Dr the Hon LOCKWOOD SMITH (National—Rodney) : During the debate last night, National members raised concerns about this tax cut legislation, the cynicism of it bringing in cuts just 2 weeks before what we now presume will be the election, and the lack of real help to families when an average person gets only $16 a week, which is only the price of a family block of cheese. But with Dr Cullen being the Minister in the chair, I would like to take the opportunity to focus on the particular issues in Part 1, which is the part we are now debating. The danger with putting legislation on tax through all stages in the way we are doing is the risk of error, and I think we need to examine this bill to make sure we understand exactly what it is doing. Because it is amending some quite complex parts of our tax law, we need to understand it.

The point I would like to raise first with the Minister relates to what he said in his speech yesterday when he said that the legislation—or the Budget and this legislation—will be a bringing forward of indexation of Working for Families and a forecast second round of such indexation. I would like to check with the Minister exactly what he is indexing in this legislation, because, as I understand it, Part 1 handles those issues. If we look at the clauses in Part 1, we see that the particular clauses that affect both the personal income tax schedules and the Working for Families payments are clause 5 in the case of Working for Families, and clause 7 in the case of the income tax schedules.

Clause 5 makes amendments to section MD 3 of the Income Tax Act 2007. Section MD 3 in the Income Tax Act covers family support. It seems to make sense that the changes to section MD 3(4) spelt out in clause 5 appear to be consistent with what the Minister has said, and if we look at subclauses (1) and (2), we see that the changes there would apply to this indexation and the one that the Minister has forecast will come ahead. Then we see that clause 6 indexes the abatement threshold and amends section MD 13. If we look at the principal Act, we see that section MD 13 appears to be doing what the Minister says.

While we have the Minister in the chair, I would like to ask him whether this Budget policy indexes all the Working for Families payments, because he gave the impression in the Budget that all Working for Families payments would be indexed. So I ask him which clause indexes the issues covered in section MD 4, because section MD 4, of course, covers the in-work payments provisions. It is a crucial part of Working for Families. In fact, it has been the flagship part of the Government’s Working for Families policy. The Government claims that the in-work payments section is where the incentive is provided for people to get into work. I might be missing something here, but as I scan the provisions in Part 1 and look at the various clauses, I cannot see where the matters covered in section MD 4 are indexed, yet they are very crucial parts of the system.

If we look at not just section MD 4 itself but the whole group of MD sections—section MD 4 through to section MD 10—we see that section MD 10, for example, in the principal Act has some figures actually spelt out, so it is not as if they are percentages that automatically adjust or abatement rates that automatically adjust; it has some actual figures. I would appreciate the Minister’s advice as to where the amendments for indexation to the figures spelt out in section MD 10(3) are covered in the bill, because I just cannot see them.

I imagine the Minister would have tried to be accurate in his Budget speech. If they were not meant to be amended by the legislation, I am sure he would have told us which bits of the Working for Families tax package the Government plans to index. I am sure the Minister would have wanted to be very straightforward with this and not indicate that the whole package was being indexed if in fact parts of Working for Families were not being indexed.

I stress that I could well be missing something in the legislation here, but I just cannot see where the actual payments that are a crucial part of Working for Families covered in the principal Act in section MD 10(3) are amended in the bill.

Hon Dr MICHAEL CULLEN (Minister of Finance) : After 5½ years of the National Party saying that tax cuts are the only important thing in life, the only thing it can find to criticise in this bill is something that was in the original legislation—that is, the in-work payment is reviewed on a regular basis, not automatically indexed. That was in the original legislation.

Dr the Hon Lockwood Smith: Why didn’t you tell us?

Hon Dr MICHAEL CULLEN: Because it is in the original legislation. This is no change. It has always been there, and it is required to be reviewed by the end of June this year. This is all National members opposite can find to criticise.

I want to tell the Committee that this morning the leader of the National Party has finally told us what National’s tax policy is. It is that National does not have one. He said that National had always had one, but actually it was still developing it, that actually it had not got it yet, and that it would not be announced until 4 weeks out from the election. Then he told us two other things. He told us that Working for Families would not change—not at all. He said that it was structured badly but that it would not change under a National Government. Then he said that a National Government would have bigger tax cuts but they would not necessarily be more expensive. Those who got through arithmetic at school should try that one on for size: National would have bigger tax cuts but they would not be more expensive! You know, loose lips sink ships, and that ship is starting to look very, very dodgy, with a pair of loose lips out there that cannot stick to a single line. But best of all, on Radio New Zealand National this morning Mr John Key announced that tax cuts are not the only thing that matter in life. Having said yesterday: “I believe in tax cuts.”, he said today: “Actually it’s not very important. A lot of other things are important.” Then he told us, in terms of the offset for increased tax cuts, that Government spending is nice but that sometimes it is a luxury. A luxury for whom? Is it a luxury for those who depend on the support in the education and health systems?

We are going to see a National Party programme that depends upon cutting social spending to fund smaller tax cuts for those on low incomes, because Mr Key did not commit himself to the second and third stages of this programme. He said that what happens on 1 October will not be changed, but then he said: “We won’t commit to what happens after 1 October.” That is code for cutting the tax cuts for those on low incomes to increase the tax cuts for those on big incomes. That is how we can have bigger tax cuts that do not cost more money, because those tax cuts are redistributed upwards.

That is why Dr Lockwood Smith, a man who spends a lot of his life thinking deeply—it shows on his brow, which is furrowed so deeply with that deep thinking—can find only one thing in this bill to criticise: that is, it does not change the existing legislation, which does not provide for indexation for the in-work tax payment. It provides for a regular review of the in-work tax payment. The family tax credits and the abatement threshold are subject to automatic, statutory-based indexation. This part brings forward that indexation from 1 April next year to 1 October this year so that families in New Zealand will get some compensation for the increase in food prices and fuel prices.

If the National Party really thinks this is all bad, then its members should vote against it. They should vote against this bill, but of course they do not have the bottle to do that, so they will vote for it.

GERRY BROWNLEE (National—Ilam) : How many people in the Chamber heard the news commentators this morning talking about some of the email traffic they have had through their wires concerning the Budget? Some of the questions raised in those emails may well be answered if Dr Cullen can answer some questions about Part 1.

The email that struck me most poignantly was the one from some fellow who said: “Thanks, mum. You’ve abused me for 9 years, and now when I’m just about to leave home you want to give me a lollipop.” That encapsulates the whole deal, does it not? We seem to be in some sort of parallel universe this morning, where everything is somehow, for Labour at least, switching round the other way. After 9 years of Dr Cullen not being able to give tax relief to working New Zealanders, suddenly he is challenging the National Party as to why we do not want to give them bigger tax cuts. He has got it all wrong. We do. That is exactly why we are voting for his legislation today. New Zealanders should consider it a down payment. It is just a start. At a later point in the year, in our time, not in his time and not in anyone else’s time, we will make our intention exactly clear.

I think it is extraordinary that Labour, after spending years and years talking about the social wage, if you like, the Working for Families programme—how it was a great benefit from the Government that topped up the needs of New Zealand families—is suddenly repackaging it as years and years of tax cuts. I say to Dr Cullen that it does not work like that, because people know that only those with families are affected by that package; many, many people are not. Although we do want families in this country to do better, to have more in their pockets, National sees another reason to vote for this legislation.

Hon Dr Michael Cullen: You’re against it but for it.

GERRY BROWNLEE: Dr Cullen says: “So you were against it before.” The interesting thing is that in 9 years we have never seen a bill like this on the floor of the House—not once. [Interruption] They are at it again. The paint strippers in the back row are screaming out “What about Working for Families?”. Well, Working for Families is not a tax cut. That those members have the kind of mentality that allows them to scream out “What about Working for Families? It’s a tax cut.” shows how far out of touch the current Government is with working New Zealanders. The No. 1 point is that all the money that the Government dishes out belongs to the people. Those members have gone quiet. This is a revelation. All that the Government is actually doing with this tax cut is saying: “We’re not going to stick our hand as far into your pocket as we would like.” [Interruption] Listen to them! Tax money apparently grows on trees. I cannot believe that sort of mentality. All the money the Government gets belongs to the people. The only thing we can say about these tax cuts is that the Government is going to take less of their money. Somehow, Labour members are saying that that is a virtuous thing, that the Government is marvellous. There have been 9 years of their going deep in there, 9 years of their feathering all sorts of programmes that have had little effect on New Zealanders’ lives, and they are suddenly saying they are going to take a little bit less, and are wondering why people are not more grateful. That is the subtext of it all.

It has to be cruel luck that a Government, after 9 years in office, offers tax cuts that New Zealanders have been wanting for all of that time, and suddenly it is knocked off the first 15 minutes of the news by the complete failure of our system to protect children in this country. I do not think New Zealanders will miss the point. All they want to say about Working for Families is that a lot of families are under stress, and that is why—[Interruption] It is all connected. The fact is that in 2007 there was an extraordinary number of child murders, and last night we saw the effect from families that do not have a lot of purpose. One of the interesting things is that this Budget has not lifted the spirits of New Zealanders one little bit.

Hon Dr MICHAEL CULLEN (Minister of Finance) : I am loving this! Now we have learnt why National members voted against Working for Families: because it was not a tax cut, they say! Although it put more money into people’s pockets, they voted against it because it was not a tax cut. Now we can see the National Party mentality. It is a kind of Animal Farm mentality: tax cuts, good; bigger tax cuts, better; putting money into people’s pockets, bad. Working for Families equals tax credits for those in employment. In any case, even if it did not, why would the National Party have voted against it, when Mr Brownlee now tries to claim that it is actually a good idea for families to be helped? Indeed, National is voting for it this morning—but voted against it previously.

We also learnt from that speech and from the speech made by Mr Key on Morning Report why the National Party manages to have both Gerry Brownlee and Lindsay Tisch in the same caucus. The tax cuts are both too big and too small, simultaneously—that is what the National members say. The tax cuts are both Gerry Brownlee and Lindsay Tisch, simultaneously. They are so big that I heard previously we might have to borrow, but they are so small that they do not make any difference. The National Party will have bigger tax cuts, but they will cost less money and it will not have to do anything. This is wonderful! The National Party has spent 9 years in Opposition, and it can still come out with that kind of rubbish and expect people to vote for it.

Mr Brownlee clearly did not hear Mr Key on Morning Report this morning. He said that tax cuts are not very important any longer—because Labour has introduced tax cuts, they are no longer as important as other things—but National will be announcing a big tax cut programme. He says it will not cost any more money—or it might; we do not know. It will be 4 weeks before the election, and by then we would have had a pre-election fiscal update; I will be interested to see then whether the National Party believes that it can afford larger tax cuts without large-scale borrowing or without cutting social services. And National will not cut social services, but Government spending is sometimes a luxury, says Mr Key on the front page of the New Zealand Herald.

That party thinks that it will go into a coalition agreement with Mr Peters, that, as part of that coalition agreement, Mr Peters will be Minister of Foreign Affairs, and that it will cut Vote Foreign Affairs and Trade. Well, if National thinks that, it had better think again. I can tell National members that it does not work like that, and it will not work like that for them. It is no good National picking on the poor old Ministry of Foreign Affairs and Trade people on the cocktail circuit; it will have to find social services to cut. [Interruption] That is right. Mr Hayes agrees. Yes, indeed, because that is where the big spending is.

Mr Key said that National might find $500 million over 3 years by slashing the bureaucracy. Well, $500 million will not add up to anything much by way of tax cuts. It will not deliver large tax cuts to the people earning over $60,000 a year. That “dinky” couple on the radio this morning who are renting in Remuera and finding it hard to make ends meet could move to Glen Eden. It is cheaper out there. It is where my sister lives. They could move there. They would get a cut in their rent there. They are finding it hard. They are saying that two tax cuts of $110 a week will not make much difference to them. I can tell them that it will make a hell of a lot of difference to the people living in Ōtara, in Glen Eden, in South Dunedin, and in Pirimai, in Napier. National is saying that it will give smaller tax cuts to those people, it will claw back stages two and three from those people, in order to give more money to the people who already have a great deal more. That is called helping families in the National Party guise.

Labour will fight an election on those grounds, with the greatest of joy. We know, and National members know from reading the front page of the newspaper, that I have not merely stolen their fox but eviscerated it, strangled it, and thrown it back into their back garden, and they do not know what to do about it at that particular point. They do not know where to go, and they are praying that something will turn up between now and 4 weeks out from the election. I say “Good luck!”.

Dr WAYNE MAPP (National—North Shore) : Well, I guess it was very disappointing for Dr Cullen to find out last night that National is actually voting for this tax cut. That is the truth. He said: “Of course National’s going to roll it back.” Why would we do that? I tell Dr Cullen that we are actually voting for it. So Dr Cullen will not be able to run that line out on the hustings any time soon, because we have shown that his game is up. It is just a down payment.

Do members know that Dr Cullen and, indeed, the Prime Minister went around the last few days saying: “Of course National is going to slash doctors, slash nurses, and slash teachers.”? They just conveniently forgot to tell the country that the Government will be spending $47 million on Government House. That is the Government’s priority. Dr Cullen should ask the people in Porirua and Glendene how important they think that is, as a priority for Government expenditure. Dr Cullen should tell the people how important it is to build a new embassy in Stockholm, for heaven’s sake! I can understand that there might be some priorities in foreign affairs, but Stockholm? It is simply not that important, and shows up this Government’s priorities, does it not; Government House, Stockholm, 10,000 extra bureaucrats in Wellington, and nothing to do with doctors, nothing to do with nurses, and nothing to do with teachers. The Government’s preference is the bureaucracy in Wellington and, frankly, I tell Dr Cullen, wasteful Government expenditure. So do not let me hear from any members of the Government that there is no space for an additional tax cut.

One of the features of Part 1 is that the real tax cut is delayed. People have to wait 3 full years to get a reasonable level of tax reduction—$55 in 2011. That is why the public is saying that it is too little, too late. One cannot expect them to wait another 3 years, after 9 years of waiting, to get a decent tax cut. Of course they will get a tax cut, I guess, in 2009, just enough to buy a block of cheese, but I tell Dr Cullen that that will not cut it.

I guess it is disappointing for the Government to find out that it will have to wait for National to announce its programme. So what? Why should National wait on the Government’s agenda to meet its needs to announce its package now? The public will know in enough time what National’s programme will be and they will judge it. The truth is, and it is completely clear from this Budget, that there is space for a better tax cut; one simply has to reprioritise expenditure.

Hon Dr Michael Cullen: Really?

Dr WAYNE MAPP: Yes. We are not going to spend $620 million extra on foreign affairs. We will make a different choice on that precise issue. We will not open an embassy in Stockholm. We do not see any necessity to spend $47 million on Government House.

Hon Dr Michael Cullen: Oh!

Dr WAYNE MAPP: Look, Dr Cullen is shocked. He is absolutely shocked to see that we are saying no to $47 million being spent on Government House. Sure there might be some repairs needed, but $47 million of repairs? Get real! It is simply fatuous for this Government to come along and say there are no choices other than the ones it has made. There are different choices—reasonable choices—that can be made that will deliver a better tax cut for all New Zealanders.

One of the interesting things, I must say, is the change from the low-income earner rebate to a scheduler rate. Actually that has some merit, and I tell Dr Cullen that National members will be voting for it. We can see some merit in changing from a low-income earner rebate to a scheduler rate. National is the party for tax cuts, and that is why we tell the Government we are happy to vote for this bill. We say that this is a first instalment, and we say to the public of New Zealand that they can bank on this tax cut, but they can also bank on more, because National will have different priorities and different expenditure, and will not waste $620 million on the Ministry of Foreign Affairs and Trade. The Minister’s response to that was: “Oh, well, you’ll have to get the permission of Winston Peters.” Yeah, right! Are we going to say to Mr Peters: “We’ve got to have your money for a tax cut.”? Hardly, no.

JOHN HAYES (National—Wairarapa) : I rise to support this bill because it is a down payment on future tax cuts.

Hon Steve Chadwick: Oh, that’s a good line.

JOHN HAYES: But I want to explain to “Ms Raucous” in the back row that she will get no tax from most of my hill and sheep country farmers, because they are not earning sufficient money to pay taxes this year. I had an email from a farmer stating: “I spent $50,000 buying in feed for my farm. I’ve had to sell all my cows and my calves, I’m going to have no winter income, I’ve worked my arse off”—that is what he said—“and where am I? Worse off than I was a year ago.” He stated: “I’ve got no money and I’ve got a huge overdraft of $300,000.” Why are we in this situation? Because this Government is spending far too much money. It is taking too much money from the community and spending it on unproductive programmes like the $600 million for the foreign ministry. Labour should go and campaign on that; it will give Labour lots of votes, I am quite sure.

I find it very disappointing that in this bill there is no long-term framework. There is no coherence about what these cuts will feed into. It is astonishing that the 33c tax rate is not changing, and even more astonishing that the 39 percent rate is not changing. There needs to be a vision whereby these cuts feed into a long-term programme that is coherent. There needs to be a 5 or 10-year programme of tax cuts, and our country and our community need goals to aspire to. They need to know where we are going. It is critically important that we have buy-in from our communities for a programme of coherent tax cuts. I welcome this bill in so far as it provides a down payment, but it does not fit into anything bigger. It is a total adhockery intended to buy votes in this next election.

What does this bill articulate about what the Government is trying to achieve? Nothing! Tax should be about taking just enough money from the community to drive this country—to provide for our collective self-administration. But this Government is trying to use the tax system to reduce poverty, it is trying to use it to reduce income inequality, and it is trying to provide compensation for rampant rises of petrol—$2 a barrel now—and blocks of cheese at $18. It is trying to compensate for increasing power prices, and it is trying to incentivise savings. Those members need a reality check.

Hon Rick Barker: It’s $200 a barrel.

JOHN HAYES: Sorry, $2 a litre. This Government needs a reality check. The tax system in this country cannot deliver all of these things, and nor should it. I think there is no fairness in this system that the Government is imposing on our community. Why should a family on $80,000 a year with two children pay 14 times the amount of tax as a similar family on $45,000? Where is the fairness in that? Why should the family on $80,000 pay 14 times the tax to this Government that a family with two children on $45,000 does? There is no fairness there—no fairness whatsoever. This is a very poorly thought-out bill. It is total adhockery.

This country is in trouble because this Government has relied on taxing heavily the incomes of a few mobile people, and what are those people doing? They are marching with their feet to Australia. Day by day we have never had such a big outflow in this country—79,000 people in the past year. They are voting with their feet. Why are they doing that? Because they are paying too much tax.

I have to say that this bill is a start. It is a down payment, but it is not a coherent programme of long-term tax cuts, and that is what a National Government will deliver to the people of this country. We need to cap Government spending; it is outrageous that we are going to take $600 million and spend it in the foreign ministry area.

CHRIS TREMAIN (National—Napier) : I rise to speak to Part 1 of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Bill 2008. The bill is part of a Budget that Dr Cullen is keen to take on to the hustings and to fight in the 2008 election. I say today that those words are small, in that he had the opportunity to genuinely take that fight on to the hustings. In 2007 I challenged Dr Cullen to stand on the hustings against me in the seat of Napier and to take his tax policies to the hard-working people of New Zealand. I challenged him to stand on the hustings in Napier and to take up that challenge to genuinely get out there amongst hard-working people.

Nathan Guy: What did he say?

CHRIS TREMAIN: When I put that challenge to him he said that, no, he would not take it on. He had a clear opportunity to stand in Napier and to take up the challenge, but he did not.

We are sitting here today, under urgency, to take this bill through the House and to write it into law. The people of New Zealand may be asking why we are doing this under urgency.

The CHAIRPERSON (Hon Marian Hobbs): Can I have people out of the corridors and into their seats, please. Thank you.

CHRIS TREMAIN: New Zealanders will be interested to know that that was the future leader of the Labour Government in the corridors, taking up time by discussing his own future tax policy.

I come back to the debate. I ask why we are here under urgency to pass this bill. We are here to ensure that it becomes law. We need to make sure that it becomes law. And why is that? It is because we cannot trust Dr Cullen to actually put tax cuts into place.

One might ask why anyone would take that line of attack. Well, the proof is in the Cabinet papers. In the 2005 election Dr Cullen promised that there would be tax threshold cuts, which is what we are now seeing in Part 1. He promised there would be those cuts. But, very quickly, the reality of that got washed down the tube. I have here a Cabinet paper from 2007. Rick Barker would have been at that Cabinet meeting, and I guess the potential new leader of the Labour Party would have been there too and would have agreed to this Cabinet paper. Dr Cullen’s Cabinet paper recommends that “we do not adjust tax thresholds in the medium term thereby retaining fiscal drag and potentially allowing tax to GDP ratios to rise slightly. Accordingly, this paper seeks Cabinet’s agreement to rescind our previous decision to adjust income tax thresholds on a three-yearly basis. Within the projection period … we will adjust the tax thresholds for inflation, but some portion of fiscal drag might need to be retained to finance our decisions.”

That was the paper that rescinded the initial decision to change the tax thresholds, and that is why we are rushing this bill through under urgency. Those members, and the potential leader of the Labour Party, Mr Phil Goff, do not trust Dr Cullen on the tax threshold issue, because he said tax thresholds would not be adjusted in the medium term. The medium term here would have been 2008, 2009, 2010, so that is why we are under urgency, making these adjustments to the tax threshold levels. In that regard it is a good bill, and National is supporting it today because it is taking us forward and starting to deliver some of the money of hard-working Kiwi taxpayers back into their pockets. On this side of the Chamber we believe, funnily enough, that hard-working taxpayers know how to spend their money best. They know how to make decisions about where to educate their children; they do not need this Government to tell them that. They know how to make decisions about their health; they do not need this Government to tell them that. They know how to make their own decisions, and that is why we are supporting the changes to the tax threshold levels. Thank you, Madam Chairperson.

Hon TAU HENARE (National) : I will tell members who likes this Budget. One person really, really likes this Budget, and his name will become apparent very soon.

Dr the Hon Lockwood Smith: Phil Goff.

Hon TAU HENARE: That is exactly right. Phil Goff loves this Budget, and do members know why? It is because of the tax cuts of 12 bucks a week. That is a packet of smokes a week—a packet of 25s.

Hon Phil Goff: That shows your priorities!

Hon TAU HENARE: The holier-than-thou Phil Goff thinks it is terrible that I am talking about smokes, but what about the people in South Auckland and the people in west Auckland? The leader of the coven over there talks about people in Ōtara, and she talks about people in west Auckland, but she has never ever lived like the people in west Auckland or even South Auckland. I can tell members now that for the brothers and sisters on the streets of South Auckland, west Auckland, and, I might add, Wainuiōmata, 12 bucks or 16 bucks a week—

Hon Trevor Mallard: You’re welcome to visit any time.

Hon TAU HENARE: —not a problem; I will—will not cut it. We have gone from chewing gum to a block of cheese.

Labour members talk about Working for Families and how that was a tax cut. Well, it was not a tax cut; it treated good, decent, hard-working Kiwis as just another welfare recipient. So mum and dad, with four kids, have to trot off to the Work and Income office every week or so in order to get their benefit. That is what Labour made the people do. There is nothing in this bill that says otherwise.

I say kia ora to giving a $16-a-week tax cut; it is a start. The Government should be patted on the back for giving back any money that it can to working people in this country. But I tell members that after 9 years, all it can give back is 12 bucks or 16 bucks.

Hon Steve Chadwick: Tell us about Working for Families.

Hon TAU HENARE: That is the head witch of the coven over there—the leader of the coven. She asks me to talk about Working for Families. Well, let us talk about the $690 million - odd that the Government paid for a clapped out railway that does not even run. There are no trains in Rotorua, there are no trains in Gisborne, and there are no trains up north. Where are the trains?

Dr the Hon Lockwood Smith: There’s one a week.

Hon TAU HENARE: Oh, sorry, there is one a week. And the Government says that this is a great taxation bill! The Government bought the little train set—the little Tonka toys; I wonder who the Fat Controller was—and earmarked new embassies in Switzerland, and all over the place. Just those two things add up to a billion dollars.

Hon Member: What do we need, then?

Hon TAU HENARE: Well, why does the Government not give it back to the workers? But that is all right, because Lynne Pillay comes from a union background, the Service and Food Workers Union, which is about to steal $200,000 off its own members. Why? It is to employ a political organiser to run around the country and talk about the tax cuts that this Government has given. What a rort, and what a pack of thieves the Service and Food Workers Union is.

There is nothing in this bill other than to say: “Oops, we are running out of time. Here is 12 bucks. Can you please, please, on election day, vote for the Labour Party?”. And the answer is, absolutely not.

The CHAIRPERSON (Hon Marian Hobbs): Before I call Dr the Hon Lockwood Smith, I ask members to do three things. Firstly, can we actually start to address Part 1? I have let a general debate go for quite a while. I would like to be addressing Part 1.

Dr the Hon Lockwood Smith: I did that.

The CHAIRPERSON (Hon Marian Hobbs): Yes, I do accept that. Secondly, the level of noise is pretty high, and could the interjections be on the bill and not on other extraneous things? The debate has gone fairly wide; can we now focus on Part 1. Thank you.

Dr the Hon LOCKWOOD SMITH (National—Rodney) : Indeed—and I did that when I opened the debate this morning. All we got from the Minister of Finance was just a political rant in response to the serious questions I asked. That shows with what little seriousness he takes his own tax law.

I would like to come back to Part 1 and ask some questions of the Government again. The Budget speech said that Working for Families would be indexed. I accept now, and we have established it in the legislation, that certain components of Working for Families have to be indexed. Other components of Working for Families can be indexed via Orders in Council. OK, let us now ask the Government clearly what is to happen from here. The Government said that Working for Families will be indexed. This bill provides for just the family support bit, which is about only a third of the payments, or fewer, of the Working for Families payments and that one-third is to be indexed by this legislation. Clause 5 does that, and clause 6 indexes the abatement.

The Government should make it very clear to hard-working New Zealand families what it is doing about the in-work payment and the parental tax credit. They can be indexed by Order in Council, but will they be? I tell the Minister in the chair, Mr Mallard, that I am prepared to take my seat again if he is prepared to tell New Zealanders whether the Government’s statement in the Budget speech that Working for Families—as distinct from family support—is to be indexed, because this legislation deals with family support. This legislation, which amends sections MD 3 and MD 13 of the Income Tax Act 2007, deals with family support and its abatement. Sections MD 4 and MD 11 deal with parental tax credits. This bill does not deal with them. We have established why. It is because they can be done by Order in Council; I accept that. The Government, though, in the Budget speech, made a promise that Working for Families would be indexed. People think that that means adjusted for inflation, but the Budget speech did not say “family support”; the Budget speech said “Working for Families”. Working for Families includes in-work payments and parental tax credits, and nothing in this legislation alters those. Yet they are a significant part of the whole Working for Families package.

Some of my colleagues have criticised, quite rightly, the Working for Families package. There are all sorts of problems with it, and I agree with that criticism. There are some dreadful problems with it—high effective marginal tax rates, the locking of people into poverty, and all that kind of thing. But for this Part 1 that we are focused on right now, I believe that New Zealanders have a right to know whether Dr Michael Cullen meant what he said in the Budget speech. Will the Government adjust those other components of Working for Families? It can be done by Order in Council—I accept that, absolutely—under section MD 10 of the Income Tax Act 2007. Orders in Council can provide for in-work payments to be increased, and likewise, under section MD 11, the parental tax credits can be increased. Let us hear whether the Government will do that.

Hon Trevor Mallard: Those matters are the subject of a report back to Cabinet by the end of June, and a decision will be made at that time around the use of Orders in Council.

Dr the Hon LOCKWOOD SMITH: I thank the Minister for the clarification that these matters will now be dealt with by a further report to Cabinet. I appreciate that; New Zealanders at least now know that much. The timing was towards June?

Hon Trevor Mallard: End of June.

Dr the Hon LOCKWOOD SMITH: OK. I want now to pursue that what we have established the Minister of Finance said in the Budget speech was not factually correct; it was not factually correct. The Government, so far, has announced that it will index family support, not Working for Families. The full Working for Families indexation issue is to be addressed by Cabinet later on. We have established that bit, and that is a significant bit of the Budget speech because so much of the Budget focused on tax. It focused also on the Working for Families package, but there we have found that Michael Cullen was not actually correct in what he said. How much of the rest of what Michael Cullen said in the Budget speech was not strictly correct? I think we need to dig quite deeply into some of the things surrounding this Budget to see what else is not actually correct and upfront in what he said. I will quote him. Dr Cullen said “a bringing forward of indexation of Working for Families, and a forecast second round of such indexation.” If he were being upfront and honest, that should have read as “an indexation of family support”, because that is what he is doing here. That seems to be the only decision, and where that is misleading is in the fact that the Government has not even decided whether it will index the in-work payments and the parental tax credits. I do not think it is good enough for the Minister of Finance to make statements in the Budget speech that are not correct. Whatever way one looks at that, that is simply not correct.

Hon Trevor Mallard: The member does not understand. I am happy to further clarify.

Dr the Hon LOCKWOOD SMITH: If the Minister is happy to clarify it further, I will give him the opportunity.

Hon Trevor Mallard: Just to make it absolutely clear to the member, I tell him that in the Budget and in the bill we are dealing with now, the Budget indexed the family tax credit and the abatement threshold. That brought forward something that was due to happen on 1 April; it will now happen on 1 October. The minimum family tax credit is reviewed annually. It was last reviewed late last year. And the third and fourth components—the in-work payment and the parental tax credit—are reviewed periodically. The first review is due to be done by 1 June this year. That will be reported to Cabinet during June and dealt with then.

The CHAIRPERSON (Hon Marian Hobbs): Dr the Hon Lockwood Smith, before you resume your call, I tell you that I will regard that last intervention as your having yielded, so you have 3 minutes left.

Dr the Hon LOCKWOOD SMITH: I appreciate that, Madam Chair; I realise that I was running a risk of that not being accepted.

I ask the Minister one further thing. He has made it clear that there are still two components of Working for Families—that is, the in-work payment and the parental tax credit—that are not dealt with in this legislation. The Budget speech said they would be indexed, so I ask the Minister right now whether the fiscal figures in the Budget provide for any significant increase in those payments. They could amount to quite a lot of money. If the Government is going to index the in-work payments and the parental tax credits, that could amount to quite a significant sum of money. Do the figures in the Budget allow for that, or has the Government made no provision for that, at all? If no provision has been made for it, then the honest thing to tell the people of New Zealand is that the Government does not intend—

Hon Trevor Mallard: The Government hasn’t received the review. It’s not due to receive it till 30 June, and it takes decisions after that.

Dr the Hon LOCKWOOD SMITH: I tell the Minister that this Budget goes from 1 July through to 30 June next year.

Hon Trevor Mallard: But how can you adjust something for results you haven’t got?

Dr the Hon LOCKWOOD SMITH: Well, in preparing a Budget, where Working for Families is one of the Government’s big claims—that the Budget is addressing Working for Families and indexing Working for Families—I am asking the Minister now whether the fiscal projections in the Budget include an increase in the in-work payments and the parental tax credits. I accept that the Government may not have received—

Hon Trevor Mallard: Page 144.

Dr the Hon LOCKWOOD SMITH: And what does it say, I ask the Minister?

John Carter: He’s yielded again.

The CHAIRPERSON (Hon Marian Hobbs): Are you yielding again, with another 1½ minutes left after this?

Hon Trevor Mallard: It gets a little sad when someone has a PhD and the Budget has to be read to that person. But he has asked me to—

John Carter: Stop being a dork and get on with it.

Hon Trevor Mallard: Does the member want me to, or not?

John Carter: Yes—get on with it. Stop being a dork. Come on.

The CHAIRPERSON (Hon Marian Hobbs): Please go on.

Hon Trevor Mallard: Well, Madam Chair, is that appropriate language? I do object.

The CHAIRPERSON (Hon Marian Hobbs): I ask—

John Carter: I withdraw and apologise.

Hon Trevor Mallard: I turn to page 144 of the Statement of Fiscal Risks in the Budget, and the section headed “Revenue—Working for Families Review of Rates (unchanged, unquantified risk)”. So the risk is the same as it was last time. It states: Working for Families legislation requires a review of the amounts of the In-Work Tax Credit and Parental Tax Credits to be undertaken no later than June 2008. This review is to assess whether the current rates still meet the policy objectives behind Working for Families. This policy cannot be quantified until the review is completed.” That statement was in the half-year update; it is also here and it is unchanged. That member probably has about the same number of years’ experience in the House as I have, yet he cannot read a Budget, despite having been an Associate Minister of Finance. That is a very, very sad situation.

The CHAIRPERSON (Hon Marian Hobbs): Dr the Hon Lockwood Smith, you have 1 minute and 37 seconds left.

Dr the Hon LOCKWOOD SMITH: Let me make it clear why I asked the question. Last time that member was a Minister in a Labour Government that was on its way out—in 1989—we had a Budget like this and there were issues, like these tax credits, that were not covered in the Budget. The Budget was false, and when National came in as a Government it had to make legal some of the illegal spending of those Ministers—like Phil Goff and Michael Cullen—prior to the 1990 election. The Minister in the chair, Trevor Mallard, was part of that Government that provided, in supplementary estimates, for expenditure that it far exceeded in the run-up to the election. He knows it, and the Labour members who were there when that Labour Government was on its way out, know it. They spent money that was not in the Budget, and the incoming Government had to make it legal.

• Part 1 agreed to.

CRAIG FOSS (National—Tukituki) : As I noted last night, it is an absolute pleasure to be voting, finally, for a bill that brings in personal tax cuts. I thought we would have to wait another 6 months or so for that, but I suppose that after 9-odd years, it was always going to come sometime. Perhaps Part 2 could also be called the “Road to Damascus section” or the “Contradiction part of the bill”, because it deals with changes to the Income Tax Act 2007—the tome sitting there on the Table. Part 2 changes the particular notional amounts, etc.

I note that this bill has had to cross a threshold first, because in the last Budget, and on numerous times after that, the finance Minister has set himself four tests before he would even consider tax cuts. I will address those tests, because that is very relevant to this part of the bill, which is supposedly about how those changes will be funded. Those tests supposedly were, firstly, that tax cuts would not lead to greater inequality; secondly, would not lead to inflationary pressures; thirdly, would not require borrowing to fund them; and, fourthly, would not require cuts to public services. I will come back to the first test, because there will be probably be plenty of time for that one next week.

In relation to the fourth test, though, I make the point that Dr Cullen is playing silly word games again when he says that the tax cuts will not require cuts to public services. I think that in the Budget he used the word “reprioritisation”, or something like that. In answer to questions leading up to the Budget in the House the other day, he gave all sorts of bureaucratic nonsense and silly answers to what actually looks like his hidden agenda.

I will address tests two and three, because Part 2 relies on them. Test two was that tax cuts would not lead to inflationary pressures. Right there on page 70 of the Budget Economic and Fiscal Update, from which this bill arises, we see annual CPI forecasts for the next 4 or 5 years. A forecast of 2.7 percent was predicted at the half-yearly update—now it is 2.9 percent on average. Members should remember that it is virtually illegal for inflation to go north of 3 percent, but the forecast for 2009-09 is for 3.2 percent inflation. The Minister has failed to test two—

Hon Trevor Mallard: I raise a point of order, Madam Chairperson. Although Part 1 was a relatively broad part of the bill, Part 2 is about as narrow as we can get. There are some numerical changes there, and some consequentials flow from them. The Committee stage is certainly not the place for a broad-ranging Budget debate.

The CHAIRPERSON (Hon Marian Hobbs): Is the member replying to the point of order, or does he want to continue?

CRAIG FOSS: I will continue, and will refer straight back to the part.

The CHAIRPERSON (Hon Marian Hobbs): I just want to think about the point of order that has been called—

CRAIG FOSS: Madam Chairperson, I point out that Part 2 has tables that include changes—for example, from $60,000 to $70,000—and it refers to section CS of the Act. When we look through pages 13 and onwards we can see changes to resident withholding tax, etc., that all change the underlying rates. I am questioning this bill and how it will be funded—for example, how changing the threshold from $60,000 to $70,000 will be funded. If it cannot be funded, it is therefore inaccurate.

The CHAIRPERSON (Hon Marian Hobbs): Yes, you may continue.

CRAIG FOSS: Thank you very much, Madam Chairperson. The changes in Part 2 will show that as inflation gets further out of control, the real impact of these changes to New Zealand taxpayers will be diminished. Of course, over the last 8 or 9 years inflation has been driven up by the current profligately spending Minister.

It is also quite relevant to Part 2 to question how these changes will be funded. How will the $70,000 change to $75,000 in clause 13(2) be funded, because one of the Minister’s tests is that we will not borrow to fund cuts? Yet page 104 of the Budget Economic and Fiscal Update shows us there will be $6.4 billion of extra funding/borrowing to fund the current Budget. That will lead to a $12.8 billion cash deficit in year 4, I believe. If that is not borrowing, I certainly do not know what is. There is also a very interesting table on page 102 of the update that Part 2 is very much linked to.

Again, it is a pleasure to be voting for this bill, but I am just asking for more clarification, more honesty, and more transparency, because the same Minister who delivered this Budget and this bill has for many, many years argued the total opposite to what is contained in the bill. Even on the hustings at the last election, many Labour members opposite constantly argued against the merits of tax cuts. The Minister himself gave a speech, pretty much through gritted teeth, and we could tell that Labour really did not want to endorse what was in the Budget. Part 2 will be talked about a lot during the campaign—a lot of numbers, and what is good for a family of three, a family with two kids, etc. But I say “Give me truth, give me transparency, be upfront.”, and if the Government is borrowing to fund these tax cuts, then I would like to see that, and see that very, very quickly. Thank you.

Hon TREVOR MALLARD (Associate Minister of Finance) : I have a question: where is the amendment? Where is the amendment from the National Party? National has spent years saying it has a better tax package than the Labour Party has. National members go around the country day after day to say that they have a tax package that is better for the country than Labour’s. There is one part of the bill where an amendment should be moved, and it is Part 2. I ask John Key: “Where is your package, mate? Why don’t you front up with your package and tell us what you want to do?”.

I know why John Key has not put an amendment on the Table. The reason is that this Budget is more generous to low and middle income people than what the National Party had in its plan. Why can John Key not be big enough to stand up in the Chamber and admit that? Why can he not say the reason he has failed to put an amendment on the Table is that his amendment would not have cut taxes for low and middle income people; it would have put them up—again. I ask John Key where his amendment is. This is the part. I know he is a relatively young and new member, but someone like Lockwood Smith could have briefed him on the point when he should put his amendment in. John Key is not putting in an amendment. That just shows how hopeless and disorganised the National Party Opposition is.

PHIL HEATLEY (National—Whangarei) : Here we have “Tricky Trevor”. “Tricky Trevor” is asking why the National Party does not put up an amendment. Has he told the public and Parliament that he has a power to veto an amendment? No, he has not. Has he told the public and Parliament that he will waive that power to veto the amendment? I say to “Tricky Trevor” that we have called his bluff. Why does he not waive the power to veto our amendment? No, “Tricky Trevor” has been caught out. He is back-pedalling. I have seen cyclists in my time—

The CHAIRPERSON (Hon Marian Hobbs): Could you refer to members by their proper names and not by a—

PHIL HEATLEY: Their common name.

The CHAIRPERSON (Hon Marian Hobbs): No—by their proper names, as they are called in the House.

Hon Trevor Mallard: I raise a point of order, Madam Chairperson. You may not have noticed but during your ruling Phil Heatley interjected on you very, very directly. I ask that he at least be asked to withdraw and apologise. Most Chairs in the history of this House would send someone out for that.

PHIL HEATLEY: I happily withdraw and apologise.

The CHAIRPERSON (Hon Marian Hobbs): Thank you.

PHIL HEATLEY: I have seen cyclists going forward but I have never seen anyone back-pedal as quickly as Trevor Mallard just then. He called for National’s amendment but he was not prepared to waive his power of veto over that amendment.

We are here in this Parliament debating Part 2, which is all about the personal tax cuts. Here we are, legislating for them to go through. Why? Because Michael Cullen does not trust himself not to reverse his position on these changes to tax rates—which are a start and which National members say we will support—and certainly his Labour Party colleagues do not trust him not to. So we have to pass this legislation through Parliament. Interestingly Lockwood Smith has clearly identified that necessity.

As Lockwood Smith said in speaking to Part 1, the Government is not legislating the indexing of the tax credits—we know that it will perhaps not keep that promise—and it is not legislating the indexing of the in-work payments in respect of Working for Families, because it knows it may end up not keeping that promise. But it is legislating for the personal tax cuts because it has been caught out on that before, and it has caught itself reversing that decision before. So the Government is legislating for the tax cuts.

I also put to the Minister the question: “Are you or are you not indexing the parental tax credits? Are you or are you not indexing the in-work payments?” I guess will be a pre-election announcement. We are debating Part, which is all about the tax cuts that have come in Michael Cullen’s ninth Budget. Did Michael Cullen give personal tax cuts 5 years ago when he had a surplus of somewhere between $5 billion and $7 billion? No. Did Michael Cullen give tax cuts 4 years ago when he had a surplus of somewhere between $6 billion and $8 billion of taxpayers’ money?

Hon Members: No.

PHIL HEATLEY: Did Michael Cullen, 3 years, or 2 years, or even 1 year ago give personal tax cuts when he had surpluses of $9 billion, $10 billion, or $11 billion? No.

Chris Tremain: He promised them and then reneged.

PHIL HEATLEY: He did promise chewing gum tax cuts”, but he reneged on them.

So what is the difference between this year, when we have troublesome economic growth, and the last 5 years—up to 1 year ago—when we had good economic growth? Why did he not give tax cuts in that environment when he is giving tax cuts in this environment? There is only one difference, and that is this year’s general election and the threat of Phil Goff taking over the Labour Party and dumping him as Minister of Finance. Leader-in-waiting Phil Goff knows that Michael Cullen is the worst advertisement for the Labour Party going into this election, and he would not have him as his Minister of Finance.

I know Trevor Mallard was looking at the job of Minister of Finance. I know Trevor Mallard would have put up a different tax cut regime if he was the Minister of Finance. But because of his brawling and general bully-boy antics, he has lost that opportunity into the future. So here we are, looking at Part 2, on the personal tax cuts that could have come 4 or 5 years ago.

The CHAIRPERSON (Hon Marian Hobbs): Just before I call the next speaker—and it will be John Carter—can I ask people to stick to Part 2. It is not enough to say: “I am talking about Part 2.”, and then take off on a broad pattern. Let us stick to Part 2. Let us set a new record.

JOHN CARTER (National—Northland) : Thank you for the challenge, Madam Chair. Obviously, though, we still have the convention of being allowed a wide-ranging 30 seconds. Let me just start off, because I would not want to do anything, if we are setting records, that actually changed them.

Hon Trevor Mallard: Fifteen seconds left!

JOHN CARTER: No, that is the start of the start. This debate is all about honesty. It is about credibility. It is about this Government actually being credible or not. The first thing we found is that this Minister asked National to put an amendment on the Table and show what we have got. So we asked him to tell the public that he has the right to veto, and what did he do? He back-pedalled.

Part 2, which we are debating here and which the National Party supports, is all about tax rates and that sort of issue. What we need to know is whether there is credibility that this Minister and this Government are going to stick by the legislation. I remember being in here in 1989 when the past Labour Government came down to the House and said it had balanced the Budget—the first time for years. It said it had a $89 billion surplus, and what did we find? We found there was a $1.5 billion deficit.

We want to ask this Minister whether, when we are considering these tables in Part 2, they are actually credible. Can the Minister confirm for us that the Government is going to stick by them because they are based on honesty and credibility? I wonder whether the Minister can confirm that point. Quite honestly, I doubt it, given Labour’s history.

I also say this: we have been in this House for nine of Michael Cullen’s Budgets, and this is the first time we have had the opportunity to have this debate—with one exception. We had a debate about the fact there were some promised tax cuts in 2005. I am sure the Chair may recall that. The fact is there was no bill, unfortunately—unlike today where we have the schedules and the tables that we are debating. The fact is that a promise was made that was not kept, and that is the very point that this debate is all about and why we have to have this bill. If anybody wants to ask why we have this legislation, it is because it is making the Minister stand by what he told the House would happen in this budget. That is what this whole issue is about.

I want to ask this question: if these tables are implemented as the bill says, then what impact does it have on people who are struggling in areas such as local government rates?”. Will it actually help us in that regard at all? Will it help those people who are on fixed incomes? Will it help them meet the pressures that this Government has put on them in the way of increased bureaucracy in both central and local government? Will it mean that they will get some relief? I say that it will not. In fact, if we have a look at the whole issue that is being debated right now, none of it is actually going to help those sorts of people who have been struggling. The Government asked for, and got, an inquiry, the Shand inquiry into local government rates, and it has not responded to that at all.

I ask the Minister in the chair, the Hon Trevor Mallard, what impact these tables and the debate we are having today will have on the income of those people who are on fixed incomes and how it will help them to address their rates. I bet that the Minister cannot answer that question, because he knows what the answer will be. The answer is that it will have such a small impact that it will have no impact at all.

Hon Trevor Mallard: It’s not related to the rates in Part 2 of this bill. It’s different rates. This is about tax rates, not rates for local authorities.

JOHN CARTER: Yes, I understand that, but the question is whether this bill will have an impact on the people who are struggling. Will it have an impact on the people who are meeting constant demands from this Government because of increased bureaucracy? Will it have an impact on the people who are struggling because they have increased rates, because of the pressure this Government has put on local government? The simple answer is—and the Minister does not have an answer to this—no, it will not. It will not affect one diddly-squat the cost that local government is meeting. It will not affect one diddly-squat the people who are on a fixed income and who are struggling to meet their rates. I say to the Minister that it will not help them at all.

Hon TAU HENARE (National) : I want to ask a couple of questions on Part 2, but before I do so I will comment on what the Minister in the chair, the Hon Trevor Mallard, said—about why the National Party does not have an amendment to the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Bill. It is pretty obvious. The reason is that the Minister has a financial veto, and unless he stands up and seeks leave to suspend that financial veto, then we should not talk about it any more. We should not talk about some sort of proposed amendment that National should be putting up; this is the Government’s bill.

This is a Government bill. I want to ask the Minister whether the Government will borrow in terms of the tax rates set out in Part 2, and whether will it stick by them. In hard times will the Government stick by the rates that have been set out in Part 2? If, in 12 months from today oil is US$200 a barrel, will the Government stick to these rates? Is there any money left in the coffers for these rates? We have seen before that this Government has not been too forthcoming about the surpluses it has had. People are, as my colleague John Carter mentioned, facing tough times; people in Waitakere City are now facing a 7.4 percent increase in their rates. Where will their $12 go? Will it be enough for them to pay not only the extras out there but also, on top of that, for people in the Waitakere City area, the increase in rates?

I want to take just a brief call, and I suppose there are three questions. Will we borrow for the tax cuts—the tax rates—in Part 2? Will the Government stick by them? National will certainly stick by them—in fact, we will increase them, most probably. And what about some relief for those who are facing hard times in the city of Waitakere? It is all well and good to talk about the rates in this bill and about how they will help a lot of people, but how will the public and the community of places like Ōringi cope? How will they fare in terms of the tax rates before us? I suggest that these rates are not going to do a hell of a lot for the 29,000 people who have lost their jobs in the last quarter, because to get tax relief, surely, one must be working and, unfortunately, those people are not working at the moment. So I ask whether this Government will borrow, whether it will stick by these rates, and what relief there is for people such as those who live in Waitakere City, who are facing a 7.4 percent increase in their rates.

TIM GROSER (National) : Part 2 of the bill contains only a few words, but they are very important words. Essentially, they represent the Government’s final response to a question that I think not only National, as the Opposition, has been asking but also New Zealanders have been asking now for 9 years. The question is, when will middle New Zealand share in the good times? When will middle New Zealand, which produced better results in at least the first 5 years of this Government—the roots of those results, of course, predate this Government—get an economic return on that? This legislation is the answer, 9 years on.

I am searching for adjectives to describe yesterday. I could say “unusual”, or perhaps “irresponsible”, when I think about the Government’s response. Actually, I think that the word I would choose would be “bizarre”. I found it absolutely bizarre, when I thought about the importance of the message in Part 2 of this bill. We had Dr Cullen finally gritting his teeth and spitting out the figures that we see in Part 2. I thought that an extraordinarily clever cartoon that appeared in the Listener a few months ago said it all politically. It had the Prime Minister wearing a sheriff’s hat and holding up a Colt .45 that was still smoking. Dr Cullen was lying on the ground, muttering the words: “Over my dead body.”, and the Prime Minister was asking her caucus: “Has anyone else got any objections to tax cuts?”.

Yesterday, we had the strange spectacle of Dr Cullen spitting out tax cuts, which unfortunately, given his ideological conceptions, had to include some relief for the people he calls, what is it, the rich—

Hon Member: Pricks.

TIM GROSER: No, no; the word in the expression “He is a jolly good brick.”—is that the word I am searching for? Unfortunately, Dr Cullen had to swallow hard. He had to deliver at least something, for political reasons, after 9 years of denying the people of middle New Zealand a share in the good times that they have produced. It is not Governments that create wealth; it is the people out there in New Zealand who create wealth, and the Government can either facilitate or get in the way of that.

Then we had the Prime Minister—and this is truly bizarre—talking to New Zealand about her glory days, during the Springbok Tour and the Viet Nam War. Last night we had the Minister talking about, what was it, 16 image consultants that he thought he had found in the Opposition third-floor wing, and Minister Shane Jones was talking about some meaning in te reo of Mr Henare’s first name, involving some informal slang. If I was sitting in the pub and not in Parliament, then I might have had a bit of a laugh with them. But I find it utterly bizarre that yesterday, which is the most important day in the political calendar barring election day itself, we had Ministers of the Crown and the Prime Minister not talking about the substance that we are addressing here in Part 2 of this bill but, essentially, either making jokes or irrelevant observations. It just raises the question of whether they have lived so long in their hermetically sealed zone of silence that they have completely excluded from their attention what is actually going on out there. When they give a $16-a-week tax cut to the average New Zealander, I wonder whether they realise that the cost of filling up a Toyota Corolla has doubled in the last 12 months. The $16 does not even cover that. Do they realise what it means to have had a $26 billion increase in spending in the last few years? Do they realise how much pressure is going on middle New Zealand as a result of having the second-highest interest rates in the developed world, and what that means for people in the mortgage belt of our country?

New Zealanders have been told for 8 years that they could not have tax cuts, because it would mean higher interest rates, and then we have—

SUE MORONEY (Junior Whip—Labour) : I raise a point of order, Mr Chairperson. We are debating Part 2 of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Bill. Part 1 was indeed a wide-ranging debate, but this part is quite clear. I wonder whether the member could stick to Part 2.

The CHAIRPERSON (H V Ross Robertson): It does not matter anyway, because the member’s time has expired. Thank you.

• Part 2 agreed to.

Dr the Hon LOCKWOOD SMITH (National—Rodney) : Part 3 covers a very wide range of issues. I am sure members will be struggling to understand exactly what all the clauses in Part 3 do. I will leave it to some of my colleagues to address some of those wider tax issues that clause 61 will obviously enable, because I am particularly interested in making sure I understand what is going on here.

Naturally, National supports the clarifications around charities. We support clause 20 and a number of the other clauses relating to charitable bequests and that sort of thing, and the clarifications around tertiary institutions and schools with regard to their charitable status. But I would particularly like the Minister to clarify for me the issues dealt with in clause 24. Clause 24 deals with the LC 1 section of the principal Act, and the LC sections involve tax credits for persons on low incomes. I understand why there will probably be a need for amendments to some of the LC sections, because the Government proposes with this legislation to lower the bottom tax rate from a rebate system on the first $9,500 to a statutory rate of 12.5 percent at varying stages—initially at $14,000 and rising to $20,000. So I can understand the need to address some of the tax credits for persons on low incomes.

But so that we know exactly what is happening here, I would particularly like the Minister to advise us on clause 26, “Child’s income”, which amends section LC 3. Clause 26(1)(a), for example, which amends section LC 3, reduces the threshold figure from $351 to $321.75, and that affects the amount of credit that a child may get. Clause 26(2) further modifies section LC 3 in that the percentage is adjusted, naturally, from 15 percent—the figure given in the formula in subsection (4) of section LC 3—to 13.75 percent, and then to 12.5 percent. I would like the Minister to tell us what this actually does to the child’s tax outcome. It has been quite difficult in the short space of time in which we have had the legislation to calculate the combined impact of those changes to tax credits for children. On the one hand I can see that the amount of money allowed is reduced, but on the other hand I can see that the percentage applied in the formula is also reduced. So it is possible that they will offset each other. Given that we do not have the opportunity to refer the bill to a select committee and question officials about exactly what the impact will be, I would appreciate the Minister making clear for us—and it is important that the Government makes it very clear—what these changes will do to a child’s after-tax income. I accept they could be making no change, at all.

Hon Trevor Mallard: That is the effect.

Dr the Hon LOCKWOOD SMITH: If that is the case, I think that should be made very clear. It is very difficult to discern that from the series of changes that the legislation makes. But I take it from the Minister’s interjection that with regard to a child’s income, the combined effect of clauses 26(1) and (2) is that—

Hon Trevor Mallard: You can still earn up to $45 a week, or $2,340 per annum, tax-free. That is effectively unchanged.

Dr the Hon LOCKWOOD SMITH: So the situation for a child is that the reduction in the bottom tax rate does not actually reduce the amount of tax taken from a child at those income levels.

Hon Trevor Mallard: It doesn’t reduce the amount of tax—kids end up not paying tax up to $45 a week, anyway.

Dr the Hon LOCKWOOD SMITH: The Minister has just said that the effect of that is to make sure that the child pays no tax on income up to that level. If that is all it is doing, I am a little curious as to why clause 26(2) is involved. It changes a tax rate and not just a threshold. It seems to me that if it were a matter simply of making sure the child paid no income tax on a certain level of income, it would be easy to make that clear on the face of the bill. But because the subclause changes a percentage amount, it is hard to accept that that is all it is doing. That is why I am seeking further clarification.

Hon Trevor Mallard: Currently the tax rate is 13.75 percent. It drops to 12.5 percent next year, and this recognises that change, in order to maintain the status quo as to the effective level of the rebate.

Dr the Hon LOCKWOOD SMITH: So it maintains the status quo as the effective level of the rebate that would apply.

Hon Trevor Mallard: Yes, that’s right.

Dr the Hon LOCKWOOD SMITH: OK, I accept that, and I thank the Minister for making that clarification to the issue around a child’s income.

I ask him also whether there are any other changes, because a number of provisions in the LC section are repealed. Section LC 1, “When net income under low income amount”, is repealed by clause 24, and section LC 2 is repealed by clause 25. This is the kind of thing that we have to take the Minister’s word on, because we do not have the chance to satisfy ourselves at a select committee. Section LC 2 covers the whole issue of the low income earner rebate—the $9,500 limit and the 15 percent tax rate applying up to that level. We can only take the Minister’s word that the repealing of section LC 2 covers only that. Even though section LC 2(4) goes to some specific issues that appear to go just beyond the $9,500 limit and the 15 percent rate, I trust that the repealing of the entire section LC 2 will leave us with no gaps. The point I am making is that the changes being made here are the kinds of things that a select committee should be able to look at, and the fact that this legislation is being forced through under urgency, when there is no need for it, means we have to ask some quite mundane questions to make sure that what is on the face of the legislation is in fact not producing any unexpected outcomes.

If we go through some of the other significant changes in Part 3, we note that in clause 33 the fact that the Government has decided to bring forward the indexing of the family support payments into the middle of an income tax year now pushes pages of new legislation into our tax legislation. I put it to the Minister that clause 33, “New sections MF 4B and MF 4C”, with all those pages of new legislation, is required because the Government has panicked and brought forward the indexing of the family support payments. I take it that that is what clause 33 concerns, and that all those pages are necessary in our legislation simply to allow the adjustments to family tax credits to happen in the middle of the year. I think the Minister is nodding that all those pages are required in order to do so.

Hon Trevor Mallard: And to make sure that we don’t under-collect so that people have to pay back later.

Dr the Hon LOCKWOOD SMITH: I accept that point, too, because with the Government’s Working for Families package, this has become a real problem. Families are being over-collected from and are having to pay back. Even before these changes are made, that is an inherent problem with the Working for Families tax credit system.

I intend to give my colleagues a chance to raise further issues, because as we go on through Part 3 we see that a number of amendments are made to the principal Act that relates to GST ratio methods for tax payments, and provisional tax payments. There are a number of changes there. And, again, the dilemma is that these are quite technical changes—some of which, I assume, are fixing up problems in the old Act. I think the Minister owes it to the Committee to explain in more detail some of the large number of changes that Part 3 makes. We have had only a few hours to look at this legislation, including time overnight, and it is extraordinarily difficult to actually sort out exactly what these changes are making. I think the Minister should give us a greater explanation of some of them.

Hon TREVOR MALLARD (Associate Minister of Finance) : I accept some of the points that the member, Lockwood Smith, makes. There is some volume, and some formulae in the bill do take a little bit of working through in order to make sure they are right but I give the member the assurance that a lot of thought has gone into this.

I accept that having these extra pages of legislation is a result of bringing in changes for half a tax year rather than for a full tax year. The Government made the decision, and, I might say, it was finally tuned—not on the basis of need; need was pretty clearly established. Anyone who looks at petrol prices and the prices of some items of food—the cost of some items of food has dropped—knew that it did have to come in on 1 October if it was practically possible. The approach that is taken here, in our opinion, makes sure that that is the case.

In order to be clear in response to the questions that Dr the Hon Lockwood Smith was making about sections LC1 and LC2, I point out that these are the low-income rebate arrangements, which create an effective tax rate of 15c and 21c. They have been replaced by new statutory rates of 12.5c and 21c, as, I think, members are becoming increasingly aware.

CRAIG FOSS (National—Tukituki) : As I rise to speak on Part 3, I note that we are allowed to have a wide-ranging discussion, and I will do a mix of both talking widely and talking about specific matters. First of all, it is a bit of a tradition and a simple courtesy in the Committee stage to thank the officials for all the hard work they have done around the select committee inquiries, and in giving us advice on a bill as a robust select committee process examines and investigates the bill. Sadly, I cannot thank the officials for that in this instance, because this bill is going through the House under urgency and has never been seen by a select committee. But I do heartily congratulate Treasury officials, because obviously their ideological burping has finally been heard. Perhaps it is no longer ideological burping, at least in the eyes of the Minister of Finance, who, through gritted teeth, delivered this Budget yesterday. He has finally taken Treasury advice, which, when I first came into this Parliament, was robustly included in its briefing to the incoming Minister. I think that that advice was in the Reserve Bank’s briefing as well.

Also, a select committee has not had the opportunity to ask for and get further advice on this bill. As we glance at the bill, we know we have really had it for only about 3 or 4 hours, in terms of parliamentary time. Normally we would ask the officials to tell us about, say, clause 59 or clause 60. I suggest that the Minister get up and explain the clauses in this part, because they are all cross-referenced to the various income tax Acts on the Table there—great doorstops that they are. We are not able to cross-reference every clause here, and the provisions here are massively wide, ranging from fix-ups to the changes announced in the Budget. Who quite knows what might be lying between the lines here?

One thing that was missing from the Minister’s comments on the bill, even when he spoke on this part—and someone introduced this point earlier, in the debate on Part 1—was passion. There was no passion. There was no vision. The Minister talked about what is written in the bill, but it is actually what is between the lines that is important. As New Zealanders know, this bill was introduced with incredible reluctance, and if any one doubts that he or she needs only to read any speech make by the Minister of Finance and his associates over the past 8 or 9 years. I will come back to that.

I refer now to clause 54, “Portfolio tax rate entity to give statement to investors and request information”. I will just touch on the basics and ask the Minister whether he would like to clarify that clause. I presume that it relates to portfolio investment entities, etc. After the last Budget I had a chat to the Minister of Revenue. I know that his nirvana is “30, 30, 30”—a top corporate rate of 30c in the dollar, a top personal rate of 30c in the dollar, and a top trust rate of 30c in the dollar. Well, actually, this bill goes nowhere near to addressing the complexity of the legislation on taxation, or the need to spend more than would otherwise be necessary on accountants and officials in order to find the most efficient tax position for individuals, companies, and trusts. So the “30, 30, 30” issue has not even been addressed here. As I said, I recall that after the last Budget we had quite a discussion. Obviously, the Minister of Revenue has got some wins in the bill. His speech yesterday about the intent of taxation was very good, but he obviously has not won on this one.

I would also like to touch on clause 58, “KiwiSaver Act 2006”. The KiwiSaver Bill was rushed through under urgency—I am sure there was urgency—and then various amendments and changes came through, again, under urgency. As corporates out there were struggling to adjust their payrolls in order to account for KiwiSaver—to take account of the contribution rates; 1 percent, 2 percent, 3 percent, and 4 percent, etc—issues and problems came about simply because the legislation had been rushed though under urgency and had not been thought through. Yes, we did have officials here, but the issues slipped past them at that time. There is a lot of complexity in the system; it has various rates, some of which are half-yearly. I appreciate what the Minister said about smoothing it out come 1 April next year. Yes, further trees have been lost for the sake of this bill, but, perhaps, for the benefit of personal tax cuts, that is a small price to pay.

I turn to clause 44, “Resident passive income”. The clause talks about dividends, but I cannot quite find it at the moment.

Hon Trevor Mallard: Which clause?

CRAIG FOSS: Well, let us go to clause 39, “Methods for calculating provisional tax liability”. Again, I wonder whether the Minister could expand on that a bit further. Perhaps it synchronises with GST provisional tax dates, etc. Again, we do not have the luxury of asking officials and advisers for further in-depth information about these various clauses.

It is very important to note that, yes, the Ministers may be going around the traps and talking up that alignment there, but what is being lost sight of in this debate is the fact that provisional tax payments for this year are down by some 10 or 15 percent, from what I have seen. Sorry—the payments are up, but the estimations of profit and loss, at least up in Hawke’s Bay, are down by about 10 or 15 percent. That is a shocker. Fair enough, it is mentioned in the Budget that revenue is tracking down and the economy is tracking down. That does not quite align with the GDP growth going up to about 2.8 percent, which I think the Budget says somewhere will occur. I guess my point is that this measure, again, does not really deal with the hard side of things; it deals with one side of the equation. The key part of the equation here is the ability of companies and New Zealanders to pay—their ability to manage and to fund their way through the commodity booms, etc.

I will make just a couple of other points. I refer to clause 29, “Adjustment when person is non-resident for part of tax year”. I ask the Minister or the officials to clarify that. Does that include, for example, the 70,000-odd Kiwis who have left New Zealand this year? How does it apply to them? I presume that most of them will be in that position. Once the Kiwis who left to join the other 500,000 Kiwis in Australia get their adjustment back for part of a tax year here, plus the benefits of an income in Australia that is one-third higher than here, their New Zealand tax return for this year, subject to clause 29, will be very interesting.

I can see that your finger is on the button, Mr Chairperson, but I have a final question. I would like the Minister to expand a wee bit on clause 31, “Meaning of charitable or other public benefit gift”. The brief talks about schools, etc., but would it include things such as an interest-free loan? Is it tightly tied in with tertiary education institutions or, in fact, is there the ability for someone to arbitrage that and provide, say, an interest-free loan outside the tax net? I do not know whether that is the case.

This speech may be going all over the show, but that is simply because we have not had the democratic process involving Treasury officials at the select committee, an independent adviser, and the Eichelbaum process being followed, so that we can address these issues and have robust taxation legislation in New Zealand. Thanks, Mr Chair.

CHRIS TREMAIN (National—Napier) : It is always a pleasure to speak after the member for Tukituki, Craig Foss. We work together pretty hard to back the Bay—

Hon Shane Jones: What about the health board?

CHRIS TREMAIN: I can tell the member that we backed the health board, too. Its members were unjustifiably dismissed, as the member well knows.

I am here this morning to talk about Part 3, and I want to focus on three clauses in particular—clauses 21, 22, and 61. I would like the Minister in the chair, the Hon Trevor Mallard, to take a call on clauses 21 and 22. We are rushing this bill through the House under urgency without its going through the select committee process. I would like the Minister to take a call on these clauses because I have not had the opportunity to have them fully explained to me. Clause 21 deals with charities and business income, and clause 22—

Rt Hon Winston Peters: I raise a point of order, Mr Chairperson. Has there been a change to the Standing Orders or to Speakers’ Rulings to suggest that we cannot sit all the way through tonight, tomorrow morning, and tomorrow afternoon on this issue? Unless that is the case, why are members getting up and saying that we are rushing things through today? We would have all tomorrow to consider it, as well, if they were not so work-shy.

The CHAIRPERSON (H V Ross Robertson): Mr Peters, you have been here a long time and you know the rules.

CHRIS TREMAIN: Some would say that the member has been here far too long.

Gerry Brownlee: Will he stand in Tauranga?

CHRIS TREMAIN: Yes, will he stand in Tauranga? That is what we want to know. Will you stand in Tauranga?

Rt Hon Winston Peters: Ask Bob.

CHRIS TREMAIN: No, no, Bob has decided not to stand in Tauranga. We are asking you the question.

Hon Trevor Mallard: Point of order—

The CHAIRPERSON (H V Ross Robertson): It is a wide-ranging debate.

Hon Trevor Mallard: I raise a point of order, Mr Chairperson. I think it is relatively important that when one is sitting in the whip’s chair one does not refer to the Chair in that way. I am absolutely certain that Mr Robertson is not going to run in Tauranga.

The CHAIRPERSON (H V Ross Robertson): Thank you.

Rt Hon Winston Peters: I raise a point of order, Mr Chairperson. You have allowed a reasonably wide-ranging debate, but it must focus on the legislation before the Committee. More particularly, these members have a fair degree of effrontery. They do not have a candidate for Tauranga themselves, because “Bob the Builder” became “Bob the Quitter”—he jumped before he was pushed—but they have the audacity to ask where our candidate is. What a cheek that is.

The CHAIRPERSON (H V Ross Robertson): Thank you, Mr Peters.

Gerry Brownlee: I raise a point of order, Mr Chairperson. You know very well, Mr Chairperson, that it is inappropriate for Mr Peters to refer to Bob as “Bob the Quitter”. Of course, I am not raising a point of order on that—I think the public can draw their own conclusions because the member, as I have said before, has become “Winston the Bitter”.

The CHAIRPERSON (H V Ross Robertson): No, no.

Gerry Brownlee: My real point of order is this, Mr Chairperson. Mr Mallard intervened and suggested that you would not be standing in Tauranga. I do not think that was the right thing to do, because no one should suggest that you would be standing anywhere other than in the seat that you have held for a very, very long time—I understand that it is approaching 25 years. But what I would like to know is whether it is true that the Labour Party is trying to move you on.

The CHAIRPERSON (H V Ross Robertson): This is a wide-ranging debate, at least over the field of taxation.

CHRIS TREMAIN: The point is that if the member were actually standing in Tauranga he would be able to speak about this bill in relation to—

Rt Hon Winston Peters: I raise a point of order, Mr Chairperson. There have been three points of order on this matter, and one attempt at a point of order by Gerry Brownlee. That said, the member should know what your restriction is, Mr Chairperson, which is that he gets back to the bill. But in his first sentence he started up again. I know that his party is filled with a bunch of slow learners, but four warnings should be enough.

The CHAIRPERSON (H V Ross Robertson): I remind members of Speaker’s ruling 103/4. It is a wide-ranging debate but it is over the field of taxation.

CHRIS TREMAIN: I get back to the bill, and in particular to clause 21, “Charities: business income”, and clause 22, “Charitable bequests”, and if the member was standing in Tauranga, he would be able to take a call on those clauses on behalf of the people of Tauranga, and he would be able to ask the question that I am about to ask the Minister—

Rt Hon Winston Peters: I raise a point of order, Mr Chairperson. I may have been a bit presumptuous in thinking the member was just slow. He is now being downright obtuse. You have told him five times that he cannot do that, and he is back doing it again. If he cannot focus on the legislation before him, or get a colleague to explain it to him, then perhaps he should pass his speaking time to someone who can.

The CHAIRPERSON (H V Ross Robertson): Thank you, Mr Peters. I can see that if this continues it will lead to disorder. I ask the member to desist.

CHRIS TREMAIN: I am speaking on clauses 21 and 22, in relation to how they will work in Hawke’s Bay. I represent the Napier electorate, and I am going to ask some questions on behalf of my constituents from Napier and the constituents of Mr Craig Foss in Tukituki. I refer to the likes of the Napier Community House, DOVE Hawke’s Bay Inc. , the Disability Information Trust, the Red Cross Society, the Stroke Foundation of New Zealand, the Multiple Sclerosis Society (HB) Inc, and Presbyterian Support. Can the Minister explain exactly how clauses 21 and 22 will affect them? Without the opportunity for submissions to be considered at a select committee hearing, I am interested to know how these two clauses will impact upon those charities in Napier and Tukituki. I think we will be all the better if the Minister can explain that. Unfortunately, in this situation there will not be the opportunity for those organisations to make a submission on the provisions, which will have a major impact on them.

Hon Trevor Mallard: I am happy to. Shall I do that now?

CHRIS TREMAIN: Yes, that would be good.

Hon TREVOR MALLARD (Associate Minister of Finance) : Very briefly, I think that many members are aware that the Charities Commission has been slower than all of us would have liked in doing registrations. We were concerned that its slowness might stop some organisations that would otherwise be registered as a charitable entity from being able to avail themselves of the benefits of being so registered. So we have created a new category called “tax charity”, which effectively says that these organisations have taken reasonable steps, that they are in the process of registering, and will therefore qualify on that basis after a period of time. It will not harm any organisation in the Hawke’s Bay and it will help those who have been caught up in the slow process.

• Part 3 agreed to.

NATHAN GUY (National) : We are in urgency today talking about the title of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Bill. I think there could be several options for a title. The bill could be called the “Catch-up Budget that Doesn’t Catch up”. Michael Cullen has delivered a catch-up Budget—

Chris Tremain: Begrudgingly.

NATHAN GUY: Yes, begrudgingly. It is a catch-up bill that does not catch up. There is a second possible title for this bill: the “Wait 9 Long Years and Get a Jerrycan Full of Petrol on 1 October Bill”. The title of the bill could refer to the fact that people have waited 9 long years for a tax cut on 1 October that for the average wage earner will be 16 bucks. I worked out that that is about a jerrycan full of petrol. That could be another title for this bill. The third option I thought about was the “Election Bribe Tax Cut Just a Couple of Weeks Before the Polling Booth Bill”.

This bill is too little too late. New Zealanders are now screaming about the domestic costs they have to meet in their household budgets. Dr Cullen, after 9 years, has delivered this bill into Parliament against the wishes of a whole lot of his caucus colleagues. When he announced the tax cuts yesterday—for those who were not listening—he did not get any applause from any of his caucus colleagues, because a whole lot of them do not believe in them. Michael Cullen does not believe in them. His track record is that when he came into office in 2000, he lifted taxes. In 2005 he promised the “chewing gum tax” cuts and he could not deliver them. He reneged on his promise. That is why we are in urgency now. We have to get legislation in place, because, with Michael Cullen’s track record, no one believes him. He has been led screaming and kicking by a chunk of his caucus to deliver tax cuts.

Michael Cullen is ideologically opposed to these tax cuts. Let us look at Michael Cullen’s four tests for tax cuts: there has to be enough fiscal headroom; there has to be no borrowing—we know he is borrowing for these; they have to be non-inflationary—we do not know whether they will push up inflation; and they must not lead to inequalities—and we do not know that, as well. National is saying that Michael Cullen’s and Labour’s track record on this is pathetic. Labour has been led screaming and kicking, after 9 years, to deliver a tax cut that will enable someone in the spring to mow the lawns with a jerrycan of fuel. People will be able to go down to the service station in October and fill up their jerrycans with about 6 litres of fuel. By then the forecast is that it will cost them about 16 bucks, which is their tax cut. It is absolutely pathetic.

We see the waste in this Government’s spending, where it is spending $600 million through the Ministry of Foreign Affairs and Trade to do something with an embassy building in Stockholm. There is a whole lot of waste, which we believe New Zealanders should focus on, and we are going to do a lot better.

The history of this Government is pathetic. People are showing that by voting with their feet. In the last 12 months, 44,000 people have left New Zealand to go to Australia indefinitely—44,000. That is the whole number of voters in the Kapiti and Horowhenua area combined. Our youngest and brightest have gone to Australia in the last 12 months. [Interruption] Does Mr Jones know why they have gone? They have gone because they are getting one-third higher wages, their pay packets are better by a third, and they are paying less tax. This Budget will not turn those people around, because they do not believe that Labour can deliver. They do not believe that $16 for the average hard-working New Zealander is enough. Is that going to be enough to keep them in New Zealand? We need to re-incentivise people in this country. We need to tell them that it is fantastic here. We need to create the right incentives in education, to grow our wages, and to have a longer-term tax package.

Rt Hon WINSTON PETERS (Leader—NZ First) : I have to say how astonished I am to hear the party that has spent its last 20 years preaching the value of globalism, internationalism, getting offshore investment—whether or not it is a corporate raid on any company in New Zealand—that is allowing in all sorts of immigrants in their tens and tens of thousands, and that has argued for everything to do with the international world, now has its members get up and say they want to retreat. They do not want to be part of the real world, when it comes to diplomacy and trade. If their idea is that they are going to go out on the campaign trail and win the campaign of tax cuts on the basis of stopping there being an embassy in Sweden, then they have lost the plot entirely. Worse still, they are the very worst specimens of what used to be a great political party.

I can recall Brian Talboys—as can Dail Jones—30 years ago making this very speech. When the isolationists in the National Party who wanted to retreat from the real world got up at a conference and were starting to argue about why we were involved here, there, and everywhere else, he said: “If we want to retreat to New Zealand, wrap our blanket up around our heads, and hide in the dark, that would be a disaster.” That is what they are saying right now. The National Party members’ idea of how they are going to ply their trade, our identity, and our reputation around the world is by putting no money into it. All I have done is restore the Ministry of Foreign Affairs and Trade to have the level of personnel it used to have when National once had a decent leader.

The National Government started the cuts in 1992, and when it had finished the ministry had declined in real terms by 40 percent. No wonder our trade is not what it should be. No wonder we are not exporting what we should be exporting. The reason is that we do not have people on the ground where we should have them. Some of the successful countries are Finland, Sweden, Norway, Denmark, and Iceland. They are the five parts of the most successful regional economy in the world. They are our size, and we could learn a lot from them. We should have been there a long, long time ago. That is why we are making the investment. But if John Key, fresh out of plying junk bonds on the London stock market, thinks he can talk about this country’s international reputation and engagement, then that is an outrage.

I thought that people like Lockwood Smith, who pretends to know something about trade, might have been in support of this. Oh, no, he would like us to be in the Philippines with all those millions of people, with but two people on the ground. If one gets sick, there is one person left. If one has to go out of town, there is nobody in the embassy. That is exactly what the National Party had in mind. So if its members think they are going to win this debate on this issue of the value of these tax cuts, on the basis of being able to deliver more on making massive savings in the area of foreign affairs and trade, then, firstly, they are betraying their country; secondly, they are destroying this country’s potential in the future; and, thirdly, we will spend decades trying to turn the situation back towards New Zealand’s improvement. Brian Talboys knew that. Holyoake knew that. Marshall knew that. But then, of course, that was a time when there was a party that was led by real leaders and had a fine front bench, comprising people who were stand-out characters. Look at the front bench today—

Dail Jones: Where are they?

Rt Hon WINSTON PETERS: It would not matter whether or not they were there. It would still be the same value. But there is no one of calibre, ability, or experience. In fact, it is a disgrace that with all that money—$7 million of taxpayers’ funds and all the Business Roundtable funding, and all the capital markets money—those members are the best they can produce.

It is a disgrace that with all that resource they have now produced a party with people who are so bereft of imagination and so lacking in understanding of the economy that they think that if they can somehow touch enough greed and avarice out there amongst people who think they can get tax cuts, whether or not they are affordable, then they are not going to win the next election. Mind you, I always knew that. I always knew they never had the ability to win the next election, and I will tell every pollster right now that the talent that is required to win the next election does not lie on the National Party front benches. That is why they will not make it. They can display all the cock-a-hoop feelings they have now, but as time unfolds, month on month to the election, just watch the polls close. We shall see the kind of extremism they will go to, even to the extent that they now agree with my immigration policy—do they not? I was a racist 10 years ago. Now it is their policy. On Māori affairs and equality of law, I was anti-Māori. I was a Māori basher. Now it is their policy.

Dr WAYNE MAPP (National—North Shore) : I have to say to the Minister of Foreign Affairs that he has supped at Helen’s cup altogether too long. If he thinks that Norway, Iceland, Sweden, and Finland are the best examples for New Zealand, then he is simply wrong. If he thinks that the best thing that the Ministry of Foreign Affairs and Trade can do is to build an embassy in Stockholm as a solution for our trading problems, he is simply wrong.

What is demonstrated by this is that that party, New Zealand First, is voting against the China - New Zealand free-trade agreement—the agreement that actually promises the most for New Zealand’s trade, with the fastest-growing economy in the world. And what is he doing? He is voting against it. It is the prize of his ministry, and what is he doing? He is voting against it. I say to Mr Peters not to tell us what we think about wise expenditure in the Ministry of Foreign Affairs and Trade. I say to Mr Peters to go and ask the voters of Tauranga whether they think the highest priority for New Zealand Government expenditure is a new embassy in Stockholm. How many of them will say: “Oh yes, Mr Peters, you are absolutely right. We clearly have to vote for you on that basis.”? I say to Mr Peters that he is welcome to try that line and see how far he gets. The truth is that Mr Peters has spent too much time on the ninth floor and obviously has been seduced. That is all I can say.

This bill is clearly at the very heart of Labour’s Budget. Actually, in truth there was not much else in the Budget, except wasteful expenditure. I would have to nominate Stockholm as being at the top of the list. The second one I would nominate is the $47 million spent on rebuilding Government House in Wellington. I have been up there a couple of times. It does not seem very bad to me. Quite a bit of money has been spent on it over the last few years. Yet this Government has issued a press release, saying that this is a really important, Government House is part of New Zealand’s cultural heritage.

Dr the Hon Lockwood Smith: Extravagance!

Dr WAYNE MAPP: That is exactly what it is. It is extravagance, and the public will see right through that.

New Zealanders can make a different set of choices about sensible Government expenditure. The choice is not between Labour and all its $47 million, and this is the tax cut; or National and no more doctors, no nurses, and tax cuts. That is not the choice that New Zealanders will be facing. We can sensibly reprioritise expenditure and do better than this tax cut. For National, this is but the first instalment. We will announce, in our own good time, when we will have our tax cut package, and New Zealanders will have an absolutely clear choice on that.

One of the interesting things about this Budget is the choice that Labour made on broadband. It is much more interested in 19th century technology and spending $620 million on that, plus, apparently, hundreds of millions of dollars more, than spending $1 billion on broadband. Broadband is National’s choice. We have said clearly to the public of New Zealand that National will spend $1.5 billion on broadband. What has Labour said? It will spend $300 million to $500 million. That is the interesting issue. I listened to the speeches made by Mr Key and Helen Clark. Helen Clark spent her time reminiscing about the Springbok Tour, about the Viet Nam War, and about Sir Robert Muldoon’s numerous Budgets. She is very much mired in the past, so it is not surprising that she would spend her time focusing on 19th century technology. What will National do instead? National is looking forward to 21st century technology, and that is why it is prepared to spend $1.5 billion on broadband to power this country ahead. That is the symbol of the Budget: Labour, 19th century technology; New Zealand First, embassies in Stockholm; National, broadband technology for the 21st century.

A very clear issue in this election will be how we deal with the next decade, rather than the 19th century. New Zealanders will have a very easy choice to make—a bigger tax cut than Labour will deliver, a bigger tax cut than New Zealand First will deliver, and 21st century broadband technology.

Dr JONATHAN COLEMAN (National—Northcote) : If Dr Cullen were really being honest about this Budget, if he were telling us what he really thinks, he would be calling this the “tax cuts are largely offered as a political bribe, not because of beneficial economic or social effects Budget”. That is what he has said in the past. He has been on record many, many times, noting his aversion to tax cuts. I can tell members that there will not be anyone happier about this Budget than Shane Jones. He knows that Labour is going down the drain, and this is its last gasp. Shane Jones will be very, very well positioned, perhaps with his friend Annette King, to launch a coup straight after the election.

Mark Burton, of course, will not be quite so happy. He knows he is toast. He will be out of here. He will not be here. We can look at the Taupo electorate and say that it will not be a Labour seat after the next election. He will be getting out the retirement plan and calculating his parliamentary superannuation. He will be very concerned. Of course, there will not be much room for people like Louisa Wall to get back into the Labour caucus, as a result of this bill. She is the promising future of the Labour Party but, on the back of this Budget, she probably will not be returned. We knew long ago that Jill Pettis would be going. Sue Moroney, who is a Labour whip, is supposed to be coming back into Parliament, on the back of this bill. But I say that things will be looking pretty shaky for her, too. She has the big smile, but it is with gritted teeth.

Sue Moroney: I raise a point of order, Mr Chairperson. One of the National members complained previously that he did not want to be here, because he felt the bill was being rushed through. We now have a member on his feet who is not even talking to the bill. Can he please speak to the bill?

The CHAIRPERSON (H V Ross Robertson): I say to the member that although this is a wide-ranging debate, one always has to be careful it does not lead to disorder.

Dr JONATHAN COLEMAN: Members can tell that what I was saying was hitting the nail right on the head, because Sue Moroney immediately rose to take a point of order. It shows that we are right on the button.

We heard a wide-ranging speech from the Minister of Foreign Affairs. He was talking about embassies in Stockholm and what happened in the 1990s, but I can tell members that the people of New Zealand are concerned about what is happening in New Zealand today. They are worried about the real concerns of real New Zealanders, such as filling up the gas tank at the petrol station. [Interruption] These interjections from the Minister of Foreign Affairs are the best reason I have heard yet for us to install breathalysers in the lobbies. We heard all this stuff. He had his head in the wine box during that speech. [Interruption] Here we go. I knew this would happen.

Rt Hon Winston Peters: I raise a point of order, Mr Chairperson. I tell that member that I want an apology right now, and if I do not get it I will nail about four of his colleagues. If that is the kind of conversation—

The CHAIRPERSON (H V Ross Robertson): Order!

Rt Hon Winston Peters: The member cannot make that sort of comment.

The CHAIRPERSON (H V Ross Robertson): Is the member raising a point of order?

Rt Hon Winston Peters: That man said something totally defamatory that if it were said outside this Chamber would be slanderous. He is not going to get away with it. I tell him that either he apologises now, fulsomely, or I will nail four or five of his colleagues and he will be responsible. If he wants to throw that sort of dirt, he is going to get it back and in double measure.

The CHAIRPERSON (H V Ross Robertson): If the member made any defamatory remarks and exception has been taken, then he should withdraw and apologise.

Dr JONATHAN COLEMAN: I withdraw and apologise. We have to sit here all the time and hear stuff about cigars and cigar smoke, but when we give a little bit of dirt back to a member who has been sitting here for 30 years, he is on his feet, whingeing and complaining, and crying to the Chair. Is it not amazing? I would have thought that after 30 years a member could sit there and grin and bear it, and take what comes his or her way in a robust debate.

Rt Hon Winston Peters: But can you?

Dr JONATHAN COLEMAN: Exactly! Can I? The record will show it. I come back to the tax cuts. Of course David Benson-Pope will not be here, but for totally different reasons.

The CHAIRPERSON (H V Ross Robertson): Order!

Dr JONATHAN COLEMAN: I said I was coming back to the tax cuts. I have another word on the title. How about this as a quote from the 2000 Labour Party conference: “Tax cuts are a path to inequality. They are the promises of a visionless and intellectually bankrupt people.” I say that that pretty much sums up the Labour Party. Annette King is sitting in the chair. She has her arms folded. She is not very happy, because she knows that this is a Budget that shows how desperate and down on its luck Labour is. It has thrown the kitchen sink at this Budget. Its members know that there was nothing left for Labour but to put absolutely everything it could in this Budget. They know, in the bottom of their hearts, that this will not be enough to win the next election. They know that the phone is off, in middle New Zealand; the phone is off amongst their core Labour supporters—in fact, it has been ripped out of the wall and thrown into the swimming pool.

People have had enough of this crowd. When I go out door-knocking in Northcote, the mood now is completely different from what it was in 2005. People are saying “You’ve got to get rid of this mob.” They are also saying “I’ve voted Labour for the last seven elections. Never again! I have been let down by this crowd.” We can see that the heads are down now. Labour members are looking in their newspapers. They know that it is true.

Hon GEORGINA TE HEUHEU (National) : In speaking to the title of this bill, I ask whether the title should be the “Last Chance Saloon (Tax Reduction) Bill”?. That title would suit the bill better, particularly given the cartoon on the front of the Dominon Post this morning entitled “Last Chance Saloon”, because that is about all it is. This is the last chance saloon and the New Zealand public have closed the door on that Government, and do members wonder that they have done that? No, absolutely not.

For 9 years Dr Cullen has sat on that side of the Chamber and enjoyed all the perks of Government, and he has actually treated his fellow citizens with absolute disdain. I say shame on him, shame on Helen Clark, and shame on the Labour Government. Arguably, the people he is trying to help now are the people who, for years and years, have given that Government their support, and that includes Māori. It would not be so bad if Parekura Horomia had come forward with something directly for Māori, but the most he had in his announcement yesterday was $40.5 million for the Earth Building Association of New Zealand, a new Māori incorporation—but with no money voted for it and no appropriation, and Shane Jones might like to answer that but he will not. There was no money appropriated to it, just money to be set aside. So if one takes that out, there is absolutely nothing in the Budget for Māori.

If one thinks about the $12 a week that most of the working Māori families are going to get, I ask Dr Cullen where that is going to go. Why does he not take a call and tell us how that helps our struggling families—all New Zealanders who are struggling, but particularly Māori families, on low wages. After 9 years he is basically giving them $12, which will not buy even a block of cheese. Again, it is a shameful tenure and a shameful stewardship by a Government that has enjoyed the support of those very people for 9 years, and previously, but who will not have it this time. The number of people who say to me, and I am sure they say it to all my colleagues: “I’ve voted Labour for years and years, but I won’t be doing that again.”, is why this bill should be called the “Last Chance Saloon Tax Bill” because, actually, the chances have gone. They have absolutely run out.

When one thinks about the Minister of Foreign Affairs saying he is going to “flashen up” all the overseas posts and stuff, it sounds good, but what about his people up north? What is in this Budget for them? There is absolutely nothing, because a lot of them are not working, they are unemployed, they are on benefits, and they are struggling. There is nothing in this Budget for them. Working for Families does not even impact on them—

Rt Hon Winston Peters: What about the old people?

Hon GEORGINA TE HEUHEU: OK, there is help for a few of our old people, which is good, and I do not for a minute begrudge help for our elderly. They deserve it. It was on their backs that this country was built, and it is on the backs of members of the Labour Government that this country is now broken. Labour members have the gall, after 9 years on those benches, to bring tax cuts, which we know that Dr Cullen hates. If he had believed in tax cuts he would have brought them in long ago in 2003-04. We had good economic conditions then. Now when the economy is in a slump, in a downturn, he brings the tax cuts forward. So what will that do? It will leave a mess for National, because that is what Labour always does. That is what it absolutely does, it leaves a mess for National and we always have to spend the first few years of our stewardship fixing up the mess. That is what we will be doing shortly.

I suppose if there is a party that is capable of fixing up the mess it has to be the National Party. It is only the National Party that can fix and manage the mess that Labour Governments always leave the country in when they go out of power. That group of MPs over there is gone.

Dr the Hon LOCKWOOD SMITH (National—Rodney) : As we now debate the title and the commencement of this bill, it is little wonder that the headlines running around the country today are saying “Too little, too late”. When one comes into the Chamber with a Budget like this, after 9 years of refusing even to consider—[Interruption] Well, when I say “consider”, that is not true. Dr Cullen and Labour did consider personal tax cuts. That was in 2005, was it not, the “chewing gum” tax cuts, and, of course, Labour reneged on its promise. But after 9 years of no personal tax cuts, for the average working New Zealander to be given a tax cut equivalent to the cost of a family block of cheese is an insult. It is an insult to New Zealanders, and that is the way New Zealanders are seeing it, because what difference will it make to their lives? As it now costs them more and more to fill the car with petrol—well over 100 bucks to fill the family car—and as it costs them more and more every time they go to the supermarket, is that block of cheese going to make any real difference? Of course it will not, and they find that insulting. But what is more insulting—

Rt Hon Winston Peters: You’re the only guy in this House who could eat a block of cheese sideways.

Dr the Hon LOCKWOOD SMITH: I guess that member would know because he always told this Parliament that all he wanted to be was the MP for Tauranga. Well, I can tell my colleagues that Winston never told the truth about that. He wanted to be the MP for Kaipara.

Rt Hon Winston Peters: I raise a point of order, Mr Chairperson. There are some people around this country who are not known, and never will be known, and some who are known by his or her first name. I happen to be one of them, but he cannot use it in this Chamber.

The CHAIRPERSON (H V Ross Robertson): Thank you, Mr Peters. All I can say is that there has been a good exchange between both sides.

Dr the Hon LOCKWOOD SMITH: Let me call him the Rt Hon Winston Peters. He always told New Zealand he only ever wanted to be the MP for Tauranga. What a lie. In 1983 he—[Interruption] I said that statement was a lie. In 1983 he went for the nomination for selection for Kaipara and—

Rt Hon Winston Peters: I raise a point of order, Mr Chairperson. Just so the public might know, there is a bill before the Committee. That is the subject being discussed. But the member has lost the plot entirely just because of an interjection that he is the only one in this Chamber who can eat a block of cheese sideways. He got all upset and now he is running through my brilliant political career. Now I know it is scintillating but it is not part of the debate in this Chamber.

The CHAIRPERSON (H V Ross Robertson): I think we have had our fun for the morning.

Dr the Hon LOCKWOOD SMITH: Let me just finish the story, to make sure the Rt Hon Winston Peters does not miss out any bit of it. Of course, he got thrashed in the selection for Kaipara, he did not even take me to a final ballot, and with his tail between his legs he limped off to Tauranga and tried to con the people there that all he wanted to be was the member for Tauranga.

Let me come back to the title and commencement of this bill. What is so insulting about it is that New Zealanders get the block of cheese this year and then, if one looks at the provisions in the commencement clause, it is 18 months before they get any more from these tax cuts; 18 long months. So we have had 9 years of Labour, New Zealanders get a block of cheese, and then it is another year and a half, which will take it to 10½ years. Do members know how much more the average—

Hon Member: Half a block!

Dr the Hon LOCKWOOD SMITH: The average worker gets half a block, because they get $6, I think, in that second tranche. So after 9 years we get the block of cheese, and after another 18 months we get half a block of cheese. What an insult!

Do members know why students are also angry? This is a Government that cares so much about low-income earners, like students. Under the provisions of the Budget, the tax changes, and all that sort of thing, students can borrow an extra 5 bucks a week. Instead of $150 they can borrow $155. Five bucks will not buy half a block of cheese. But, even worse, the age at which the means test on parental incomes no longer applies has been dropped by 1 year, from 25 to 24. No wonder the students up and down the country feel absolutely betrayed by this Labour Government, just as the average worker does, because after 9 years it is an insult to give them just the equivalent of the cost of a block of cheese.

I see that Dr Cullen is back in the chair. Last time he was a member of a Government that was going out of office, in 1990, his Government ignored the Budget totally. Dr Cullen was the Minister of Social Welfare at the time; he had been the Associate Minister of Finance. The Government ignored the Budget totally. Dr Cullen and the Department of Social Welfare just spent money, as he tried desperately to hang on in 1990. He spent money with no appropriation to spend it, way beyond the supplementary estimates. Members can ask Jenny Shipley about it; she had to make legal Dr Cullen’s illegal spending in 1990. I bet he will do the same thing again. Labour will take no notice of the fiscal projections in this Budget. There are unquantified risks around this Budget, and Labour will just spend it. I bet that Labour will do this if it stays behind in the polls. Annette King remembers; she was not so guilty. Her mate Phil Goff was guilty, though. In 1990 he spent money willy-nilly leading up to the election—totally illegally.

COLIN KING (National—Kaikoura) : It is certainly a privilege to speak to the title of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Bill 2008. It is worth mentioning at the outset of this little presentation that when National becomes the Government, this bill will be merely the first instalment of what will turn into a very ambitious future. When we stop and look at the Labour Government in relation to the long period of time when it said that tax cuts were impossible to deliver, we see that there will be tax cuts for New Zealanders with just 2 weeks to go before the election in mid-October. Unfortunately, when we hear the arguments that are rolled out around what is doable by this Labour Government, we find that the public are certainly saying that the Government has been crying wolf for far too long. It has been crying about what is doable, and what good management is, and the public has totally switched off. Labour has cried wolf far too much; the public is telling the Government that it has missed too many opportunities.

It was quite interesting to go to the XTRA website this morning and see what the public is saying. Eighty percent of respondents to the news poll rated the Government’s performance as inadequate. When 80 percent of the country is calling the performance of the Labour Government inadequate, we know that even though tax cuts are on the way, they, too, will be inadequate. When we look at the tax cuts that we are facing, we can start to see why this country needs an ambitious leader like John Key and a National Government. We have got ourselves into a terrible spot under this Labour Government. The cake has been getting progressively smaller, so the opportunities, and the pieces that the cake is divided into, have become so small they are not worth measuring. When we look at the tax take for people earning $14,000, it is great to see that 2 weeks out from the election they will be paying only $1,750-odd in tax. But a person earning from $40,000 to $70,000 will be paying $23,000 worth of tax. We do not have to be rocket scientists to realise that if we can grow this nation’s economy, we will be able to have a lot better time than what the present Labour Government considers to be the best time in 30 years, economically. It is OK for former Minister David Benson-Pope to shake his head, but it is a shame that we have missed out on the opportunity.

We can measure the opportunities by the number of people who are leaving the country. Twenty-five percent of our tertiary-educated people have cashed up and left this country. When we compare that figure with Australia’s, we find that only 2.5 percent of Australia’s people are outside that country. “Too little, too late”—that should be the title of this bill. The tax cuts amount to only the cost of a block of cheese, which is a damned insult to all working New Zealanders. We should not miss the point that there has been a chilling effect towards the Labour Government, because under Dr Cullen we have missed the greatest opportunities in a generation. Wastage over 8 years has meant that at the end of it all, we will have only a block of cheese before this election, and it would have been 18 months before Labour intended to give any more, to honest, hard-working New Zealanders.

So we are talking about tax cuts. We are very pleased about them, but I would hope that those listening to this debate will understand that under a National Government those tax cuts would be only an instalment. If we want our children and our younger generations to go forward, we have to have the ambitious leadership of a John Key, National-led Government. All hard-working New Zealanders are sick and tired of Labour members crying wolf and saying that the cupboard is bare, and that there is no better way for people to manage their money. I tell the Labour Government that the honest truth is that the general public know more about how to spend their money than it does. Those Labour members have failed New Zealand many, many times. They have driven our best and our finest overseas to seek opportunities. They have wasted money in so many areas that the cake has become so small, it is impossible to divide it up. Thank you.

• Clause 1 agreed to.

• Clause 2 agreed to.

• Bill reported without amendment.

• Report adopted.