which is the fact that people are losing their jobs, why not build more State houses? Why not insulate cold, damp houses, which has long-term benefits, and employ New Zealanders? It would stimulate economic activity, because even though the Government does not think it is a problem, we think it is a problem that people live in cold and damp houses. We think we need more houses. If we insulate houses, it has benefits for the health system, the education system, and energy efficiency. That would be a good way to stimulate the economy. That would be a good kind of stimulus package, instead of this package, which is very, very focused on tax cuts. It does not look at the big picture—what we need to do as a society and what we need to do as an economy to prepare for the future. That would be a much better way to have an economic stimulus package.

Hon PETE HODGSON (Labour—Dunedin North) : I just want to respond to some of the comments made by the Minister of Finance when he said at the outset that what Labour could not get used to was the fact that the National Party had gone into the public arena with its tax policy, had made it clear to the public of New Zealand, and had won the election.

Hon Gerry Brownlee: Title debate.

Hon PETE HODGSON: Well, let me just ask the Minister of Finance whether, when he went into the public arena to take part in an election campaign, he was in a position to spell out that those people earning under $20,000, or under $44,000 if they had children, were going to get a tax cut decrease compared with what was already in New Zealand statute? Did he tell the public of New Zealand that? I do not think so. Do we think he told the public of New Zealand who are earning between $44,000 and $50,000 that the $10 a week these people who have been missing out all this time were going to get is not coming after all? Did he say that to the people in the—

Craig Foss: Between $24,000 and $44,000.

Hon PETE HODGSON: No, those on $24,000 to $44,000 are getting it. But National members campaigned that those on $24,000 to $50,000 would get it, and then they broke the promise. Mr English did not—

Hon Bill English: That’s not right.

Hon PETE HODGSON: That is not a broken promise? Well, should we go back into Part 3, with the leave of the Committee, of course, and change the law so that we can have an amendment to make sure that the promises that the National Party made in the election will be kept? At the moment, unless we go back into Part 3, that is the case. The abatement starts to occur well before $50,000 and the measly $10, in Annette King’s words, is much less than that. Did he say to the people of New Zealand that any dollar above 2 percent paid by the employer would have to go and visit the taxman first? Did he say that? No, he did not say that before the election. In fact, he did not say it before yesterday. Yesterday the announcement came in the form of Mr English saying that it should not come as a surprise to anyone. Well, if it was no surprise, then why did he not just say so? He did not point that out, so National has gone into the election with one tax package and come into the House with another.

But the other thing I would like to say about Mr English’s remarks is that ridiculous comment about how Dr Cullen had hoped that KiwiSaver would replace New Zealand superannuation. This is what is ridiculous about it. If the previous Government had wanted that to be the case, we would not have made KiwiSaver opt-out; we would have made it compulsory.

You see, the whole point of making it an opt-out system was to give a bit of choice to the public of New Zealand, but also to protect New Zealand superannuation from right-wing Tories in future generations. This was in addition to New Zealand superannuation, which, the Minister was generous enough to point out, has now become a universal entitlement and is now being pre-funded thanks to the Cullen fund—there is $14 million in that fund, and I tell Mr English not to go near it.

So let us just see whether the logic of Mr English’s comments about Dr Cullen’s intentions is true. It is palpably false. A few things about the New Zealand economy are in good shape, and a few things about the New Zealand economy are not in good shape. Generally speaking, we can say that our net or gross debt to GDP levels are in good shape, and have been in good shape for a few years. We can say that we have a high—

Craig Foss: Is 45 percent prudent? That is what Helen Clark said in the 1990s.

Hon PETE HODGSON: I do not know the member’s name, and I do not know where he comes from, but he would be very hard-pressed to back that assertion up with any record in Hansard. He should go and look; he will not find it. The member is just making it up.

But let us take a look at some of the good things about the New Zealand economy. We would probably agree that we have a relatively good credit rating internationally—in fact, we have a very good credit rating internationally. I think we could agree that the business regulatory environment is in good shape. The World Bank keeps telling us that, and other surveys keep telling us that we are near the top for setting up or pulling down a business and near the top for regulatory regimes for businesses. We have low or very low levels of corruption, and we are all pleased and proud about that. We have low unemployment, though we know that that will go up in due course. But we know that some things about our economy are not good. We are a low-wage economy, even though in 9 years the Labour Government managed to lift the minimum wage from $7 an hour for an adult to $12 an hour for an adult. In the 9 years prior to that it had been lifted by somewhat less than $1 an hour.

Hon David Cunliffe: In 9 years?

Hon PETE HODGSON: In 9 years—less than a dollar an hour; $5 an hour over the 9 years of our Government. But we are still a low-wage economy. We are an economy that does not save, and we are an economy that does not do research and development. And we are passing legislation today that increases taxation on the low paid, that cuts research and development, and that causes dissaving. What is sensible about that? What is reasonable about that?

What is more, this change is structural. This is not a short-term stimulus. The Greens suggested that we might retrofit a few more houses or build a few more State houses—that would be a short-term stimulus. Or we could do what they did in Australia and say married superannuitants would get $2,100, and a single superannuitant would get $1,100—or whatever the figures are. It is a short-term stimulus. People on the equivalent of Working for Families in Australia would get $1,000 a child, or whatever it was—I am sorry, I do not recall the details. That is what a short-term stimulus is like. This is not a short-term stimulus; it is medium-term wealth redistribution. It is a structural fiscal change that will cause deficits.

Hon Dr Michael Cullen: Social engineering.

Hon PETE HODGSON: It is social engineering at its worst. I cannot believe that National would use the offices of this House to ensure that its own social engineering predilections would come to pass. But that is what it is.

Hon Annette King: It is putting the rich back on the dummy.

Hon PETE HODGSON: Yes, it is putting the rich back on the dummy. That is exactly what it is—a wealth redistribution in the medium term. The whole idea of fiscal restraint went out the door when the Speech from the Throne was read on Tuesday this week, and we heard that there would be fiscal deficits foreseeably. That is not acceptable. That is not prudent. That is something resembling shadows of Muldoon.

Hon Gerry Brownlee: Ha, ha! No, it is a legacy of Labour, actually!

Hon PETE HODGSON: It is not a joke.

This country has come into a fiscally positive position in recent years, under successive Governments. It has certainly stayed there for 9 years of the Labour Government, and here, within days, we are moving into fiscal deficit. A fiscal deficit for a short period would be a good thing. You see, that is what a short-term stimulus would deliver; it would help to pull us through. But, no, the Government has not done that; it has eschewed the idea of a short-term stimulus and instead gone for a medium-term structural change, which is the redistribution of wealth. That is Tory behaviour at its worst. It is bad for our economy, it is bad for the rich-poor gap, it is bad for innovation, it is bad for saving, it is bad for exports, it is bad for high wages, and it is bad for our competition with Australia. I cannot think of a thing that is good about it, and the shame of it is that we had this opportunity and we blew it. That is the shame of it. We had the opportunity to do something that was going to be clever, and nothing clever came before this House. That is a shocking, shocking shame, and I am very, very sad that we will end the Committee stage of this legislation in due course, which shifts us in the wrong direction at the wrong time for all of the wrong reasons.

Hon JOHN CARTER (Minister of Civil Defence) : I move, That the question be now put.

MOANA MACKEY (Labour) : I am happy to take a call on clauses 1 and 2. When we deal with the title, we can see that this bill would probably best be called the “Taxation (Tax Increases for the Poor, Less Security in Retirement for the Low Paid, and a Dumber Economy) Bill”. That is exactly what this legislation does. That is what the National Government thinks is so urgent that it needs to be passed at quarter to 11 at night in urgency—tax increases for some of our most vulnerable families, less security in retirement, because it is gutting KiwiSaver, and a dumber economy, because it is getting rid of the research and development tax credits.

With the kind of global crisis we are facing now, there are probably a few things that people might expect their Government to do. First, they would probably expect it to protect the most vulnerable—those who are most likely to lose their jobs, those who are most likely not to get pay increases, and those who are most likely to be unable to afford to pay their mortgages, pay their food bills, or be able to buy the kinds of things they need to send their kids to school. The second thing one might expect one’s Government to do is to promote innovation, promote research and development, and promote the kinds of policies that will bring in higher-paid jobs, increase exports, and put more money into the real economy. When the country has such high personal debt levels, the third thing one might expect the Government to do is to take savings seriously, and try to increase personal savings and increase the depth of capital in the country.

The astonishing thing about this legislation is not that National has ignored one of those things but that it is that it has ignored all of them. And not just that—it has done the exact opposite of everything one would expect a responsible Government to do in a global financial crisis. Indeed, it has done the opposite of what just about every other country we compare ourselves to is considering doing in this global financial crisis.

The most offensive thing about this bill is that the members who have spoken on it tonight have tried to make us believe that they are doing it because they care about poor people. They have tried to make us believe that they care about the low paid and about workers. Maybe this bill should be called the “Taxation (Merry Christmas, Low-paid Workers, and You Are Welcome, from the National Party) Bill”.

We heard from Mr Chris Tremain, who did a little dance while he said it, that workers should be thankful for this legislation. We are sorry, but we did not realise we were meant to be grateful for the fact that the lowest-paid workers will have their taxes increased, and for the fact that the lowest-paid workers will have their retirement savings slashed. When those workers get to retirement age there will be no point in doing any more extra work, because they will lose their independent earner tax credit when they work. They cannot supplement the retirement income they lost through this legislation by working, because they will be disadvantaged. Mr Chris Tremain told us that we are meant to thank the National Government for this legislation, because it is so good for our workers.

Then David Bennett came in. Amongst all the clichés, he tried to tell us how much he cared about young people. Well, I would welcome anyone to listen on the Internet to Mr David Bennett’s speech on the youth minimum wage abolition bill. He called that communism. He said that paying young people the same money for doing the same job as someone who is one day older than them was communism, yet we had to listen to speech after speech from Mr David Bennett, with all the clichés, telling us about how much he cared about those young people.

Young people are joining KiwiSaver, I say to Mr Bennett. Mr Bennett can stand up in this Chamber and tell us until the cows come home that this bill will make more people join KiwiSaver, yet he will not answer the simple question as to why those increases are not budgeted for. If the Government is expecting an increase in KiwiSaver participation, why is that increase not budgeted for? He now pretends he is reading his papers, because he has no answer to that question.

Those members know that this legislation single-handedly, with a stroke of a pen, destroys KiwiSaver. They know that this legislation single-handedly, with a stroke of a pen, will seriously damage the real economy. It will drive jobs offshore at a time when we need them the most. Other countries around the world will be saying: “Thank you, New Zealand National Government, for getting rid of your research and development tax credit, because we have benefited from it.”

Worst of all, this legislation will increase the tax on some of our most vulnerable families. I urge the Māori Party to think very, very seriously about supporting this bill. It is not mana-enhancing to take money out of the pockets of the poorest families in this country and give it to the people who need it the least.

Hon PAREKURA HOROMIA (Labour—Ikaroa-Rāwhiti) : We have just witnessed one of the quite interesting assumptions dished out by the Minister of Finance. I think Dr Cullen’s chronological order on the framework that it is supposed to stimulate the economy is spot on—take away the 2 percent, and make believe that the $1,040 is still there, but it is not against $26,000; it is against $52,000. Then we hear this preaching and leeching from people like Mr Bennett that this measure is about helping poor people. Roger Douglas stood up in this Chamber and said “Well, as a start you forget about the beneficiaries.”

Hon Annette King: And the old people.

Hon PAREKURA HOROMIA: And the old people. That is what he was alluding to, and that was parroted by the Minister of Finance in a very simple way. He has put out the assumption that at the end of the day our superannuation fund is too generous. So all this hinting is going on. It was not too different from the rough talk and the make believe in relation to accident compensation. It was a whole lot of hogwash.

We have listened to Mr Bennett flick out the platitudes in relation to caring and sharing, and wanting to help young people and Māori along the freeway to the future. Well, the freeway to the future in this country has a hell of a lot of potholes in it—potholes brought about by mean-spirited people. We are heading towards Christmas, a time when the mistletoe is glistening and the fellow with the red cap comes ripping through town. [Interruption] What has Gerry Brownlee given to people? Big bags of nothing! It is a disgrace. Māori people are affected. Tēnā anō taku kōrero ki a koe, e Hone.

[I have told you that before, Hone.]

Hon Gerry Brownlee: That won’t go down well at home.

Hon PAREKURA HOROMIA: It might not go down well with you, but our people will understand that.

The CHAIRPERSON (Eric Roy): Order!

Hon PAREKURA HOROMIA: I am sorry, Mr Chairperson. I should have said “Mr Brownlee”. It will go down well with our people because 73 percent of Māori who work miss out in this case.

What a sad day for Māoridom! That the Māori Party was not told, or that it was not explained clearly enough to them, is not too dissimilar to what was not told to the public. A whole lot of porkies were told to the public, and one does not have to be a rocket scientist to know that. Craig Foss huffs and puffs over there because he is a price-taker. He knows how to play the futures market; he knows how to let it slip. There are a whole lot of people with passionate theories about how to build up the price of the profit margin. That is why Merrill Lynch is down in the mud. That is why a lot of those big corporations, driven by price-takers and the leader of this country, have hurt people’s investments. That is why old people in this country are crying and worrying—it is because their superannuation has been taken away from them by bogus investors. Craig Foss knows about that.

At the end of the day it seems quite peculiar that the Minister of Finance is saying that this was a prelude to changing the KiwiSaver programme to take over superannuation. He is lucky that the Cullen fund is there. Treasury has told the Minister that a strong platform has been left for the National Government to work off. National is lucky, and it should be thankful that we have helped it along. But what does it do? On its first day in here it has come in and dealt to the poor people and to the Māoris. Those National people could not even run the House properly on the first day, and that was a sad example.

One does not have to be a rocket scientist to understand that when one stimulates business, there are fundamentals in it—one understands where the market is, one makes sure that the product is saleable, and one makes sure that there is good research and development. This bill has been about stripping the general research and development, which is something that the majority of businesses in this country asked for. What did the Government do? It closed research and development and shoved it down a ditch. Shame on it!

JO GOODHEW (National—Rangitata) : I move, That the question be now put.

Hon DAVID CUNLIFFE (Labour—New Lynn) : I think it is fair to say that many members of this House come to the third reading of this Taxation (Urgent Measures and Annual Rates) Bill late this evening with a strong sense of sadness—a sense of sadness about the process that has been employed, a sense of sadness about a wasted opportunity to make a significant positive difference for our economy, and a grave sense of sadness about the social impact of these measures. Let me take each in turn.

I said in my first reading speech that the public could, if nothing else, take from this bill that the honeymoon was over, that the sheep’s clothing had fallen from the National wolf, and that the true nature of its intentions was becoming all too clear. But I have to say that during the course of the debate the exact nature of those measures has become even clearer, and the—perhaps duplicity is not too strong a word, of the Government in this matter has been stark. It is highlighted by the process. Here we have a Leader of the House who has contradicted an earlier undertaking to the House and refuses to place bills on the Table, as has always hitherto, to my knowledge, been the practice. That is an innovation.

Hon Gerry Brownlee: I raise a point of order, Mr Speaker. I think you need to be careful about allowing repetition of a point being made somewhat unfairly. The Standing Orders are very clear in this matter, and I have been pulled up considerably over the last couple of days for apparently not understanding the Standing Orders. Now I have actually cottoned on to how they work, and I am simply following the Standing Orders to the letter. It would be an absurdity, in the middle of an urgency motion, to ask a party that has voted against that motion to grant leave for the bills to be tabled in that motion. So I think we are caught in a bit of a cleft stick created by those who are utter sticklers for the way in which the Standing Orders are applied.

Hon Dr Michael Cullen: There are two points here. The first is that leave is not required for the Minister to table bills under urgency. Once urgency has been taken, the bills can be put on the Table of the House immediately at that point. The member is getting confused, I think; if a bill had been tabled in a previous sitting day, then urgency could not be taken on that bill until the bill came above the line after some 3 days. The Minister can table any bills now that he wants that are being dealt with under urgency. That does not affect when they are taken during the urgency debate. The member need not worry about that fact.

Further than that, the fact that the member can be discourteous and can behave badly within the Standing Orders does not mean to say that it is not discourteous and behaving badly, and that it cannot be the subject of reference by members on this side of the House. One has to live by one’s decisions in this place. The Minister has made certain decisions. He will have to live by the consequences of those decisions.

Mr DEPUTY SPEAKER: Standing Order 263 is clear, but that does not prevent members raising the timing of the availability of bills in the debate. The point that was made earlier was that there is no requirement in the Standing Orders for the bills to be tabled prior to the urgency debate taking place.

Hon DAVID CUNLIFFE: For the record, the point being made before the member’s point of order was not that it was against the Standing Orders, but that it was against an earlier undertaking given by the member. That seemed relevant because it was yet another example of the same practice that was preventing this bill going to a select committee in the first place. Mr English said that it was in their manifesto so it did not need a select committee process. By implication, everything that was in National’s manifesto could do without a select committee process. Would not that be terrific—and where would our democracy be?

This is a very, very important bill; this is a very, very serious matter. New Zealand is at a serious crossroads, facing an international crisis, the magnitude of which we have not seen in several generations. But, apparently, no select committee process is appropriate for a principal tool for dealing with this recession. It is a wasted opportunity because this bill does nothing to assist New Zealand to face the challenges. It reduces savings, paradoxically, at a time of the most serious international liquidity crisis, when our domestic savings now count for more than they ever have, and we are undermining them to the tune of $3.5 billion, plus there are the spin-offs from behaviour that that undermines. It does nothing to encourage innovation. It has the contrary effect of taking away a much-needed incentive and a much-needed international equilibrator for companies that are high-tech and that employ more, innovate more, and export more than average. Those are the companies that ought to lead us through recession to the productivity growth we all share as a goal.

And it is bad economics, because, as many speakers—and, I think most notably, Russel Norman—have contributed, it seems to mistake a short-term stimulus package, where it is a wasted opportunity, for what one of my colleagues has called medium-term wealth redistribution. There is nothing of what could be done to provide more houses for the needy, to retrofit more houses, to keep our children healthy, to boost skills, to import technology, or to improve our woeful lack of private research and development. It does none of that. It is even bad fiscal policy, because it comes against the context of formal advice from Treasury that says that the existing level of fiscal stimulus is appropriate, that we have already invested nearly $10 billion, and that this $5 billion is misdirected and unwise.

Mr English talked about KiwiSaver as if somehow this bill were a measure designed to advance it. It caps the automatic enrolment at 2 percent, it caps the employer contribution at 2 percent, it cuts the enrolment subsidy—which is a regressive move—against low-income contributors, and it cuts the tax credit on superannuation contributions, thereby disadvantaging our more senior savers. It is a 2 percent plus 2 percent scheme, with the grave risk that it ends up with the employee bearing more and more of the 4 percent, and the employer bearing less and less, and the Government has misrepresented the position of the union movement, to boot.

So that brings us to the social re-engineering aspect of this bill. It is kind of ironic, is it not, for a party that says it has been listening and that we have not. Those members have been listening so much that they thought our poorest New Zealanders wanted a $750 million kick in the guts just before Christmas, and we have seen the most bizarre display from the Minister of Finance, attempting to veto a well-intentioned amendment from the Opposition that would have ensured that those people did not suffer at this time. He put on the Table the veto quantifying the penalty to them, and then took it off again after it was already made public—

Hon Ruth Dyson: A little embarrassed.

Hon DAVID CUNLIFFE: —a little embarrassed. What we do know from our analysis is that anybody with a couple of kids who is earning less than $40,000 is worse off, and that income earners in the $14,000 to $20,000 range are particularly worse off because of the higher rate they find themselves in, relative to what is already in the law. Again, to give credit to Dr Russel Norman, he asked the question as to why this bill is urgent, because this policy is medium-term stuff. He offered the insightful comment that it is urgent because the Government does not want to be discussing this around next March or April, when the next lot of Labour-led tax cuts come into effect. National members would rather that people thought they were National’s tax cuts, even though they are rather less than many of them would have got if this bill were not to be passed tonight.

We, the media, the bloggers, and the commentators have seen through the charade. We have seen through the electoral rhetoric—the sad part is that David Bennett still believes it—and we understand this for what it is. It was remarkably frankly acknowledged by Mr Craig Foss, who reminded us that “You did 39 percent tax in your first year.” That is what this is about—taking it back again. It is about utu. Mr English said “KiwiSaver was Labour’s latest vote catcher.” That is what this is about—that we thought of it, and not National, and therefore it deserves to be undermined. That would seem to fly in the face of our higher duties to the public, which are to do what is good for New Zealand, not what is good for our own egos, and not only things we thought of first.

I guess that brings us to the rather sad position of the Māori Party. There is much in that party’s ideals that I admire, and I look forward to Labour working together with Māori of all parties to redefine constitutional relationships in the future, but not by supporting a National Government that is harming the people the Māori Party was sent here to represent.

This is a sad day for New Zealand. It is a sad, sad day for this Parliament. It is not a mana-enhancing day for any of us, actually, that to get us here on its first working week, the Government has breached longstanding constitutional practice. It has done so based on the argument that anything that was in National’s manifesto before the election does not deserve select committee consideration, and in fact it does not even deserve, we hear now, a bill to be placed on the Table after an urgency motion but before the bill has started.

And National members had the gall to say that we were not listening! My God, New Zealand is lucky that the Government has a few cards in its hand to deal in the interests of good government and New Zealand’s future. Those cards are a debt to GDP ratio that is half what we inherited from a National Government last time; the fact we have got research and development up a fair bit, mainly through Government sponsorship; the fact that income levels of our poor are a quarter higher than they were a decade ago in real terms, and therefore there is some cushion. I do not see people choosing between going to the doctor and putting food on the table or paying rent, in quite the way I used to. As someone rightly said, there are still poor people in New Zealand. Yes, there are, so I say shame on the Government for making many of them $750 million poorer through the Taxation (Urgent Measures and Annual Rates) Bill. Do not kid yourselves, and do not kid New Zealanders, I say to Mr Bennett, that you are doing it for their sake. Just be honest about it and say that you are doing it for the sake of others who voted for you—at least that is honest.

Hon Pete Hodgson: Not “you”.

Hon DAVID CUNLIFFE: Not you, Mr Deputy Speaker. We hold you in high regard and we appreciate your chairing of this debate. We are only sorry that we do not have better news to bring to New Zealanders.

Mr DEPUTY SPEAKER: The member’s time has expired. Can I make it very clear that members cannot use the words “you” or “your” in any debates. That brings the Chair or the Speaker into the debate and that is not allowed. Please abide by that ruling.

CRAIG FOSS (National—Tukituki) : What a great, great day this is for New Zealand. It is perhaps a sad, sad day for members opposite, but it is a great, great day because we have seen democracy in action. Over 1 million New Zealanders gave their party vote to National, and at the election National laid out its personal tax cuts plan to New Zealand. It also laid out its KiwiSaver plan and its research and development plan to New Zealand. What a great day this is. We are seeing democracy in action and those measures will be delivered tonight, or perhaps tomorrow morning once the third reading of the Taxation (Urgent Measures and Annual Rates) Bill has been voted on. Many members are now waking up after the previous speech. But goodness gracious, who knows how many listeners have turned off the radio because that speech was an absolute shocker? No doubt Mr Jones is doing the numbers again tonight.

I was not going to mention debt ratios again, because I think I have mentioned them a few times, but unfortunately the previous speaker, the Hon David Cunliffe, brought them up again. I have to ask whether Labour members read or saw the Pre-election Economic and Fiscal Update. Did they look at the statistics? Labour members are stuck in the time warp of the previous administration’s May 2008 Budget, which had debt to GDP ratios of about 17 to 18 percent—that is quite right. But then everything started to unravel, and the Pre-election Economic and Fiscal Update showed us a decade of deficits that were nudging 30 percent, and, with the recent announcements that are now coming out of the fiscal closet, the deficits will quite possibly go higher than that. The previous speaker was in total denial of that. We would perhaps listen to you a bit more if you put yourself in today with the—

Hon Darren Hughes: Point of order!

CRAIG FOSS: Excuse me, Mr Deputy Speaker, I did bring you into the debate, and I apologise for that. Thank you, Mr Hughes; I acknowledge that this has been a long day. I ask that members opposite, and in particular the Opposition spokesperson on finance, take note of the latest fiscal accounts available to the public and to all of us here in this building, then frame his comments and speeches around the latest updates and, perhaps, any other secrets that those members know.

We listened to a tirade before, but we have to face the fact that New Zealand is a capital-deficient nation. We know that. We have a savings issue in New Zealand. Both parties acknowledge that and everyone has spoken about it, but the previous speaker started to talk about the New Zealand Superannuation Fund again. He has a problem with something that National, again, placed before the public. We said we would ask the Guardians of New Zealand Superannuation to invest 40 percent of the fund within the boundaries of New Zealand. We are a capital-deficient nation and a savings-deficient nation, so I ask why someone would not endorse the fact that we are trying to keep more of that capital within these borders, rather than funding the motorways and tunnels of Australia.

Although the previous speaker did clarify matters later, he also tried to give us a lecture about the multiplier effects and other things this morning. He did seem to correct himself a bit later, so I will give him credit for doing that, but the logical conclusion of what he said—his true colours were revealed—was that tax hikes were better than tax cuts. If members read his speech in Hansard, they will see that is exactly what he was saying this morning.

I will make a couple of further points. I think two speakers on the other side of the House have talked about bloggers. Well, there is one way to get into the blogging space, and that is to talk about bloggers, so that will be highlighted somewhere tonight. I do not know the site that another member was talking about. I ask a question of the previous speaker about bloggers. I ask whether he was talking about The Standard, the union-engineered and funded blogging site. Which blogging site was he talking about? Many of those sites have gone quiet now that many of the previous Government’s employees have moved out of the Beehive.

Finally, I round off my speech by commenting on the issue of process. I have noted in other speeches in various readings of this bill that this plan was presented to New Zealand before the election and during the election, and that the public resoundingly endorsed the plan. It is our 100-day commitment to New Zealand, and we are delivering on that plan right now. Because we listened to the public then, we are acting upon that plan now. I have a bit of advice for members on the other side of the House. If they get out of denial and into the real world, and if they start to listen to real New Zealanders, they may start to do quite well.

Hon Dr MICHAEL CULLEN (Labour) : I pick up a point that Mr English made in his speech. He said the big issues around the details of the taxation changes have been thoroughly debated over the last year or two, in the debate on the various Labour and National proposals in the public arena. That is fundamentally wrong and fundamentally misleading. The National Party did not publish the details of its tax policy until early October, some few weeks before the election. From then on, National never mentioned the details of that policy, at all. Its only reference to tax cuts was in the context of everybody getting them.

That was because National’s polling showed exactly the same results as our tracking polling did. The announcement of that policy caused a sharp dip in National Party support, because it was so unpopular. People did not want KiwiSaver interfered with. People did not want the research and development tax credit to go. People were suspicious about the shape of those tax cuts. It was only when National got back on to its underwear motto—“It’s time for a change.”—that its tracking polling picked up again. That was all the election was fought on, actually. It was fought and won on that one simple motto: “Time for a change. You’re bored with the old, so in with the new. They cannot be any worse, and if they are, you can chuck them out again after 3 years.”—which is no doubt what the public will do. So let us not pretend that the National Government has got some kind of detailed mandate from the country for the details of this bill. It has no such thing at all, not in any shape or form.

In any bill dealing with taxation and related matters it is useful to summarise who the winners and losers are, because there tends to be winners and losers. The big winners are clear: very high income earners. People on hundreds of thousands of dollars a year, or more, get a pretty significant tax cut. Once the top rate is cut, it really starts to bite when one gets into those big incomes. But there are modest winners. Let us be fair: there are some modest winners. Non-saving single people on middle incomes are winners. They get about 10 bucks a week in the first year and 15 bucks a week in the second year, which is less than the amount in the 2008 Budget—which was derided, I might say. The second set of winners is bureaucrats. About 100 or so new ones will be required to administer the complex independent earner tax credit and other aspects of the bill. With a cap on the total bureaucracy and with 100 more people going into the Inland Revenue Department, 100 other people will be going from somewhere else—no doubt, bureaucrats who deliver services that affect a different group of the population.

So those are the winners. Who are the losers? They are low-income individuals earning $14,000 to $24,000. We can say people earning up to $24,000, because people in that income bracket either get less or get nothing—everybody in that income bracket, 90 percent of whom Sir Roger Douglas thinks are wealthy. That is what happens when one sits round the Business Roundtable for too long. Other losers are many modest-income families, all families with kids that earn under $44,000, but also many families with kids that earn quite a lot more than that. Families with three kids that earn $80,000 a year will be worse off under this package compared with the current law. It is not a lot—10 bucks a week—but, then, that is all that middle-income single earners will get. They will get 10 bucks a week in 2009—

Hon Member: 10 bucks a week?

Hon Dr MICHAEL CULLEN: Yes, about 10 bucks a week. They will be worse off, because they do not qualify for the independent earner tax credit; for them, it will all get sort of washed away. Going back to the families with three kids, that is assuming that the couple are on $40,000 a year each. Beneficiaries and superannuitants who have the temerity to work part time, or have some additional investment income, will also be losers. They have saved all their lives and have got some income, and now they will be taxed more on it, because they do not qualify for the independent earner tax rebate. They will therefore be paying more, because the National Government is not going to raise that $14,000 threshold to $20,000 a year.

Those are just the losers. The big losers are the savers, the innovators, and the New Zealand economy. On the one hand, very high-income earners are winners, there is a little bit for middle-income single people who are not saving, and there will be about 100 new bureaucrats. They are on that side. On the other side we have low-income individuals, modest-income families, some middle-income families, savers, innovators, and the New Zealand economy. How does one see those scales moving? How does it look to you in the Chair, Mr Deputy Speaker? Does it look as though the winners outweigh the losers? Well, we know from the figures that the Government has used that 80 percent of taxpayers do not gain anything. It all right to quote the 630,000 who gain something; there are 3 million taxpayers in New Zealand. Eighty percent of taxpayers get nothing out of this change. Taxpayers were led to believe that they all got something out of it. Well, they do not.

But the real loser is the New Zealand economy, and that is the sad thing. We are living in the middle of the worst international financial crisis for getting on for 80 years, and, in part, that crisis is driven by a growing gap between saving nations and borrowing nations. We are right at the far end of the borrowing nations. This policy, this bill, says “Let’s borrow more.”—borrow more by the Government and borrow more by individuals. Why? Because then we might spend a bit more and keep the economy moving along over the short term. As long as we are going into Briscoes, the Warehouse, Farmers, etc., all will be well with the world. We do not need to produce anything.

You see, the Government’s coalition partner is ACT, which is the Association of Consumers and Taxpayers. What is sickeningly missing in that description is producers, wealth creators, innovators, researchers, and anybody who is actually creating a stronger economy. We are all just consumers and taxpayers, according to the ACT Party. The National Party believes the same. It does not believe any longer in the rural sector being the backbone of the nation. It does not believe in a backbone of the nation; it believes in the shopping bag of the nation. If somewhere or other somebody trundles a shopping bag around, we do not need a spine to hang it on. That is National approach to the New Zealand economy. And we do not need research and development; we just live off other people’s research and development. We do not need it.

And we do not need to change our savings culture—our appalling savings culture in New Zealand. A Government all of whose members qualify for an 8 percent or a 20 percent employer subsidy on their own superannuation is cutting the employer subsidy for ordinary earners from 4 percent to 2 percent. Those members try to claim that all KiwiSavers are wealthy. Actually, the median income of KiwiSavers is about $36,000 a year. If one takes out the kids, the median income is about $40,000 a year, which is well below the average wage. Indeed, that median income has been moving down since the first rush of transferees out of existing superannuation schemes into KiwiSaver, as new people are signing up and new savers are appearing. We are actually getting 18 to 40-year-olds to regularly save. Mr English says there are only 830,000 people in the scheme. That is after 16 months, by which time we expected to have about 350,000 people in KiwiSaver. At this rate, particularly once the financial markets pick up and stop scaring people so much, we will pass 1 million easily, and we will be pushing on to 1.5 million to 2 million people in KiwiSaver. Within 5 to 10 years most people in the workforce will be in KiwiSaver, and they will be people on modest incomes, because for those on high incomes there are better options than KiwiSaver. But for those on modest incomes KiwiSaver is an absolute boon, because it is structured to give a stronger benefit to those on lower incomes than to those on high incomes.

We learnt today why KiwiSaver is being changed. Mr English finally let the mask drop. He finally showed what a little man with a little mind he is, when he described KiwiSaver as Labour’s latest bribe to the voters. So it had to be punished, and the previous Government had to be punished. And, of course, I had to be punished, because I was the author of KiwiSaver, and I suspect there is a bit of personal, silly stuff in all of this. Well, actually KiwiSaver was not about him nor about me; it was actually about New Zealand and changing our savings behaviour. For the second time in the last 40 years, a National Government has destroyed our best chance to change our savings habits in New Zealand, to turn us into a capital-rich country, to emulate Australia, to provide reasons why people should stay here, and to provide a basis for a stronger financial sector within New Zealand—because the Australian scheme has been a massive boon to the Australian financial sector over the last 25 years. All of those things are being given away in the hope that, somehow or other, some people having 10 bucks extra a week will transform the New Zealand economy. That is not a brighter future; that is a dumber future. It is a dumber future from a dumber Government.

Dr RUSSEL NORMAN (Co-Leader—Green) : The Green Party is looking for a transition. We are looking for a transition to a more sustainable and a fairer society and economy. That is how we judge this tax bill. We judge this tax bill on whether it helps in the transition to a more sustainable society and economy and a fairer society. It seems to us that that is how we have to approach it. That is the bar against which we compare it.

One way to look at the bill is to divide it into two parts. One part is the tax cuts and what is going on there, and the other part is how the tax cuts are to be paid for. When we look at the tax cuts we see that we are replacing the already legislated-for tax cuts with these new tax cuts. These new tax cuts reduce what is going to low to middle-income earners, and increase the tax cuts that are going to the very wealthy. That is what we are doing here. If we did nothing—if this Parliament did not pass this law—then low to middle-income earners would be better off. So if we are going to say that if this bill does not make our country a fairer place, if this bill does not even make New Zealand fairer, and if letting the existing tax law just run would make New Zealand fairer, then, in terms of fairness criteria, in terms of making our society fairer, how could one possibly support the bill, because it does not make our country fairer?

I think the attitude was best exemplified when Sir Roger Douglas talked about beneficiaries. He said to put them to one side, because they get Government money. Somehow if people are beneficiaries and they get a benefit from the Government they can be put to one side. They do not have to be factored into making policy in this country, or they do not need to be factored into our democracy. If one is a beneficiary, one can just be put to one side because one does not have to be considered. I think that typifies ACT’s approach to ordinary New Zealanders.

I would also say, of course, that one of the things we would have liked to see fixed up by this bill was the Working for Families discrimination against beneficiaries. One of the problems with the previous Government was actually the discrimination against beneficiaries under the Working for Families package. It would have been great had National actually moved to fix that anomaly instead of adopting a more unfair scheme.

The other side of this bill is how we are to pay for the tax cuts. One way we will pay for them is by reducing incentives in research and development. That is not a good idea. The Green Party would like to see our research and development tax incentives targeted towards sustainability, rather than just in general, but none the less having tax incentives for research and development is a good idea.

The other way this bill proposes to fund the tax cuts is through reducing incentives towards savings. For a country with a chronic current account deficit, incentives to savings are critical, and reducing incentives to savings does not seem to make much sense to us. We do agree with the incoming Government that using some of the superannuation fund, and directing it more towards New Zealand where there are profitable ways to invest the superannuation fund money towards New Zealand, does make sense. There is also, I think, an interesting argument to be had: there is a question mark about whether it is a very wise thing to be doing at the moment, at a time of running big deficits where we are borrowing money from overseas, to be channelling borrowed money from overseas into the superannuation fund. I think we need to have that debate. We also agree with having a 2 percent entry level within KiwiSaver, but of course we also want to have the 4 percent.

Then there is the question of how we should pay for the tax cuts. Aside from what is in this bill about how it proposes to pay for the tax cuts by reducing incentives to get smart and reducing incentives to save, how should we pay for the tax cuts? That is where the Green Party supports ecological tax shifting. We think that, as it says in the briefing note to the bill, we should broaden the tax base. The briefing note to the bill states that we have to broaden the tax base and lower the rates. Well, there is no broadening of the tax base in this bill. A way to broaden the tax base is to introduce resource rentals such as a water levy, which would broaden the tax base and create incentives to actually use resources more efficiently, and to have a polluter-pays principle when it comes to greenhouse emissions, which would also broaden the tax base and create incentives to produce fewer greenhouse emissions. That would ease the pressure on the taxpayer, who, as the emissions trading scheme is watered down under this Government, will have to pick up more of the cost of the polluter.

The other option for broadening the tax base, which is seldom discussed in New Zealand is, of course, using a capital gains tax, excluding the primary family home. After all, why should capital gains—people who make gains out of capital—not be taxed but other sources of income are taxed? The Green Party would exclude the primary family home, but we think that is a way to broaden the tax base. If we are serious about broadening the tax base, and I think we should be, then we need to look at resource rentals, polluter pays, and some form of a capital gains tax. We also need to look at the question around ring-fencing losses on investment properties, which has been a major problem in our tax system over the last years.

In terms of macroeconomics, this policy is designed to be a stimulus policy, but it has major problems in it. It would be much better if we were to invest in sustainable infrastructure—that is, public transport, which would prepare us for the future of having to reduce our greenhouse gas emissions, and higher oil prices. It would be much better to invest in planting hillsides. We have a major problem of erosion in New Zealand. That would be a much better way to invest in terms of a stimulus package.

Our sewerage schemes are desperately in need of attention right around the country. I am going to Whangarei on Friday because their sewerage scheme up there is leaking into the harbour and that is not really very good for tourism in our country. To clean up our rivers and lakes would cost money. That would be a fantastic investment. It would create jobs.

I totally agree with the Government’s focus on broadband—not necessarily the way it is doing it, but I think investing in broadband clearly is critical to the future of New Zealand. Home insulation is an obvious thing to do if one wants a short-term stimulus package. I think it was Rod Oram who said on the radio that home insulation is something that can be ramped up very quickly. It employs people. One can use New Zealand products so one does not add to the trade deficit, and ultimately the current account deficit. And, of course, there are State houses, which have a high local content. By building more State houses, one actually has high local content so it does not add to the current account deficit or the trade deficit.

To focus on that kind of a stimulus package makes a lot more sense in terms of macroeconomic policy than going through this tax cut policy. In terms of the kinds of transition that the Green Party is looking for, which is a transition to a more sustainable and fairer New Zealand, it makes a lot of sense to actually invest in those kinds of projects.

There are a few positive aspects about this bill: the 2 percent that I talked about, and there are some other aspects on it. But overall this bill is not helping to make the transition towards a more sustainable and fairer Aotearoa New Zealand, and it is for that reason that the Green Party has opposed this bill and will continue to do so. We think, actually, it is a missed opportunity. There has been a lot of talk in the National Party about Bluegreens, and it is something the Green Party has been very interested in, because our view, and why we come to this place, is actually to get progress on our policy. We do not care, especially, that we do not have seats in the Government. What really matters is to make progress on policy. Were we able to convince National to actually embrace Green ideas, then that would be a good thing. We were encouraged when the Conservative Party in the United Kingdom seemed to be open to some Green ideas. We were encouraged by the talk about Bluegreens in New Zealand. But when it came down to it, in this bill that we are looking at today, where there was a real opportunity to do ecological tax shifting, and to have a stimulus tax package that would have sustainable infrastructure in it, and when this brand-new Government had an opportunity to think outside the blue box and think a bit about the green box, it completely failed, and we got a classic blue policy. We did not get anything green in this, nothing green at all.

So this was a missed opportunity from the point of view of the Greens for National to think a little bit outside its boundaries. I hope that over the next 3 years those in the National Government—and I know they do exist—who care about the future of our country and sustainability actually put some pressure on the leadership of National to think outside the blue box and think about how we make the Bluegreen thing real. But because this bill does not, as it stands, help a transition towards a more sustainable and fairer Aotearoa New Zealand, we will be voting against it.

JOHN BOSCAWEN (ACT) : Once again it is an honour and a privilege to speak in support of the Taxation (Urgent Measures and Annual Rates) Bill. One of the great challenges that confronts this country is the requirement to get our rate of productivity growth up. One of the key issues that was in the supply and confidence agreement between the ACT Party and the National Party was to set an aspiration to raise New Zealand’s living standards up to the level of Australia’s by 2025. That is some 16 years away, but that is no easy task, and it is likely to require increases in productivity of over 3 percent per annum. A key aspect of achieving those productivity gains is to have a taxation system that encourages hard work, thrift, and responsibility.

It has been very interesting to listen to this debate over the last couple of days, because the Hon Dr Cullen asked the question earlier today, why do people move to Australia? He quoted as an example the 9 percent superannuation contribution to employees’ superannuation savings by their employers. I put it to Dr Cullen that the reason people move to Australia is that the standard of living there is far superior to the standard of living in New Zealand.

Hon Dr Michael Cullen: Oh!

JOHN BOSCAWEN: I tell Dr Cullen that it is far superior to that here. The incomes in Australia are 25 percent or more higher than those in New Zealand, and one of the reasons that has contributed to that is that Government spending, under the last 9 years of the Labour Government here, has been in excess of the per capita inflation-adjusted base by over $18 billion—$1,000 per household per month; $12,000 per household per year. I tell Dr Cullen that that has resulted in the tax rates in New Zealand cutting in at the highest top marginal rate of 39c in the dollar.

Dr Cullen talked about the winners under this legislation being those on hundreds of thousands of dollars of income a year. My point to Dr Cullen is that the winners under this legislation are the 80 percent of New Zealanders who will be paying no more than 20 percent as their top marginal rate of tax from 1 April 2011.

• Debate interrupted.