Hon PETER DUNNE (Minister of Revenue) : I move, That the Income Tax Bill be now read a second time. This bill is the culmination of 15 years’ work to make income tax easier for taxpayers to understand and to comply with their tax obligations. Work began following recommendations by the Valabh committee in the early 1990s, which called for the—[Interruption]

The ASSISTANT SPEAKER (H V Ross Robertson): Courtesy is contagious, and we will all prosper if we give the speaker an opportunity to be heard.

Hon PETER DUNNE: Thank you, Mr Assistant Speaker. As I was saying, work began following the recommendations of the Valabh committee, which called for the Act to be progressively rewritten in plain language in order to make it more user-friendly. I acknowledge the early contribution of Arthur Valabh and his team to that process.

Because of the sheer size and complexity of this task, the project has been completed in four separate stages. The first stage was the reorganisation of the Income Tax Act 1976, which resulted in the enactment of the Income Tax Act 1994. The second stage focused on refining the structure of the Act and rewriting its core provisions. This was completed in 1996. The third stage, the rewrite of Parts C to E of the Act, was completed in 2004, and the bill currently before the House represents the fourth and final stage of the project. It contains the redraft of Parts F through to the end of the Act, including the schedules. It re-enacts and consolidates Parts A to E, and it renumbers various sections contained in those parts. Several small intended policy changes to the legislation are also included in the bill, but these have been subject to public consultation. Once enacted, the new Income Tax Act will apply to income derived from the 2008-09 income year.

I should say that the overall aim of the project is to make income tax legislation easier to understand so that users can apply the rules, generally without confusion. Where possible, the language has been made more concise, and archaic terms have been removed or replaced with more modern, contemporary language. In addition, some areas of the legislation have been consolidated to give greater clarity, while other changes in the bill aim to improve the overall structure of the Act. Although the changes to the language and the structure of the bill are significant, the overall intention of the Act and its meaning remains the same.

When the Finance and Expenditure Committee reported the bill back to the House it made several recommendations. Those recommendations were largely aimed at clarifying certain terms in order to avoid confusion and ensuring that the policy intent of the bill was retained throughout. I thank the select committee for its work on this magnum opus, for the fine effort it has done in coming to grips with the detail of the bill, and for bringing us a step closer to those recommendations of the Valabh committee, which now seem so many years ago.

This has been a massive undertaking for everyone involved. I congratulate all of those who have been involved in this project over the years. In particular, I single out Sir Ivor Richardson, the advisory panel, and the members of the rewrite team—the analysts, the drafters, and the technical reviewer—who have advised on, rewritten, and reviewed every section of the bill’s now 3,041 pages. Not only is this one of the largest bills to come before the New Zealand Parliament but also it is one of the most significant.

I think it is worth recording too that the completion of this project is another milestone for New Zealand. The Australian Government attempted a rewrite exercise. The complexity of the task meant that it gave up halfway through the process, and Australia now has effectively two income tax Acts. The British Government spent 9 years coming to the conclusion that such an exercise was too difficult and complex to carry out. I think it is a tribute to all those who have been involved in this process in New Zealand that a little over a decade after the commencement of the project we are now seeing it brought to a conclusion through its passage through the final stages of this bill. It is with great pleasure that I now commend the Income Tax Bill to the House.

Dr the Hon LOCKWOOD SMITH (National—Rodney) : As the Minister of Revenue has just said, this rewrite of the Income Tax Act that we now debate for a second time is a huge effort. It is interesting, though, that the Minister has said that this is the fourth and final stage of the project. I ask him whether it really is. If we look at the commentary on the bill—and I accept that the Minister was not on the Finance and Expenditure Committee, but I trust that he has been briefed on it—we see that a number of recent matters to do with income tax are not covered in the bill. In fact, the select committee in its report raised some questions about that.

For example, the select committee said in respect of the KiwiSaver Act of 2006 and the Taxation (Savings Investment and Miscellaneous Provisions) Act of 2006 that maybe those could be considered as part of this rewrite during the Committee of the whole House stage. I argued at the select committee that we could not do that unless there had been proper consultation with the private sector, and unless the rewrite advisory panel was involved in that consultation process. I do not know whether the House is aware of what has happened. What has happened? The Minister failed to mention anything about that. What has happened to the legislation that fell into the gap? This bill rewrites the old Income Tax Act. In the meantime, new income tax legislation has been enacted that is not included in this rewrite. The report from the select committee said that maybe some of that legislation could be included, and that the Committee of the whole House might consider doing that. What has happened? Are we to consider any of the intervening legislation as part of this process? I think that a Government member should make that clear.

What is more, if we look at the report from the select committee, we see that it says that one part of the Act is so darn complex that members are not sure how to rewrite it. I am referring to Part M of the Income Tax Act, which refers to the Government’s great Working for Families flagship policy. The report from the select committee actually states: “However, given the complexity of the policy underlying the Working for Families Tax Credits, and the difficulty of rewriting Part M in the rewrite style, we believe that any review of Part M to address these concerns should be undertaken separately.” So what is to happen in the tax legislation to Working for Families, which is a flagship area for this Labour Government but is not part of this rewrite process—what is meant to happen to it? Has Labour in fact realised that the policy is unsustainable and that one day it will have to be fixed up, and maybe then be incorporated in the legislation? I am staggered that this Labour Government allows the provisions of such a cruel policy as Working for Families to cripple the lives and hopes of low-income people. I will come back to that in one moment.

It is a huge paradox that at the very time when this Parliament is debating this rewrite and simplification of the Income Tax Act, the Government is enacting whole new layers of complexity. We have a bill in front of Parliament right now to introduce research and development tax credits. The select committee has just been hearing evidence in public about how complex it all is to try to define some of those things. It is adding layers of complexity to our Income Tax Act. Of course, that bill is not written in the style of this Income Tax Bill; it is not written in the modern rewrite style. Goodness knows when that legislation will be brought into line with this Income Tax Act rewrite. The paradox is that the Government continues to add huge layers of complexity.

The Opposition supports this rewrite. We started it, after all. As the Minister has acknowledged, in the early 1990s a National Government started this rewrite process, so we support it totally. It is just a shame that some of the huge effort that has gone into it has not been matched by an effort to reduce the tax burden that this Act confers on the people of New Zealand. Since Labour has been in office, the total tax take off New Zealanders has climbed from $32 billion a year to $52 billion a year. Those figures roll off the tongue easily, but $52 billion a year means that this Government, under this Act and other tax measures, is taking $1 billion a week off Kiwis—$1 billion a week.

Craig Foss: I’m working towards the day.

Dr the Hon LOCKWOOD SMITH: True, but we can rest assured that there will be a change of Government before then.

This Government is now taking $1 billion a week in tax off hard-working Kiwis. It is outrageous that the amount of tax taken off the average New Zealand worker has climbed so much. Compared with the time when this Labour Government came into office, each year $2,400 more tax is now being taken off the average Kiwi worker. I see Shane Jones yawning. He does not care about any that—none of the Government members do—yet Labour’s rhetoric is about caring for workers. The Labour members do not give a toss about how much tax hard-working workers have to pay. If they did give a toss, they would have done something about the huge increase in the amount of tax that ordinary Kiwis have to pay, just through the Government not altering the tax thresholds. Kiwis now pay a billion dollars a year in extra tax just because of that. When Labour introduced the 39c in the dollar tax rate—which is confirmed in this bill—it said that only 5 percent of Kiwis would pay it. Now we know, if we are to believe Treasury, that 14 percent of Kiwis now pay that top tax rate.

But even if the Labour members do not care about the massive increase in taxation it is taking off Kiwis, why do they not care about this issue? Why are they happy about what happens to a person—and often it is a woman—on the domestic purposes benefit, with a couple of children or, say, three children, who is trying to work her way off the domestic purposes benefit? Why has Labour done nothing to fix that problem? If a woman in that situation works 10 hours a week, she still receives most of her domestic purposes benefit. She receives almost all of it. In order to get off the domestic purposes benefit, if she is getting $15 an hour—not minimum pay; $15 an hour—she would have to work 30 hours a week. She would have to work 30 hours a week at $15 an hour. The cruel thing for low-income Kiwi families is that of that $15 an hour for all the extra 20 hours a week, that person would get to keep $1.63. The Government takes the rest. The Government taxes that hard-working, low-income family at a rate of 90c in the dollar, and that bunch has done nothing about that.

Labour’s flagship Working for Families policy did nothing to help those low-income Kiwis. It is cruel the way that those low-income people are trapped in poverty. Part M of this bill confirms all of that, and it is cruel. Women write to me about that. They tell me they have tried to get off the domestic purposes benefit, but they say they cannot. I can produce the letters for Shane, if he wants them. He does not believe me, but it is the truth that people cannot get off the benefit because of that crippling tax regime.

This morning the Minister of Finance made a big speech about taxation. I would like to quote from his speech to the Ernst and Young tax partners and managers. The Minister of Finance said this: “Early indications are that the cash surplus for the last financial year is likely to be higher than forecast at Budget time, reinforcing the fact that the government has not been fuelling inflation.” I bet that not one person in the audience this morning believed one word of that. Not one person in the audience would have believed a word of it. I have here a whole list of expert opinion on that fact from bodies such as the IMF, which has said that is not correct, and the OECD, which has also said that is not correct. I will quote more exactly. What did the IMF say? It endorsed the authority’s goal that fiscal policy should avoid complicating the task of monetary policy, but questioned whether the current stimulatory fiscal stance would effectively help it to achieve that goal. That was said by the IMF just a couple of months ago. The OECD, just a couple of months ago, said: “Notwithstanding a large fiscal surplus, strong growth in government spending is complicating the stabilisation task of the Reserve Bank.” That is what it said. The Reserve Bank confirms that. Everyone is pointing out to this Government that its tax and spending policies are crippling this economy.

R DOUG WOOLERTON (NZ First) : I start by congratulating the chairman of the Finance and Expenditure Committee on getting this bill through in a timely fashion. I congratulate and thank Sir Ivor Richardson and the advisers and the experts who helped us through this huge bunch of documents—four volumes—that was started way back, we understand, in Roger Douglas’ day, and in the early 1990s, according to Dr Lockwood Smith. That is a long, long time to spend on getting a piece of legislation rewritten and through the House. So I congratulate and thank all of those who helped us with those tasks.

I am sure people know that the select committee would not be wading through all that stuff on its own, and if they do not, I am here to tell them. I also congratulate them on putting it into more simple language. I suggest that it is still not that simple, but it is simpler. It is the language that is used today, not the language of another era. I also congratulate Mr Peter Dunne, the Minister of Revenue, and I suggest that his keeping the pressure on is what has got this thing through. That is yet another sign of an MMP Parliament working very, very well indeed. This bill is, I think, one of the biggest bills that has gone through any Parliament in the Commonwealth recently. It is simply massive.

In talking to the bill, I also want to address a couple of issues that were raised by Dr Lockwood Smith, and I hope members will be understanding when I do this. It is important that people know, when Dr Smith and the National Party are talking about massive increases in tax, that those increases are brought about by increased financial activity, by the increase in the take from GST—because people have had more money to spend—and because businesses have had higher turnovers. All of this stuff is in this bill, so obviously there is more money in the system and more revenue will be gathered. But it is also important to say that although the National Party members talk about cutting taxes, they voted against a tax cut recently. Personally, I could not believe it. In fact, the last time that the National Party gave anybody a tax cut was, I am told reliably, back in 1960. Yet it built a whole campaign in 2005 on tax cuts, and it has been talking about them ever since.

In fact, there have been tax cuts by this Government that the National Party voted against. Those tax cuts apply to the savings vehicles that KiwiSaver is going to invest money from the public in, and they relate to the overseas portfolio investment entities that are available to people on the sharemarket. In fact, there will be $3.5 billion in tax savings over the next 4 years. But it does not suit the National Party to vote for those tax cuts or to admit that they have happened, and it certainly does not suit National to say publicly that it voted against them.

New Zealand First is behind this bill absolutely, and will be voting for it through all the stages. It is a huge volume of work, and I am sure that the people who have been involved in it—the experts, the officials—will heave a sigh of relief. I hope that the chairman of the Finance and Expenditure Committee sees fit to buy them a magnum of champagne when this legislation finally gets through the House.

Craig Foss: One each.

R DOUG WOOLERTON: I tell Mr Foss that I think he should, and I am prepared to give him $5 to help with the cost of that, such is my thankfulness to the people who assisted us. I think that would be appropriate, because something like this is not seen very often in this Parliament. I just want to reinforce the magnitude of the task that has been completed here, and I look forward to supporting it through the House.

CHRIS TREMAIN (National—Napier) : I rise to speak to the second reading of the Income Tax Bill, with a premonition that the Committee stage could be somewhat arduous given the size of it. The re-drafting of the Income Tax Act 1976 was undertaken in four stages, commencing back in the early 1990s. Essentially it has been a reorganisation. The bill at this stage finalises that four-part process, and what we see here, I say for the benefit of the public, is a new Part F through to the end of the Act.

The objective of this piece of work was to simplify access to the tax legislation and make it clear and more easily understandable. The nation owes the officials who undertook this task a debt of gratitude—thank you very much. And to the chairman of the Finance and Expenditure Committee, I say well done for taking this piece of legislation through all its stages.

I pay a particular tribute to Sir Ivor Richardson and his team for their oversight of this particular piece of legislation. Submitters to the select committee agreed that it is, in fact, an improvement and National supports the bill on that basis. Although this bill is unlikely to find pride of place on the mantelpieces of most New Zealand families around the country, I know that there are many legal and accounting practices who are salivating over this new bill and the size of it. Can I say that the likes of Katrina Shanks to my left, an accountant, and the likes of friends in the Hawke’s Bay, Andrew Barley and Tony Mossman, are looking forward to taking this bill back to their bedrooms and considering it over the course of many nights of pleasant reading.

Unfortunately, what this rewrite does not cover are the changes that need to be made to the New Zealand tax system to make this country an efficient best-practice economy. It does not address the over-taxation of hard-working Kiwis, and it does not reduce the tax burden on hard-working Kiwis. The rewrite does record in hard copy, however, the performance of this Labour Government with regard to excessive taxation over nearly 8 arduous years. It also records the Government’s performance on income tax, and that is what I wish to cover today.

Back in its early stages this Labour Government set high and admirable goals, goals that many across the country bought into, one of which was getting New Zealand’s general wealth back into the top half of the OECD.

Craig Foss: That’s a distant memory.

CHRIS TREMAIN: It is a distant memory, as Mr Foss says. Eight years later we are no closer to this goal. In fact, we are two places further down the list. In layman’s terms our people are poorer than people who live in the countries we like to compare ourselves with. Our closest neighbour, Australia, has continued to pull away from us, with average incomes now some 35 percent higher on an average income basis. Let me say this again. This Government has failed in its goal to lift our country up into the top half of the OECD. We are now two places lower.

The last 8 years have been a wasted opportunity. We have had some of the best economic trading times of a generation, and this Government has wasted that opportunity. Our people are poorer than those of comparable nations, and we have continued to drop down that ladder. One of the key reasons for this is the philosophical opposition of this Government to ongoing and credible reductions in taxation for hard-working Kiwis.

Let us have a quick look at Labour’s record on income tax, as covered in this bill. Let us have a look at how an increasing tax burden has impacted on hard-working Kiwis. It started when Labour introduced the 39 percent tax rate. Dr Cullen said on 23 December 1999 that 95 percent of people would not be asked to pay more tax. He said that only the top 5 percent of income earners would pay more. That is what he said. But according to answers to recent questions to Dr Cullen in the House, the latest figures show that 10.6 percent of taxpayers are now in the top tax bracket—10.6 percent. Treasury’s Key Facts for Taxpayers suggests that 14 percent of taxpayers are now in that tax bracket. That is nowhere near the 5 percent Dr Cullen suggested.

On top of that, and far more important, actually, is the fact that virtually everyone is paying more tax because of bracket creep. So people on the 19.5 percent rate will have drifted into the 33 percent rate, and people on the 33 percent rate will have drifted into the 39 percent rate. Hard-working Kiwis have been driven, over that 8-year period, into much higher tax brackets. What does that bracket creep mean to hard-working Kiwis? In real terms, it means that our tax rates are increasing subtly every year as we are paid higher incomes. As a result, a person on the average wage now pays an extra $2,400 more in tax per year than they did in 2000—$2 ,400 more in income tax per annum. No wonder we are poorer on an average basis per nation in terms of take-home pay.

Our top tax rate kicks in at 1.4 times the average wage, so although Australia, for example, has a higher top personal tax rate, that tax rate kicks in at $180,000, not at $60,000. It is a huge difference. So, in a nutshell, Labour has collected significantly more tax over the last 6 to 8 years—$20 billion more—on the basis that it knows how best to spend taxpayers’ money. Despite some of the best economic times in a generation, Labour has delivered a failed result. New Zealand has fallen down the OECD ladder.

Despite this fall down the ladder, I am confident about the future of this nation. Dairy prices in this nation are now the highest they have been for many generations. We see now that the demand for protein in India and China is going through the roof, and opportunities are there for lamb and beef prices, particularly with biofuels and the consumption of grains. That will have a huge impact on sheep and beef farmers around this country, as the demand for pasture-bred lamb and beef goes through the roof. So I am very confident about the future of our nation, particularly for my constituents in Hawke’s Bay.

The question, though, with regard to income taxes, is whether we can trust this Labour Government to make the necessary changes to income tax policy in order to position our nation as a best-practice, benchmark economy where our businesses can launch themselves with the best possible chance of success in export markets.

Craig Foss: Such as Fisher and Paykel.

CHRIS TREMAIN: Yes, exactly. The answer is a resounding no, and this is why. The fact is that Michael Cullen is in no rush to change his strategy. My colleague Dr the Hon Lockwood Smith pointed that out after a speech Dr Cullen made today. Michael Cullen signalled his intention to have an election-year spend-up. And as my deputy leader said today, Michael Cullen and Labour are preparing for an unprecedented spend-up in election year. It is called “lolly-nomics”. Dr Cullen said today in his speech that: “Early indications are that the cash surplus for the last financial year is likely to be higher than forecast at Budget time.” Because Labour and Michael Cullen have so badly mismanaged the growth in our economy, Kiwi workers are continuing to be over-taxed so that Helen Clark can build up what she describes as an election kitty. An election kitty—that is what it is all about. It is not about supporting hard-working Kiwis and helping them; it is about building up Labour’s kitty.

Shane Jones: We’ve had too much growth!

CHRIS TREMAIN: I would be interested to hear some comments on that, I tell Mr Jones, in regard to where Labour plans to spend that kitty going forward.

Shane Jones: Kete.

CHRIS TREMAIN: Not kete; kitty.

Dr Cullen simply refuses to take any responsibility for his economic failings over the past 8 years. According to the Minister of Finance, high interest rates and the high inflation environment are everybody else’s fault except the Labour Government’s. According to him, the largest surplus has nothing to do with the Government plundering more money than it needs from people’s pockets. Dr Cullen knows that his decision to spend a record amount of taxpayer money in his last Budget will keep interest rates higher for longer.

The reality is that Labour does not trust New Zealanders to make decisions about their own money. Under a Labour Government Kiwis can expect higher tax for longer. Under a Labour Government they can expect further falls in their place in the OECD, and they can expect more “lolly-nomics”. It is time for new thinking and new philosophy on the taxation of hard-working Kiwis. It is time for a National Government—it is time for John Key.

SHANE JONES (Labour) : Tēnā tātou katoa. Firstly, let me start off by reminding our listeners out in Aotearoa that this is the Income Tax Bill. It is of enormous size, and it reflects a great endeavour on the part of the New Zealand Labour Government and New Zealand taxpayers—to simplify the text and language used—in terms of our tax code. We have excelled in what the British have failed to succeed at. We have excelled, in the sense that the Australians, despite unwanted visitors in recent times, have also failed to create a readable, lucid, and accessible set of tax statutes.

I would like to join with the member from the Hawke’s Bay region Chris Tremain and the Minister in charge of the bill, the Hon Peter Dunne, and identify Therese Turner, an independent adviser to the Finance and Expenditure Committee, and Sir Ivor Richardson, who as a jurist in tax matters is peerless in the history of the judicial community in our country. However, I should also turn with some special mention to members of the Inland Revenue Department’s policy team, and its drafting team. A more wearying, possibly unrewarding, and obscure task than rewriting tax legislation is difficult to imagine, but I am sure that I speak on behalf of all of the committee when I thank them for a job well done, and I look forward to being able to take up Mr Woolerton’s challenge and share a little social conviviality with them.

Now I come to Dr Lockwood Smith. Dr Lockwood Smith is a fellow Northlander. He comes from Kaipara, and, after having heard his speech, I am reminded of the English meaning of the word “Kaipara”. It means “to consume offal”. The man has left not one single useful redeeming contribution on the matter of tax this afternoon. He demonstrates why renewal is on its way to the National side of the House. He also shows why the member from Hawke’s Bay Chris Tremain—although he unwisely raised the prospect of knowing something about China, which caused this side of the House to ponder whether it was a Peking duck, but no, it was a rooster, pecking away at a Granny Smith apple—and his colleague Craig Foss, two youngish but very ambitious members of the Finance and Expenditure Committee, will soon replace my fellow Northlander Dr Lockwood Smith. Actually, there are two Hon Dr Lockwood Smiths: one does have a contribution to make because of experience in running farms and his interest in tax; the other Dr Lockwood Smith, because this is not a pharmaceutical bill, has no contribution to make whatsoever.

However, let me come back to the legislation. It needs to be reinforced that clarity was an issue that submitters challenged us to improve upon. Yes, lawyers and accountants up and down the country earn their keep from the likes of a number of members in this House in terms of enterprises, in terms of high-quality advice, and from families up and down the country. But the challenge was to create text that the average Kiwi—God forbid that he or she would want to look at it on a Friday night—would have something accessible in terms of not only what his or her obligations are but perhaps how his or her enterprises might be structured in the best possible way. So the rewriting exercise has taken a long time. Yes, there were some elements that have not been fully captured.

The KiwiSaver legislation is having the impact of a rainbow on the whole nation. It represents a sprinkling of opportunity and investment well into the future. I am sure that complex language was needed to capture the transitional measures from the failed savings policies of the Bolger time and the Ruth Richardson time—policies, of course, that are not fully repudiated by the current National members. We have to move on from that failed era into our era, where the KiwiSaver contributions to the savings challenge we have can be simplified in terms of language. I am sure that in good time the architects of the text will address that.

In addition to that, we have heard some very foolish and almost envious statements, really, from the seasoned parliamentarian from Kaipara, Dr Lockwood Smith, about the Working for Families package. Underlying what he is saying is the realisation of those members opposite that they have been outmanoeuvred. They cannot create a compelling argument as to why they can get away with ditching the scheme. So of course they engage in these flights of fantasy and segue into obscure irrelevant discussions as to whether it has been accurately described.

The key question, as I round up and applaud the work that has gone into this text revision exercise to simplify tax legislation, is whether members from the National side of the House will have a single idea they are willing to defend and sell, because they know the issue is not the nature of the text; it is the content and the impact of the legislation. They have voted against our tax policy. They have no ideas that they are willing to meet us with on the street corner, in the halls, or even in this Chamber, because they quietly, and I think mischievously, think they can sleepwalk to victory without having to put the case before the nation. That will not happen, because we are in MMP politics, and they have no friends; we have friends from the community to the commercial world. Kia ora tātou katoa.

HONE HARAWIRA (Māori Party—Te Tai Tokerau) : Tēnā koe, Mr Assistant Speaker. Tēnā tātou katoa. In considering policy, the Māori Party always likes to give consideration to the view that everything has a whakapapa, a genealogy, including this Income Tax Bill. Perhaps we might want to consider this bill’s parentage, and even consider the possibility of doing something to reduce the retard factor brought about by too much inbreeding between Labour and National by introducing some strong, fresh, positive new genes from the mighty Māori Party.

The major question I have been asking myself while reading every single page of this 2,700-page bill is: why does income tax legislation have to be so goddamn complicated? This is where the history of this bill becomes so interesting, because the bill’s purpose states that the key aim of the rewrite project is to reduce compliance costs by producing tax legislation that is clear, uses plain language, and is structurally consistent. It says that clear legislation makes an important contribution to increasing voluntary compliance with tax laws, because it makes it easier for readers to identify and observe their income tax obligations. That is all well and good, but we could shorten that by saying that the bill’s purpose is: “Making the law clear so that people will hopefully pay their taxes.”

I tell you, Mr Assistant Speaker, that tax clarity is hardly a topic of hot discussion in my electorate, let alone the complex jungle of new terms that this bill uses to try to make it so-called easier to understand. Let us take family support, for example. When my wife and I were bringing up our kids back in the 1970s and 1980s, we could get the family support and/or the guaranteed minimum family income. There were two different terms for two different sorts of payments. Now my kids are having children and are confronted with a barrage of terms, all of them in this bill. These terms include family scheme, tax credit, child tax credit, family assistance credit, family plus family credit abatement, in-work payment, family support, family tax credit, parental tax credit, social assistance payment, and family scheme income. All these terms mean completely different things. The three most well-known are probably family support, family tax credit, and in-work payment. But this bill has changed them all again. Family support becomes family tax credit, family tax credit becomes minimum family tax credit, and in-work payment becomes in-work tax credit. So having gone from two payment types to 11, we now find that some of them have been reworded. The Government talks about people getting off benefits, but people have simply lost touch with which benefits they are supposed to be eligible for, and are not getting them any more. I remind the House that the purpose of the rewrite project was to make the legislation clear. Imagine how bad it would be if the purpose had been to make it complex!

I would like to take a look at the in-work payment, as yet another example of Labour’s “Tale of Two Ditties”. One of the ditties that Labour likes to warble on about is how it promotes fairness for all. But last night Labour was pushing for a provision that is a contradiction of that, in supporting a blatant discrimination in the “Young Slave Rates Bill” that will see young workers get only 80c to every $1 for adult workers.

Again, in contradiction to its claim of fairness for all, Labour has just introduced a Working for Families package that clearly discriminates against those families most in need. In fact, this particular matter made me think about something, so I went back and looked at Charles Dickens’ ATale of Two Cities, where he says: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness … it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way.” That is exactly what this Income Tax Bill reminds me of. The Labour Government crows about helping to eliminate child poverty in the world, yet in its own backyard it has withheld just under $3 billion from the nation’s poorest children by a deliberate discrimination in the form of the in-work payment.

I note that despite Labour protesting when it was in Opposition against National’s version of the child tax credit—the first policy to discriminate directly against the children of beneficiaries—and despite promising that it would change the policy when it became the Government, it took Labour 6 years before it actually introduced Working for Families. Then, to add insult to injury, Labour chose not to extend the child tax credit to children of beneficiaries. Instead it selected only “worthy families” to qualify for the in-work tax credit.

That means that for the 250,000 children discriminated against by Labour’s “Ditty of Depravation” this is, indeed, the worst of times, the age of foolishness, and the long winter of despair. It seems patently clear that the point of discrimination in the Working for Families package is to punish the unworthy poor—those who would dare to be on benefits and accident compensation. But the pain is all for the children. It would cost only $450 million to extend the in-work payment to the parents of beneficiary children, but instead, that money stolen from the poorest homes is propping up this Government’s coffers as surplus, and is now being re-routed to those individuals who can afford to participate in KiwiSaver.

The Government calls this “justifiable discrimination”—get that! Ripping-off the poor is now called justifiable discrimination. The Child Poverty Action Group says that passing laws that impact negatively on the health and well-being of children can never be considered justifiable. It points out that the income tax provisions that mean that some people will not get the in-work payment because they are on a benefit are the basis of the group’s discrimination case against the Attorney-General, which charges that such discrimination is directly in breach of the Human Rights Act and the New Zealand Bill of Rights Act.

The Māori Party believes that the fruit of economic growth should mean a more equitable distribution of wealth, through wages and benefits. We want to raise the standard of living of all individuals in Aotearoa, especially those on low incomes. We support the idea that New Zealand should maintain and raise its international competitiveness, as long as it is measured against a reliable genuine progress index. We also want tax reductions driven by improved efficiencies in the public sector. We want to ensure that tax revenues and Government expenditure result in acceptable surpluses. We want our nation’s focus to be on redistribution of wealth, so that everybody has enough income to participate fully in his or her community and in society. We want legislation that reflects the best of times, the age of wisdom, and the spring of hope. This Income Tax Bill clearly does not reflect that philosophy, so the Māori Party will be voting against it. Tēnā koe.

CRAIG FOSS (National—Tukituki) : The Income Tax Bill has been at least 10 years in the making, and today we are debating its second reading. After 10 years of formulation, I find it a bit amusing that the commentary on the bill states that some issues were not addressed because of “time constraints”. The Rewrite Advisory Panel has done a fantastic job, and I join previous speakers in congratulating and thanking all concerned. I would particularly like to thank the Minister of Revenue, Peter Dunne, who, in many areas, provides a balance to the more socialistic tendencies of the current Minister of Finance. I thank him again for the way this bill has been put through, with generally all-party agreement. I would particularly like to thank the Rt Hon Sir Ivor Richardson, our expert adviser Ms Therese Turner, and officials, some of whom are here today. I thank them again and put on the record my comments on the intellectual “grunt”, if you like, of the people who sit around our committee, in particular; the Finance and Expenditure Committee would be pretty lost without them, and I thank them.

This bill is 3,331 pages long. I think it is backed by all parties. I would be interested to see whether the Greens back this bill, not because of the tax implications but because of the sheer number of trees that have been ripped down to produce it. But the legislation gets rid of a whole lot of other bills, so I do not know which way the Greens have gone—I look forward to the answer on that one.

Nandor Tanczos: So we need a virtual Parliament!

CRAIG FOSS: We almost do, actually. I am also interested in what the previous speaker, Hone Harawira, from the Māori Party, said. That he was pretty much looking for a flat and transparent tax rate is how I interpreted much of what he was saying.

I would like to contrast the consultation process that this bill has gone through with what is currently going on. The Rt Hon Sir Ivor Richardson commented about the tax policy accord of 1992, where all major fundamental changes to tax policy were put out there, consulted on, and various papers were produced. Yes, that process took a long time, but there was buy-in from the public, from various stakeholders, and there was pretty much a seamless transition. I contrast that process with what we have had recently. Much of the legislation has been rushed, and those are not just my words; those words were expressed at the Finance and Expenditure Committee yesterday by many submitters. There has been no consultation, the drafting of bills has been rushed and ill-thought-out, and companies, businesses, and stakeholders have been ambushed.

One of the largest organisations representing businesses in New Zealand put out a very, very hard press release yesterday stating that various tax policies have ambushed businesses in New Zealand. I point out that that has happened not just to businesses but to New Zealand as a whole. Some of the bills that have been pushed through include those relating to KiwiSaver and the specified superannuation contribution withholding tax, which was announced and pushed through this House under urgency.

Members opposite constantly talk about consultation and democracy, etc. I ask members to look at the Electoral Finance Act to find an example of where the Government thinks things should go. With the legislation relating to the specified superannuation contribution withholding tax, a huge and fundamental change was pushed through under urgency. The mortgage diversion scheme associated with the KiwiSaver Bill was pushed through under urgency. Changes to the fair dividend rate regime were whipped out there—a pretend consultation—so a fundamental change to our tax framework was rushed through. What do we have today? We have endless Supplementary Order Papers, endless amendments, endless clarifications, and various bills coming through to try to fix the initial KiwiSaver legislation, the fair dividend rate legislation, and other legislation that has been affected by the fair dividend rate and portfolio investment entity regimes, etc.

I would also like to contrast the way in which this bill has come about, with Dr Cullen essentially breaking the superannuation accord. He has tried to confuse changes to the KiwiSaver legislation in order to dilute and dirty what is a solid cross-party accord that superannuation—“65 at 65”—is here to stay. In fact, under the current agreement 66 percent of the average wage will be available at age 65. It will be interesting to see what happens with that in the lead-up to the next election.

I will give members some staggering, staggering numbers relating to the Income Tax Bill. There has been a $20 billion increase in tax revenue since this Labour Government came in, in 1999. That is $20 billion. The Government is now taking in over $52 billion per annum—$1 billion per week. That figure was $32 billion when the current regime came in. It is hard to translate those figures, because they are up there in the galaxy somewhere, but members can think of it in this way: $384 million extra is taken out from this economy in the form of tax every week—that is $384 million. Members should think about the waiting lists, the schools, and the infrastructure. It is absolutely crazy, because the Government cannot even spend it all. It is running such a large surplus, and Dr Cullen is all over the place trying to explain it.

Combined with that problem, we have fiscal drag. Fiscal drag is when inflation drags people’s wages up into higher tax brackets. Well, fiscal drag accounts for about $1 billion extra every year. That is $1 billion due just to inflation and extra income tax per annum. It is no wonder that normal, ordinary, working Kiwis are having to go into debt. It is no wonder that Kiwis are having to eat into the equity of their own houses.

Dr Cullen is blaming everyone but himself for the current corner he has painted himself into. It is a pretty simple equation. The Government overtaxes and overspends, but it spends on the same amount of stuff that it used to, so there is unproductive spend that turns into inflation, interest rates go up, wages go up, inflation goes up, GST goes up—because everything is more expensive—and the tax take goes up. And so the cycle continues. Dr Cullen knows this. In fact, in recent Cabinet papers produced prior to the delivery of recent Budgets, he actually warned his colleagues against asking for extra spend, because extra spend—he did not even mention the words “productive spend”—would create higher interest rates for longer. That is exactly what we have now. Dr Cullen warned his colleagues about that and went on to spend about $4 billion more over the coming cycle.

There is a further whack that the poor New Zealand worker has to face. Not only has the tax take gone up by $20 billion per annum but interest rates are pretty much double what they were when the current Minister of Finance came in. The figures are now in double digits. So not only is tax whacked off people’s gross salary but also they are dragged into a higher tax bracket because of inflation and their residual income, so suddenly they are paying 4.5 or 5 percent—

Hon David Cunliffe: I raise a point of order, Mr Speaker. I seek the leave of the House for the member to repeat the point that he made. If I heard correctly, he said that interest rates were now double that—

The ASSISTANT SPEAKER (H V Ross Robertson): That is not a point of order.

CRAIG FOSS: I am happy to clarify that. The official cash rate equivalent when Dr Cullen became Minister of Finance was at about 4.5 percent; it is now 8.25 percent. That figure, for members’ information, has almost doubled. That reflects in a near doubling of floating mortgage interest rates. In fact, the Bank of New Zealand calculated that $3 billion would be paid in extra interest payments in 2008, and that was paid in 2006. So that is Dr Cullen’s mortgage levy, which has arrived thick and fast at the doorstep of New Zealand mortgage payers.

I would like to address the way in which Dr Cullen is running the country. It is a bit like the lawnmower guy. A guy comes around and says he will mow a person’s lawn for him or her, and that he will do so every fortnight. Then, a couple of weeks later, he comes around again and says that the person’s lawn needs a bit of fertiliser. So the person buys some fertiliser and pays the same guy to put some fertiliser on the lawn, which he is mowing every fortnight. The lawns go so well that he comes back to the person and says that he now needs to mow the lawn every week, that the person basically needs to pay twice as much, and that he still needs to fertilise the lawn every week to keep it growing. Dr Cullen is spreading a lot of fertiliser around the lawns of New Zealand. Dr Cullen has painted himself into a corner, with higher interest rates, the higher currency, and the high rates of persistent core inflation, which he is mostly a part of. The public is starting to make its judgment on him, and it is not good.

NANDOR TANCZOS (Green) : I rise to speak on the second reading of the Income Tax Bill, and to say simply that the Green Party supports this bill. We think that it is a good initiative, for what it is worth. The attempt to simplify tax legislation and to make it more accessible is something that should be commended, for all the various reasons members have already stated.

However, I also have to say that like the Māori Party and the National Party, we think it is a shame that the effort that went into this is not reflected in any effort to address the broader issues, although there is some disagreement about what those broader issues might be. In particular, of course, the thing that interests the Green Party is opportunity for ecological tax reform. I recognise that that was not the brief of this project. Nevertheless, I cannot avoid asking why the Government consistently refuses to take up opportunities to address questions of tax shifting—that is, ecological tax reform. It was avoided in the business tax review; it was avoided, of course, in this rewrite.

The Government position has been basically dismissive of the idea of ecological tax reform. What do I mean by that? I will dwell on this for a couple of moments. I give thanks to Dr Suzi Kerr at the Motu Economic and Public Policy Research Unit for her 2001 paper on ecological tax reform, because she has put the ideas out fairly clearly. I will draw on her work, and the work of some other people as well.

First of all, I think we have to recognise that taxes on labour income, and on capital, cause inefficient distortions in behaviour. Nevertheless we accept that, in order to address broader social, environmental, and other goals. However, if the Government can raise money with no additional distortion—for example, by using eco taxes to address environmental problems rather than using other non-revenue raising forms of environmental regulation—we can achieve significant efficiency gains. The revenue raised can be used to decrease other forms of taxation or to reduce Government debt. The Green policy has been consistent on this over a number of years—that we are about shifting taxation, not about increasing it, by way of ecological tax reform.

If we can reduce labour taxes without reducing the overall amount the Government has available to spend, the economy as a whole will benefit. It is worth noting that even unlikely supporters, such as the UK shadow Chancellor and The Economist magazine, have become advocates for ecological tax reform. The Greens have long been supporters of fiscally neutral ecological tax shifting from incomes on to pollution and resource use. We are very pleased to see those ideas being picked up by more conservative elements.

Ecological taxes are pigovian taxes aimed at addressing an externality that causes inefficiency in the form of too much pollution. Under current tax law, those responsible for pollution do not have to take responsibility for the social and environmental costs that they impose. So we need a system that rewards behaviour that looks after the environment, and disincentivises behaviour that destroys the environment. If a tax is set appropriately, so that the marginal cost of reducing the pollution is equal to the marginal environmental benefit, it will equalise the marginal costs of abatement across all actors, and it can achieve the environmental goal of reduced pollution at the least cost. Eco taxes simply price the environmental damage in the same way that other inputs to production and distribution are priced, leading to efficient use of that input.

That is why the Green Party supports things like lower registration fees for cars that are fuel efficient, and higher registration fees for cars that use more fuel. That is why my Waste Minimisation Bill, currently before the Local Government and Environment Committee, puts a levy on waste going to landfill; the levy can then be used to fund waste minimisation efforts. As the New Zealand Business Council for Sustainable Development has stated, in support of at least elements of that bill, a waste levy is simply about internalising externalities.

The cost created by this approach is the lowest possible cost of achieving environmental gain, assuming there are no problems with people having information about abatement opportunities or access to capital to implement that. We recognise that it is not a perfect world and that those issues do arise. Nevertheless, any other regulatory programme will have at least as great a cost, on average, in order to reduce the same amount of emissions, although some goods may face higher costs and some may face lower costs. But that is part of the reality of pricing externalities.

We welcome the support of TheEconomist magazine for these kinds of ideas. It has now come out and said that countries should adopt a carbon charge, because that is one of the most efficient and stable ways of putting a price on carbon emissions. Dr Kerr in her paper states that in the case of carbon taxes in the United States, using the revenue from carbon regulation to cut other taxes is estimated to reduce the cost of the regulations by two-thirds. We also welcome the comments of the UK shadow Chancellor, George Osborne, that we need to move tax on to environmentally damaging behaviour and off incomes. That is exactly the point that the Green Party has been trying to make for many, many years. It is about tax shifting in order to internalise externalities, and to address the reality that we are starting to reach the environmental limits of human activity. We have to start to not just tinker around the edges with environmental policy but to put ecological issues at the centre of economic life. And ecological tax reform is certainly one key way, if not the only way, of doing that.

We support this bill. We recognise that it is not intended to be a review of tax law but a codification and clarification. That is important, and we support that. However, we do ask the Government, please, to stop running from this issue. The time to start to address issues of ecological tax reform is now.

• Bill read a second time.