Hon BILL ENGLISH (Minister of Finance) : I move, That the Appropriation (2011/12 Estimates) Bill be now read a first time.

• Bill read a first time.

Hon PETER DUNNE (Minister of Revenue) on behalf of the Minister of Finance: I move, That the Taxation (Annual Rates and Budget Measures) Bill be now read a second time. This bill addresses two of the bigger programmes administered through the tax system—Working for Families and KiwiSaver—and the changes foreshadowed in the Budget brought down earlier this afternoon. The changes proposed in this bill are about making those programmes more sustainable by focusing them better to ensure that Government spending is directed to where it is needed most, and eliminating spending that is not.

Working for Families recipients on higher incomes will therefore find that the changes the bill makes will reduce their tax credits at a faster rate, and their reductions will begin at an earlier point in their salary scale. In brief, the changes introduced to Working for Families are an increase in the abatement rate by 1.25 cents at every inflation adjustment from 1 April next year until it reaches 25c in the dollar; a decrease in the abatement threshold at every inflation adjustment from 1 April next year until it reaches $35,000; and the removal of the inflation adjustment for family tax credit amounts for children 16 and over from 1 April 2012 until the amounts for children aged 13 to 15 catch up. Once these amounts equal the family tax credit amounts for the oldest child, the inflation adjustment will apply again. Because these changes take effect from the beginning of next year, they need to be put in place at this point to allow systems changed to cope.

The changes to KiwiSaver are intended to ensure that the scheme continues to make it easy for people to save and so be better off in retirement, while reducing the cost to taxpayers of the subsidies to individual accounts. All employer contributions to employees’ KiwiSaver accounts will be subject to the employer superannuation contribution tax, and the member tax credit is being halved for the next member tax credit year, which ends on 30 June 2012. The minimum employee contribution rate will rise from 2 percent to 3 percent from April 2013, as will the default contribution rate, and compulsory employer contributions will similarly rise from 2 percent to 3 percent at the same stage. Those changes are not included in this bill. They will come in legislation due later in the year.

These are the major measures contained in this bill. The bill also confirms the annual tax rates for the 2011-12 tax year, as is the customary process. With those few comments about the measures, which I think are about ensuring a fairer, more balanced tax system that is part of the Government’s overall strategy to return New Zealand to a pathway of economic recovery, I am happy to commend the bill to the House.

Hon DAVID CUNLIFFE (Labour—New Lynn) : The Labour Opposition completely and thoroughly disagrees with and objects to this sham of a bill, the Taxation (Annual Rates and Budget Measures) Bill. The first point we make is to ask why we are here in urgency, debating a bill that does not take effect for 18 months. If it took effect earlier, it would be proof positive that the Government had broken its promises not to cut KiwiSaver and not to touch Working for Families in this term of Government, and its promise to go back to New Zealanders to seek a mandate—just like with asset sales. But the Government has thrown all that aside and is pushing through this bill in urgency on a sham. Those members should be ashamed. The whole Budget is a sham. It is built on flimsy foundations of unspecified cuts and divergent forecasts between different departments. It is built on a very, very flimsy foundation, to the risk and cost of all New Zealanders.

I tell the Government to talk to New Zealand families who are losing up to $50 a week because of the Working for Families cuts, or couples losing $20 a week because of the KiwiSaver cuts, and tell them why they are bearing the brunt while farmers and high-income individuals keep their tax dodges and keep their 2010 tax cuts. Working New Zealanders are picking up the tab. This bill is unfair, it is ill-timed, and it is unconstitutional because there is no mandate to do it. It is a sham, like the whole Budget is a sham. The Minister of Finance should be ashamed, the Government should be ashamed, and the public should throw them out. That is what they deserve. The public has a final, last chance on 26 November this year to stop these cuts dead in their tracks, but they will have to stop this nasty, greedy, Tory Government dead in its tracks to do so. It is the only way to protect KiwiSaver, it is the only way to protect Working for Families, and, frankly, it is the only way to restore rigour to the Budget process after the pathetic excuse of a sham that has been presented to the New Zealand people today.

• Sitting suspended from 6 p.m. to 7 p.m.

Hon DAVID CUNLIFFE: Before we broke for the dinner break we were asking ourselves why the Taxation (Annual Rates and Budget Measures) Bill is being debated under urgency, because the changes it incorporates apparently do not come into effect until 2012. That is hardly urgent. What is more, Government members have argued that that is an entirely good thing because it shows that they are keeping faith with the electorate, which still has the chance to throw them out on their ears. However, as a matter of fiscal prudence, that argument does not square well with the fact that the proceeds of these cuts are already incorporated into the Budget baseline as of now. They are in Budget 2011, not Budget 2012. That means that next year, if members opposite find themselves rather fewer in number and sitting on the Opposition side of the House, the Government of the day will have to either unpick these changes or find other means of filling in the baseline hole. In other words, the constitutionality of going to the electorate for a change that was already booked in the Budget 6 months before is dubious. It is a sham, it is spin, and it is a victory for the political spin doctors in the Beehive over the substance of good government.

How would members opposite know—some Labour members here remember what it is like being a backbencher on the Government side of the House—when no one tells them anything. They know less about what is in the Budget than we do. They get dragged in at lunchtime by the Ministers and told “This is when you have to clap”, and they all bark like seals. That is how it works, and they are still doing it. But I ask why the Government members are doing that, because I have been debating with myself and colleagues as to whether this Budget is a zero or a one on a scale to 10, depending on where one starts. I will stick with Bill English’s definition. He called it a “Zero Budget”, and I think he was right; it really is a zero. Phil Goff called it sub-zero. He might have been a bit harsh, and that is our job, but I think zero is a fair balance point—zero out of 10. I ask members why that is. It is because it had to do three big things. It had to credibly reduce the deficit, and I will go into why that has not occurred, and it had to make structural changes to the economy to lift our growth rate, lower debt, increase savings, and improve the balance between the export sector and the domestic non-tradable sector. It has done none of those things.

There is not even the pretence, the sham, or a shadow of an economic development plan anywhere in this Budget. I thumbed through the Budget Economic and Fiscal Update in the lock-up. I thought I had missed a chapter or maybe there was another volume, but there was not. There is no plan in this Budget for growth. That might be why the Inland Revenue Department does not believe Treasury’s growth projections and has run out a revenue track on pages 81 and 82 that is $3.8 billion lower than Treasury’s revenue track over 4 years. Even the Inland Revenue Department does not believe the rosy glow of the growth forecasts that are in this Budget. It about as solid as a tissue.

I turn to the third criterion that a good Budget needs to satisfy: it has to be fair to all New Zealanders. We on this side of the House actually agree with the Government that the deficit and the debt mountain are too big. People need to draw in their belts and savings need to be found. That is all true, but the fact remains that there are choices. If there are to be savings, then they had better be fair. They have to be fairly spread around the community so that those who can afford it most pay a little more and those who can afford it least are given a little bit of a hand up. We as Kiwis do what we do well. We look after each other and we try to get through, bringing everyone along. But, oh no, the Budget does not do that. It does not say “These are tough times. We’re short of money and we gave away too much with those upper income tax cuts, as $23 billion of tax revenue forgone was a bit excessive in light of the way the world has turned. Let’s claw some of that money back and ask upper-income earners to give back a little of the 6-cent tax cut they had on the original rate of 39 cents in the dollar.” The Budget does not do that. It does not close down loopholes for the people writing off income on their businesses or farms, or creating a trust. It does not do any of that tax-avoidance work. It does none of that. There is nothing about broadening the tax base in this Budget. There is none of that.

Through the changes in this bill, the Budget claws back KiwiSaver investments at the rate of $10 per week for each KiwiSaver, and the employer tax credit will partly be offset against the employee’s accumulated funds. In that way, each KiwiSaver is about $10 to $12 per week worse off. That is not as bad as what is happening with Working for Families. By 2015 a middle-income family with two children and two parents earning $80,000 per year between them will be $50 per week worse off, according to our analysis—$50 per week worse off on Working for Families. That is why we said to members opposite earlier on that Ruatōria will be “Rua-poor-ia” by the time those changes feed through. Te Ururoa Flavell will have to explain to the good people of Waiariki why he supports a Government that is cutting their pūtea and what will go on the table for their whānau. He will have to explain why he is backing a conservative Government that makes life harder for ordinary working families in New Zealand. That is what this Budget does. It tightens the belts of those who are already wearing them tight, whereas the belts of the fat cats are loosened even more. That is wrong.

There are three things wrong with this Budget. Firstly, it is built on flimsy foundations. There is too much smoke and mirrors. Even the Inland Revenue Department does not believe the numbers. Secondly, there is not a shadow of a plan for growth in jobs. Thirdly, there is no equity. Some belts go out, some come in, and we end up with a divided society that is no better off by the end of the forecast period.

CRAIG FOSS (National—Tukituki) : I find myself in the very awkward position of agreeing with members on the other side of the House on something. Before the dinner break, Mr Cunliffe and one of his colleagues who spoke earlier said that Dr Cullen would have never delivered a Budget like this one. That is so true. Let us look at some of the differences in this Budget. It is transparent, it has a path to lower debt and a surplus, it is open, and its numbers have integrity. Wherever possible, things have been front-loaded, such as putting into this year this Government’s full commitment to the reconstruction of Canterbury, which is, all up, about $8.8 billion going on to the accounts this year. The previous member started by worrying about why this bill was being debated tonight, because some of the changes do not come in until next year. I think he was asking why it was counted. I say to members that there is a little thing called the forecast period. In the Public Finance Act, I think members will find that for 3 or 4 years the Minister of Finance has to forecast anything and everything that he or she knows will affect the accounts of this country. Anything that the Minister of Finance knows is happening, has happened, or probably will happen is in this Budget. If there is something a bit further that he or she is unsure of, then it is in the various contingencies at the back. It provides certainty in very uncertain times.

We note how the Leader of the Opposition said earlier that he had signed the free-trade agreement with China all on his own, or something like that. After he said that, he also told us that the global financial crisis ended some time in 2009. Our Prime Minister invited him to go around the PIGS—Portugal, Ireland, Greece, and Spain—to suggest to them that the global financial crisis is over, and see what they say.

This Budget and this bill will keep interest rates lower for longer. It is as simple as that. Mortgage interest rates and working capital interest rates will stay lower for longer. They have been at record lows under this Government. They will continue to stay low under this Government. Why might that be? There are a couple of reasons. One is that this Government is getting its books and its house in order after inheriting ongoing spending increases from the previous Government, which had no corresponding revenue increases attached to it.

The second is that under this Government, real inflation is around 2.5 percent. Everyone has been compensated for the GST increase, unlike with the previous administration. Under the previous administration, inflation was running at 5-plus percent, in spite of the Reserve Bank of New Zealand Act, which Labour members now seem so keen to want to change. Yet for at least 3 or 4 years of Labour’s last period in Government, inflation well exceeded the 3 percent cap, as defined in the Reserve Bank of New Zealand Act.

This Budget and this bill pass four solid, good tests. They put New Zealand and New Zealand enterprises in a better frame to grow their exports, because this recovery has to be export led. There is only upside, since the last 4 or 5 years prior to the National administration coming through, because there was no real growth. In fact, export—the real tradable sector—went backwards after 2004. The Budget and this bill pass the test of an export growth - led economy. They will grow savings. KiwiSaver contributions are going up. Household savings rates are on the increase. Dr Bollard from the Reserve Bank noted the other day for the first time in living memory that bank deposits are growing. New Zealanders are saving more, borrowing less, and moving from the debt-laden property boom we had in the previous administration.

The Budget and this bill pass the test of reducing a deficit and of showing a lower debt track. We will have surplus sooner than was predicted even in last year’s Budget, and much, much sooner than was in the papers to the incoming administration after the election of this National Government, when the decade of deficits was forecast and when the real numbers started to hit home. Members may recall a minor problem with Budget 2008. It did not include all those things around KiwiRail and ACC, but that is for another day.

This Budget and this bill also pass the test of higher real after-tax incomes for New Zealanders, New Zealand families, and New Zealand households. Part 1 of this particular bill sets the annual rates of income tax. Therefore, they define the after-tax incomes of New Zealanders, which have grown at 6 percent after only 2½ years of this National Government. After 9 years of the previous administration and the best economic times possible, real incomes grew only 3 percent—after 9 years. There is a bit of a problem there.

Finally, I will make just one more point. Members opposite are starting to point to page 81 of the Budget and are talking about some conspiracy theory or something. As they are wont, they are reading half the page. They talked about a discrepancy between the Inland Revenue Department forecasts and Treasury forecasts on tax take. If members read the page they will see that it is all about corporate tax. I will read the first couple of sentences of paragraph 2, which the members opposite seem to keep forgetting. Paragraph 2 states—as the members opposite point out—“The lower forecasts of tax revenue from Inland Revenue indicate there may be some downside risk to our tax forecasts.” That is fair enough. It is open and honest.

The second sentence is the bit the Opposition members keep forgetting to mention: “At the same time, there are also upside risks.” Basically, that says that on the downside the tax forecasts from the Inland Revenue Department possibly could be wrong, but on the upside they possibly could be right. If Treasury is at one level and the Inland Revenue Department is at another level, they will tend to merge along the way. In fact, I recall Dr Cullen having ongoing problems with this issue, which, from memory, started an inquiry as to why his various forecasts were so discrepant from those of the Inland Revenue Department in many of his Budgets.

As we move through talking about this Budget and the taxation bill in front of us, I agree with members who, interestingly, are starting to justify previous Budgets, at least over 2 years and maybe even 11 years on from Dr Cullen. They are trying somehow to justify what they are saying today but totally forgetting to offer their own alternative plan for this Budget. Going into an election, Labour members are still stuck in the past and talking about Dr Cullen. Interestingly, I find myself agreeing with members on the other side. Dr Cullen would never have delivered a Budget like this one, because, quite simply, this Budget is attempting to fix the problems that the previous administration, under the stewardship of Clark and Cullen, put upon this country. They were quite devastating problems, but this administration, this Minister of Finance, and this Budget will arrest and fix those problems and put New Zealand on a solid and good path for growth and prosperity. Thank you.

Hon DAVID PARKER (Labour) : I will begin by correcting what I think is a misrepresentation of the real position in respect of wages that the previous speaker, Mr Foss, made in his contribution. He said that real wages after tax had increased by 6 percent since the date of the last election. Of course, these averages can be very deceptive. That figure is only right if we include the top 10 percent of income earners.

Craig Foss: Ha!

Hon DAVID PARKER: That is true. If we look at the spectrum of wage increases across societal wages we see that more than half of New Zealand wage earners are earning less in real terms than they were at the last election. It is only if we weight that average by including the 10 percent of salary earners and wage earners who profited handsomely under National’s income tax cuts—in fact, got 42 percent of the tax cuts—that the average that Mr Foss gave is correct. For the vast majority of New Zealanders, that is not the position they personally have found themselves in.

I will speak more on a topic that Mr Foss agreed was important, which is savings. One of the things I want to emphasise, as I said in an earlier contribution, is what page 70 of the Budget shows being New Zealand’s net international investment position as a percentage of GDP. This is the figure that the Minister of Finance quite rightly has been emphasising in the House. This is the sum of all of New Zealand’s assets overseas—that is, assets owned by the Government, and private—less all of the debts that are owed to overseas and other people’s investments in New Zealand. It is our net investment position. In 2011 it is 78.6 percent of GDP, which is slightly better than it was in 2010. From here on it gets worse every year.

The Minister of Finance has been telling us that the biggest problem in the country is our net investment position, and from here on it gets worse every year. That is the effect of the Budget and this legislation we are passing. How can the Government crow about that? It gets worse every year. In fact, it grows from 78.6 percent of GDP now to 85.3 percent of GDP in 2015. We are told that we are already one of the worst countries in the world, and the effect of this Budget and of the economic management of the Government is that by 2015 that figure gets worse and will be 85.3 percent of GDP. It is a sobering reality. It is a sobering reality in regard to the effectiveness—or ineffectiveness—of the Government’s management.

Another point that I agreed with Russel Norman on in an earlier contribution was when he said “And to get there, you’ve got to have a return to, effectively, property-based consumption.” In his view, that is signalled by these Budget documents. Inside that figure is also an assumption that KiwiSaver will grow in the way the Government thinks it will as a consequence of the changes it is making to KiwiSaver. The regulatory impact statement that we provided in Parliament today talks about its assessment of the changes to KiwiSaver.

Members should remember that the Government is predicting that as a consequence of this, savings will still increase, but that does not make common sense to me. If we are going to require people to contribute more to their savings with fewer incentives, how can we credibly conclude that more people will do that voluntarily? How does that work?

I am not the only one who is concerned about that. When I read the regulatory impact statement, I see lots of riders in it about how the Government does not really know how this will pan out, and it is not very confident about that. I will read out a couple of sentences. “The impacts of each option cannot be easily modelled using historical data, given the relative newness of the KiwiSaver savings model, nor is international comparison always appropriate, given many of KiwiSaver’s unique features and New Zealand’s TTE model of taxation. Our analysis of the options is therefore dependent on behavioural assumptions, for which there is minimal empirical evidence, about individuals’ and employers’ responses to changes in savings incentives and other regulatory requirements.” That is the first thing I will read out.

The next thing is: “We have also recognised that KiwiSaver is less than five years old. Since its launch in July 2007, there have been several significant changes to contribution requirements, which have mostly affected employees and their employers, as well as new providers entering into the KiwiSaver market. The KiwiSaver industry has not experienced any period of stability in which to establish its core products, and this uncertainty and unpredictability is not helpful to either the industry or savers.” It then goes on to say: “The proposal to increase the compulsory employer contribution rate at the same time as increasing the minimum employee contribution rate will lead to some additional costs on businesses that employ staff,”— as well as, of course, the employees who are contributing—“… in the short term this may reduce firm profitability.”

Against that background and all those uncertainties, how can the Government have any confidence that its changes to KiwiSaver will result in the level of savings that it is assuming? Therefore, it is possible, in my submission, that if those people are not saving that money—the savings that this country so desperately needs to improve the productivity of our businesses, so that we have more capital available to our businesses to grow and to invest in more expensive capital plant and other things to improve productivity—then we can have no confidence that the Government’s projections will be met. I tell Mr Foss, in regard to his point about there being an upside and a downside in forecast, that there is always an upside and a downside in revenue forecasts. The point the Opposition was making is that even the Budget documents note that there is a very large discrepancy between the forecast from the Inland Revenue Department and Treasury as to tax forthcoming from the corporate sector—

Craig Foss: Over 4 years.

Hon DAVID PARKER: Correct. In the face of that uncertainty, the Government has not taken the prudent course in taking the lower number. It has not even split the difference between them. It has taken the most optimistic number and plugged it into its forecast. That is another example of wishful thinking on the part of the Government.

Another area of poor practice according to the Opposition, of which there is no precedent that I am aware, is that the Government has said it will save $330 million per annum in respect of programmes it will cut, but it has not identified them. We are expected to believe what the Government is saying, that it can be relied upon to find those savings, yet we are not told where Government departments are meant to look to find them.

Another example of what seems to me to be voodoo economics is that the Government has imposed on every school in New Zealand the requirement to co-fund the superannuation savings of their teachers. The teachers are entitled, as is any other employee, to opt into the superannuation savings scheme called KiwiSaver. If they do that, then under that scheme they will be saving 3 percent of their own salary, plus the employer—in this case the schools—will have to match that with another 3 percent. That 3 percent—2 years ago it was 4 percent, then it dropped down to 2 percent, and now it is going to 3 percent, in the middle—has to be funded by the schools now, whereas previously it was funded by the Government. The Government used to fund that contribution to match the teachers’ savings.

Where are the schools going to find that? Where will they magic that money from? There is silence from Government members; their heads are down. They know there is no answer to that. That is effectively a significant decrease in the funding of every school. I have been on a school board of trustees, as have a number of other members of this House. Those schools are constantly fighting to balance their budgets. They are facing inflationary pressures, in any event, from power prices going up, which, by the way, will only get worse if the Government sells off State-owned enterprises. That is also counted in its Budget forecast. Despite the fact that the Government pretends that this is not yet upon New Zealanders and that they have a choice, it has already counted this in the Budget as if they had already been sold.

DAVID CLENDON (Green) : Kia ora, Mr Assistant Speaker Robertson. Kia ora koutou. I am pleased to take this first opportunity to speak to the Taxation (Annual Rates and Budget Measures) Bill and to the Budget generally. Today we heard the opening salvos in what will be a long debate. We welcome that debate and the opportunity to put up some of our ideas, beliefs, and alternative approaches to this very critical issue of where the money comes from, where we spend it, and in whose interests we undertake those transactions.

A lot can be said—and, no doubt, will be said—about this bill and about the Budget more generally, but a great deal more can be said about what has been left out of these documents. We can talk about doing a gap analysis of the series of propositions we heard from the Government today, but we can more properly talk about a chasm. There is a great white space where there could be something resembling a vision. There is a complete absence where we might have hoped to see something that would suggest there is a long-term strategy or plan to establish and create a long-term socially and environmentally sustainable economy in this country that has an absolute and clear capacity to achieve that goal and that state.

Instead, we are offered nothing more innovative or visionary than some quite mean-spirited cuts to public spending, cuts to income support, and cuts to the Government’s contribution to individuals’ and families’ long-term savings. These cuts will hurt families and households because they come at a time when incomes are at best flat and in many cases reducing, and when people are struggling to pay their day-to-day expenses and costs and to meet their bills. We see nothing in here that will give those people much hope, or much confidence that they are in good hands, that their future is being well regarded, or that they should have some hope of a better future.

We see the cuts to the Government’s contributions to KiwiSaver. That in itself is a breach of an assurance that this Government gave to the general public, to participants, and to contributors that KiwiSaver would not be meddled with. This has been a remarkably successful mechanism. KiwiSaver has been a success. It has almost been a victim of its own success, to the extent that the take-up has caused some difficulties.

An investment scheme of this sort is one of the last things that Governments should play politics with. Like superannuation funds, people need to have confidence in long-term savings schemes. They need to know there is some security and that the rules will not change arbitrarily year by year, Budget by Budget, or political term by political term. It is not helpful for the investors, who in time will utilise the sums of money that are available to them through these funding programmes and savings programmes. It diminishes the confidence of the saver and the investor, and that is not helpful.

The Government insists that it will seek a mandate for its changes at the next election, which I must say is one of the few innovative aspects of this Budget—to suggest that somehow retrospectively the Government can get a mandate for taking away something that it assured voters it would not take away.

Something like 110,000 parents will be affected by the cuts to Working for Families as unveiled in the Budget. More than 23,000—about one-quarter of those parents—will be earning less than $60,000 in their combined household incomes. Families with a combined income of some $60,000 are not well-to-do, particularly if they are still supporting mortgages that they may have taken on in happier times, or if they are paying rent on homes that are increasingly poorly maintained and often sub-standard.

We see a lowering of the abatement threshold to $35,000. We can look at what this means in practical terms for a two-parent family, with one partner working full-time for the very meagre minimum wage that this Government allows them, even given the generous 25c per hour increase. Where one partner works full-time on the minimum wage and the other is working 12 hours a week on the minimum wage, the abatement will apply to them. Raising the abatement rate to 25c in the dollar results in an effective marginal tax rate of some 58 percent, which is simply untenable. Where is the incentive for people to improve their position or to try harder? We are constantly hearing from the Government side of the House that people simply need to work harder to better their position. Where is the incentive to do that, when we take away the level of support that people have come to expect and are still reliant on to a large extent?

Much of what we have seen in this Budget, and in the tax bill we are debating here tonight, is an assumption—which can, at best, be termed an optimistic hope—that the economy will come right. The growth forecasts here are extremely optimistic, and already financial commentators are shining a light on what have been termed “heroic assumptions” about growth in the economy over the next few years. The Government is relying on Treasury estimates, but there is an unfortunate history to that. Treasury, in the last several years—particularly since 2008—has routinely overestimated growth by some 2 to 3 percentage points of GDP. Why would we depend on forecasts that have historically proved to be at best optimistic, and often plain wrong?

Perhaps it is a reflection of the Prime Minister’s former profession as a currency trader—

Hon Clayton Cosgrove: A speculator.

DAVID CLENDON: —a speculator. Essentially that is an activity and a sector that require people to be very good at gambling. We are seeing essentially a gamble—gambling on growth. It is not even gambling on solid, productive, sustainable growth. There seems to be an inbuilt assumption that this meddling—this fiddling around the margins of taxes, spending, and cuts in Government—will somehow return us sooner, rather than later, to economic growth: increased confidence; more consumption, particularly of imported goods; more borrowing; and more debt related to property. In short, we are back on the good old treadmill. It is the treadmill of increased debt—debt-fuelled inflation, which will inevitably lead to the next bubble.

We have heard a lot from the Government tonight that nobody has put up much in the way of an alternative. [Interruption] Some suggestions? I am very happy to do it. If members go to our website, they will find a more comprehensive set. We have a small paper here, the Green Budget Paper 2011. We are putting it out there for people to see what the Green Party thinks the future should look like. This is what we think are the solutions. There are some practical propositions to get us out of the unfortunate situation that there is no doubt we are in. You are most welcome to read it, and I hope you do.

The ASSISTANT SPEAKER (H V Ross Robertson): Order!

DAVID CLENDON: Excuse me, Mr Assistant Speaker. One hopes that members of the Government will undertake to read that document.

We are told that one of the reasons for spending cuts is to fund the repairs of Christchurch—the very necessary investment in rebuilding that very fine city. We have an alternative proposition. It is, of course, a levy—a fixed-term, probably 5-year, very modest levy—that would provide over 5 years some $5 billion, which would remove the necessity of borrowing. The Government’s proposition of borrowing that $5 billion will lead us to an interest bill per annum of some $250 million. I struggled to comprehend this afternoon. We heard the Minister of Finance and the Prime Minister speak of the problem of rebuilding Christchurch as having been somehow solved because they are going to borrow money to fund it. In what world is borrowing to the hilt a long-term sustainable solution to a natural disaster, when we have a viable option right here?

We propose a levy of 1.5 percent on incomes from $48,000 to $70,000, a 3 percent levy for those on incomes above $70,000, and reversing the 2 percent cut to corporate tax. That would raise $1.1 billion a year. For the taxpayer earning about $50,000 a year, that levy would amount to the princely sum of some 50c per week—not dollars, but 50c per week. It would not be visible to the average person on $50,000 a year. Those on $70,000 and above would pay about $6 a week—again, not an extravagant figure. People earning above $100,000 would pay about $23 a week, and most of those could well afford it. That levy would enable us to rebuild that city without resort to the unfortunate propositions put forward by the Government. Kia ora. Thank you.

Hon HEATHER ROY (ACT) : The ACT Party supports the second reading of the Taxation (Annual Rates and Budget Measures) Bill. First, I have a few comments about the Budget generally. I agree with several of the comments made by the previous speaker, David Clendon from the Greens, about the need for vision and planning, and to grow the economy, but where the ACT Party differs from his ideas is on the means by which we would achieve those goals. The ACT Party has been quite disappointed in many areas of this Budget. There is too much tinkering in many areas, we think, rather than real solutions to the problems that this country faces. When we look at how to tackle the current fiscal situation that we find ourselves in, coupled with the additional burden that the Christchurch earthquakes have added to our economy, we see the need to look at a higher level. That is where I agree with the Green member David Clendon regarding his statements on vision and planning. We need to consider the state of our economy as it pertains domestically, but we also need to look at the international situation.

I would compliment the Minister of Finance on his statements today and on his actions to tackle the deficit and the debt that we face in this nation, which are far too high. The focus in this Budget, as he has outlined, is on encouraging saving. Those things are all very commendable, but they need to be coupled with actions, the actual things that will make this saving happen and tackle the deficit and the debt in a meaningful way.

The ACT Party was particularly disappointed in the way that student loans have just been tinkered with. If the Government really wanted to make an impact on tackling the more than $12 billion of student debt that is now owed to the country, then we should have taken a long, hard look at re-establishing interest rates on those student loans, so that the incentives were in the right place.

The other area, which pertains directly to the bill that we are speaking about, is Working for Families. We have seen just a skimming-off from the top. Working for Families should never ever have become the middle-class welfare for those on higher incomes that it became under the previous Labour Government. I will give this example. The member for Waimakariri was busy creasing his face and wriggling around in his seat before he stood up just now, but he should remember that people who are capable of earning and of supporting their families should be doing that themselves. When Working for Families was first established in 2004, had I been the sole income earner in my household, as a backbench MP on $122,000 a year with five children, I would have been eligible for $22 per week of Working for Families tax credits. Why on this earth would anyone ever consider it reasonable that a backbench MP could be eligible for welfare? That is nothing more than middle-class welfare, and it should never ever have been on the agenda in the first place. Although I would have liked to see the National Government take a much more responsible look at Working for Families and tackle it in a much more meaningful way, at least it has taken a knife to this area, where doing that is absolutely warranted, and that is why we support this bill. It is absolutely imperative that we grow this economy. That is the way out of this situation.

I also compliment the Government on the two very thorough regulatory impact statements. I raise this issue because when Working for Families was first put forward in 2004 under the previous Government, we hardly ever saw any sort of regulatory impact statement. Those statements were always in the drafting phase; they were always about to be tabled, but never were. The regulatory impact statements that we have before us, which have been tabled in the House today, are very good, and they clearly outline where we should be going. I would like to take the Government to task, though—having just complimented it—on some of the things that are written here. It should have acted much more strongly to put many of these measures in place.

I will pick out one paragraph from the introductory comments in the KiwiSaver regulatory impact statement and quote it here: “As the quickest way for the Government to improve national saving and reduce economic imbalances would be to improve its own saving position, the identification and development of options quickly narrowed to those most likely to reduce Government spending without undermining the primary purpose of KiwiSaver.” That is very pertinent, and as we put policies in place we should remember those things. I looked at the conclusions for the KiwiSaver changes, and I also want to quote a piece from them: “The proposed measures could also encourage higher private contributions.”, which is something that we should be very mindful of in this House. The Government is making a bit of a move towards that, but, looking to the future, we should be acting very strongly in this regard. The comments also noted that “education … about the continuing importance of individual saving, to ensure resources are over and above New Zealand Superannuation in retirement, are highly desirable.” That is quite right. It is the benchmark against which we should always be measuring the policy initiatives put in place.

I have already noted our concern about the skimming-off of just the very top level of Working for Families, when much more stringent changes could have been made by the Government. Again, the conclusion statements in Working for Families regulatory impact statement say this: “Officials consider that the majority of the options identified in this RIS, including the preferred option, will generate fiscal savings, broadly protect lower income earners, and better target WFF without”—and this is the important part—“having significant impacts on incentives to work, child poverty, or income inequality.” Again, those are very good benchmarks and principles that all policy should be measured against. I compliment the Government on putting those forward.

There has been plenty of detail in the discussion in the House tonight, but I would like to come back to the point I made at the start of my speech, which is that we should look at things at a very high level before putting detail in place. We see plenty of tinkering in this Budget. We see plenty of tinkering in a number of areas where we could have made much harder decisions that would tackle debt and the deficits more quickly than they are being tackled. We are moving in the right direction, and that is why we support this Budget and this bill. But the ACT Party would have liked to see much more regard being given to getting the incentives right in all of those areas, so that we could increase the rate of economic growth much more quickly than we will be able to do. Thank you.

TE URUROA FLAVELL (Māori Party—Waiariki) : Tēnā koe, Mr Assistant Speaker Robertson. Talofa lava ki a tātou katoa i tēnei pō. Thank you for the opportunity to speak at the second reading of the Taxation (Annual Rates and Budget Measures) Bill. There has been a key word in this Budget: responsibility. The Māori Party is conscious of our responsibility to grow a country that takes us all with it by creating a positive future for every citizen in Aotearoa. We must protect our most vulnerable, and no one must be left behind. Our role in Budget 2011 has been to call for a reasonable Budget that takes account of the sharp edges of recession but also invests in our mokopuna.

Young Māori New Zealanders are particularly critical to the Māori Party, as 54 percent of Māori are under 25 years of age. We know that when we get the best deal for Māori we get the best deal for New Zealand, for Aotearoa, because New Zealand’s future is in the hands of our future workforce. Our youth, who increasingly are Māori, Pacific, and Asian, need our support now, because their education, their success, will be our support as we grow old. We need to embrace diversity, as it will be through our combined talents and strengths that we can plan for the future.

The Māori Party’s other key theme in shaping Budget 2011 has been the notion of investing in the future. Our focus in education in this round has been on addressing some fundamental challenges, such as $60 million over 4 years to build new kura kaupapa Māori and upgrade existing school buildings. I refer to a speech given by the member who tomorrow will be the former member for Te Tai Tokerau, Hone Harawira. He suggested that the Minister of Māori Affairs and Associate Minister of Education, Dr Pita Sharples, had sold out on kura kaupapa Māori. I do not think so. An extra $60 million over 4 years is pretty helpful. There is an investment of $3 million over 3 years to support Te Rūnanganui o ngā Kura Kaupapa Māori o Aotearoa to develop a curriculum and associated resources based on the philosophy of Te Aho Matua, and another $8 million—I say another $8 million—over 4 years to realign kura transport assistance, which has been capped since 1995, with that of mainstream schools. And there is $6.5 million to expand family-based literacy programmes to all decile 1, 2, and 3 schools, building on the current Reading Together programme. That is awesome—that is awesome—and it could not have come about without the help and assistance of the Māori Party, and, indeed, its promoting of this programme with the National Government.

These are just a few of the new initiatives that the Māori Party has achieved in Budget 2011. We say it is about whāia te rangatiratanga—taking control of our destiny. If we look at Whānau Ora, we see that that best embodies the concept of shaping our future, taking responsibility for our own solutions, and being successful by trusting in a collective model. This, again, is where the Māori Party comes in, in terms of getting National to change the paradigm. That has been important.

I want to return to the key planks in Budget 2011 of protecting the vulnerable and investing in the future in relation to this taxation bill. With KiwiSaver, of course we are concerned about the impact that the proposed changes will have on the vulnerable. But also, and in line with the concept of whāia te rangatiratanga—taking control of our destiny—we need to look at the wider issues around creating a savings culture. We accept that New Zealand has a poor savings culture, and we need to address this. High levels of household spending have fuelled inflation pressures over recent years, and New Zealanders have spent more than they earned. Consequently, the pressure on promoting the concept of savings is paramount. We are conscious of the need to plan for what has been called the “silver tsunami”—caring for the baby boomer generation. While savers and employers will have to pay more, in the move to make this scheme more affordable over the long term the Government is reducing its commitment, and this may have a backlash effect in terms of discouraging savers and employers. Our other concern is whether the changes might prove unaffordable for lower and middle income constituents already struggling to cope with rising costs. We believe that those people on lower incomes should carry less of a burden, proportionately, than those who are on higher income levels, and we would be concerned if any disincentive to save, such as increasing their payments, would cause them either not to enter the scheme or to take contribution holidays. But we are pleased that the changes will not happen overnight. This will give people and businesses more time to adjust.

I come back to being responsible. We have heard that KiwiSaver currently costs the Government $1.1 billion. Halving the Government’s KiwiSaver contributions would save the Government around $600 million per annum, we are told. That amount of savings has to be good for the nation.

The other big focus in this taxation bill is related to changes to Working for Families. From this legislation it would appear that Working for Families will be better targeted at low-income families who have a much greater need for assistance, and a little less generous to the families higher up the Working for Families scale. We support this change and we support the intention to do it gradually in a way that minimises the impact on families.

Outside the scope of this bill but well within the ambit of our focus is the fact that the Working for Families package as such offers no poverty relief for benefit-dependent families. It does not sufficiently address poverty or, more to the point, child poverty in Aotearoa. Although we support the refocusing of Working for Families to support the most vulnerable participants in the scheme, of course we cannot ignore the situation of so many of our families who are not even eligible for the scheme. We have a commitment to eliminate poverty. Poverty reflects worse on those who have but do not share than on the have-nots. We will continue to advocate for the protection of the vulnerable, the elderly and the young, and the disadvantaged, and we will continue to focus on restoring whānau responsibility and on investing in the future. Education is not a cost but an investment in the future prosperity of the nation. But for the purposes of the second reading of this bill, we are prepared to support this second reading.

PESETA SAM LOTU-IIGA (National—Maungakiekie) : Malo le soifua maua. Thank you. It is certainly my privilege to speak on the second reading of our Taxation (Annual Rates and Budget Measures) Bill. Today is a momentous day. It is a momentous day because this Government has set out a plan to get us on the road to recovery. It has set out a measured plan, a balanced plan, and a prudent plan in order to get this country back on the road to recovery.

As we have all heard tonight, the country is on a precipice in terms of the Budget deficit of $16 billion. It has been shaken by two major earthquakes, and, of course, we had the Pike River disaster. But the country’s future has been set out in a Budget that is prudent and balanced.

When we came into power 2½ years ago we had to cover the damage of 9 years of Labour. Under Labour there were 5 years of exports contracting and 9 years of some of the highest interest rates that our businesses and our consumers have faced. Inflation rates were well above Reserve Bank requirements. Those are the conditions we inherited.

Where have we been in the last 2½ years? This Government has been about investment: investing in infrastructure, investing in people, and, particularly, investing in our schools and in our health system. I am proud of this Government. In my local electorate our local high schools have received a services academy—an investment in our young people to grow and develop. One Tree Hill College had a music suite put in place. Admittedly, that was started under the last Labour Government, but it was certainly constructed and opened under the National Government. We have an arts centre at Onehunga High School. These are the types of investments in our young people that this Government stands for.

It has also been about investing in our roads and in our infrastructure, in broadband. Investment in State Highway 20, which runs through my electorate and is one of the biggest State highways in the country, demonstrates the Government’s commitment to infrastructure. It was constructed on time, to budget, to scale, and to specification. That is the type of Government that people want to see.

David Shearer: Who put it in place?

PESETA SAM LOTU-IIGA: I did not negotiate the free-trade agreement with China. Someone did. It might have been the Rt Hon Helen Clark but I do not know what role Mr Goff played in those negotiations.

This Government has also been about delivering front-line services. It has not been about increasing the bloated bureaucracies that are part of a Labour Government. The biggest show in town in the previous Government, the show that actually fuelled inflation, was Government spending—Government departments. We are about delivering more police in South Auckland. We are about delivering more nurses and doctors in our hospitals and our general practitioner clinics. This Government has delivered on those promises.

We have heard tonight about the details around this Budget. Working for Families has been modified. KiwiSaver has certainly been altered. The student loan scheme has been streamlined. But I point out what the Budget really does at a grassroots level. It is about having a go at Government bureaucracies. We have put a figure in our estimates that looks at providing a better Public Service. Efficiency savings will be in the vicinity of $980 million over 3 years, and that is to be admired.

It is also about building the confidence and the trust of our investors in our capital markets. I had the privilege tonight to go to a function that certainly signalled the inauguration, if you like, of the Financial Markets Authority. This Government worked on the legislation that set up the authority, in collaboration with all parties in this Chamber. It is part of the measures that we are undertaking as a Government in order to restore confidence and trust back to financial markets. This Financial Markets Authority, which is part of this Budget, is about dedicating resources and putting in place the people who will actually take a stand in our capital markets. The authority will be well resourced, it will be well run, and it will certainly protect investors—the mum and dad investors who were abandoned under the last Labour Government when finance company failures were not responded to in an adequate or an appropriate way.

How do we know the optimism that is prevalent in our economy? I visit businesses in my electorate like Owens-Illinois, where $600 million has been invested. That was the biggest investment in capital works in this country last year by a private sector business. When I see the investment, the employment opportunities, and the jobs created, I certainly feel buoyed. We also see the Government’s investment in businesses like Compac Sorting Equipment. That company is based in Onehunga. It produces equipment that sorts fruit. The investment of millions of dollars, which are being put in over the next few years, will see that company grow, and will see its markets and its customer base grow from a few countries to a number of countries around the world. That is the type of investment we want to see in terms of science and innovation.

We look at the members opposite to see whether a credible Opposition is in place. As we all know, it is important that a democracy delivers a credible Opposition. We hear from members opposite cries of taxing revenue and sales. We hear cries of taking out GST on fruit and veges. They are gimmick-type policies that are uncosted, unfunded, and do not deliver the type of growth that this Government is putting in place. I suggest to members opposite that they need to sort their own house out internally before they will be able to come out and deliver something positive for this country.

I will end as I started. This Budget is about consolidating the road to recovery that was begun 2 years ago. This is about a prudent, measured, and balanced Budget. It is about being positive. It is about growth, jobs, and opportunities, and it is about taking New Zealand into the future. Thank you.

Hon CLAYTON COSGROVE (Labour—Waimakariri) : We now know the marketing strategy of the National Government. Say a cut is a modification, say a cut is streamlining but do not call a cut a cut. This is the sort of spin that the previous speaker has come up with. “We modified Working for Families.” [Interruption] No, no. The facts are that 200,000 participants in that scheme are getting a cut. It is a small word of three letters. Everybody, apart from that member, understands what it means. It is not streamlining.

Likewise for KiwiSaver. On the one hand members, and especially the member who has just spoken, say they want to encourage a savings culture. That member said that the Government has modified, or streamlined, KiwiSaver. No, no, the Government has kicked it in the guts. Every participant in KiwiSaver has had a kick in the guts from that member’s Government. They do not feel like they have been streamlined or modified. They know what it is. The people are not stupid. That member thinks his constituents are stupid. They know and smell a cut when they see it. It is not a modification.

I say to that member that it is very interesting. The National Government, of course, has banked this whole Budget on a series of projections—the creation of 170,000 jobs, and 4 percent wage growth over 3 or 4 years. But that is a very interesting set of projections. I can remember another set of projections nigh on a year-plus ago. The great plan was going to be a Job Summit. That then went west and we had a cycleway, which was to be the nirvana in terms of job creation for this country. I am told that to date the numbers are around 70 people employed on a cycleway to nowhere. Then that went west. Gerry Brownlee, the parliamentary blunderbuss of the Chamber, had a brilliant idea—and the first, I suspect, in his terms, in his life—and it was to mine national parks. That lasted 5 minutes. That was to be the great job creator, the roads would be paved with gold, and other miracles, according to Gerry. Then, of course, we had: “No, that’s off. We’re going to make New Zealand an international financial hub.” That was a great slogan. It lasted 5 minutes, and we have never heard of it again.

The plan of Government members, because they know the people know they have no plan, is to say they have a plan, say it often enough, and hopefully people will believe it. They did not get it last time. No member on that side of the House, when they articulated a plan, actually put it into place. So I ask those members whether they really think people will believe them now.

I also say this. They use the Canterbury earthquake—and I must say I do get a little raw that these members would use the Canterbury earthquake over and over again as some sort of alibi to cover their tracks in terms of what they are doing now. They make a case that says somehow the great contributor to the $16 billion deficit, which they have delivered in this Budget, was the Canterbury earthquake. If they read the Budget documents they will now know that the Canterbury earthquake, according to Treasury’s own figures, contributed a mere 10 percent of accumulated deficit—10 percent of that accumulated deficit. Now we have dealt with that load of bunkum and that alibi, I tell members to think carefully before they use the people of Canterbury and the earthquake as an alibi for a $16 billion deficit. We now know, thanks to the Government’s own Budget documents, that that is not the case.

The previous speaker talked about the record of the last Government. I say this. Here are a couple of facts—low unemployment, high growth, and 9 years of surpluses. Who agreed with us on that? On 19 December 2008, just some days after taking office, the finance Minister Bill English said the following in the New Zealand Herald: “I want to stress that New Zealand starts from a reasonable position in dealing with the uncertainty of our economic outlook.” I will say it again slowly for the more challenged members on the other side: “I want to stress that New Zealand starts from a reasonable position in dealing with the uncertainty of our economic outlook.” To unbundle that statement, Mr English was saying: “Thank God we had 9 years of surpluses, so we can actually try to deal with this global economic meltdown as it impacts on New Zealand, unlike other countries that spent the lot.”

When I was speaking on the first reading, I recalled, as an Associate Minister of Finance, being taunted, as we all were in Government, by Bill English, the then Opposition spokesperson, saying we were mean-spirited because we did not spend the dough. We were squirreling away all these surpluses, day after day, and that we were a mean Government and we should be frittering it away. [Interruption] That member at the back of the Chamber squawking was not in the Chamber at the time, so I forgive him for his lack of historical knowledge. We were told we were being mean because we did not spend the lot.

I say to members that I have a document from a series of Budgets, starting from 2000, and I will read a couple of figures. These are the surpluses that we had: “year 2000, $594 million; year—

Hon Hekia Parata: For God’s sake!

Hon CLAYTON COSGROVE: The member does not like it. It is not “for God’s sake” but for her sake, I say. In 2001 the surplus was $1.4 billion, in 2002 it was $2.4 billion, in 2003 it was $4.3 billion, and it goes on, right up to a high in 2006, to a surplus of $7.1 billion. When Labour left office it was a $5.6 billion surplus. If we are looking at facts about economic track records and what this Government inherited, there it is, in black and white.

Then we can fast forward to today. The biggest deficit I think in our history, of $16 billion, has been delivered by this Government. Here is the problem when one is in Government. Government members are responsible. I do not think the members over there have quite got it. When they win an election they become accountable. They become responsible for their own performance. At some point they have to stand up and say: “We’re taking the hit. We’re biting the bullet. We are accountable. We are responsible.” What they have delivered today, apart from all—[Interruption] Here we go. Come on, a bit more life! The blood is pumping through the veins. What they have delivered today is a cut in KiwiSaver, yet they say they want to encourage a savings culture. They have delivered a cut in Working for Families, yet they bleat aloud that they want to look after people—except there are 200,000 participants who will receive a cut.

The last speaker then had a crack at Opposition members, because we want to provide some GST relief around fresh fruit and vegetables. They say it is all a slogan; it is all hoo-ha. That suggests to me that that member may be like all of us in this Chamber. He may be in the privileged position where he can probably afford a decent feed 7 nights a week—or, in one member’s case, a few more than that, but he is in another place. I say that member can probably afford it. Maybe what I suggest he and others do is go around the food banks. I think it was Mrs King who challenged the Prime Minister to visit a food bank, visit McGehan Close, or visit a few other places where people are battling away, and maybe ask them what they think about the cost of living and their food and grocery bills. Maybe they should do that. That may be instructive for them, as they bleat clichés tonight about looking after people.

Then we come to the other plank, of course, that will solve all ills—the sale of assets. That crew presents a proposition to people that says: “You’ve all got a lot of money out there, New Zealanders, ordinary mums and dads. You can buy back the assets that you already own.” That is the proposition they put up to them. It is a great benevolent Government: “Kiwis, buy back the assets you already own, and you have a lot of disposable income to do that with.” What a benevolent Government.

They do not tell people, of course, what happened last time they did that and everybody was promised they would be better off. They do not tell people, of course, that those who will want to invest in our assets will be foreign companies, foreign institutions, and foreign agencies. Of course, quite rightly, those foreign institutions, having invested in our State-owned enterprises, like the power companies and generators, will require, logically, a dividend from them. They will want their pound of flesh, and that pound of flesh will be in the form of higher power prices, delivered to consumers over the cold winter. Then somehow, in a benevolent way, the Government will put the icing on the cake by saying that it will go to the country with this matter, even though it is in the Budget documents that the decision has already been made to do it. But as my Green colleague said, the Government is asking for a mandate in retrospect, or words to that effect.

So I say to National members that if they want to get up on their hind legs and actually compare economic and political records, then they should do it with facts. “Old Sooty” over there will not stand up and compare his record, because that member has delivered a $16 billion deficit, whereas we delivered 9 years of surpluses, and we stand on our record in Government.

CHRIS TREMAIN (National—Napier) : The Hon Clayton Cosgrove is the constituency MP for the seat of Waimakariri. By all accounts, he is a pretty good constituency MP, but not once tonight have I heard him speak about a matter of importance, a cornerstone of this Budget, which is the repair and recovery of Christchurch. At the very least he could have acknowledged that this Government has put together—

Hon Clayton Cosgrove: I raise a point of order, Mr Speaker. Most of my first reading speech was acknowledging those issues.

The ASSISTANT SPEAKER (H V Ross Robertson): No, the member will sit down. That is a frivolous interjection, and it leads to disorder.

CHRIS TREMAIN: At the very least, he could have acknowledged one of the cornerstones of this Budget, which is the renovation and repair of Christchurch. The Government has made the rebuilding of Christchurch a cornerstone of this Budget. The Budget has ring-fenced $8.8 billion to repair Mr Cosgrove’s Waimakariri constituency and the wider Christchurch area. Yet tonight in this House he would not spend a minute talking about his constituents and how this package could lead to the recovery of Christchurch, or about building a new city. He did not acknowledge that, at the very least, this Budget is taking a step forward towards that. Tonight Labour members will vote against this Budget and against the rebuild of his own city. That is unbelievable.

I come back to the Taxation (Annual Rates and Budget Measures) Bill. Part 1 is very important, because it reconfirms the annual rates of taxation. That fact was not really alluded to in the Budget speech, but I want to pick it up again tonight in order to reaffirm to New Zealanders the importance of those taxation rates.

Let us cast our minds back to the 2010 Budget, which set in place for this country a change that I was particularly proud of. That change is reaffirmed in this tax bill tonight. For incomes under $14,000, New Zealanders pay 10.5c in the dollar, which is down from 12.5c in the dollar under the previous Government. For incomes between $14,000 and $48,000, New Zealanders now pay 17.5c in the dollar, down from 21c in the dollar. For incomes between $48,000 and $70,000, they pay just 30c in the dollar, down from 33c, and on incomes of $70,000 they pay 33c in the dollar, which is down from 38c.

On any level, that is a reduction in personal income tax—on any level. But I hear from members across the House, constantly, that this side of the House has not delivered help for middle and lower income New Zealanders. Well, in the reaffirmation of those tax rates, the facts are clear. Income tax is lower for New Zealanders across the board—across the board. Seventy percent to 75 percent of Kiwis now pay income tax at a rate of 17.5 percent—in fact, the average is below 17.5 percent.

But that is a double-edged sword. On the one hand, we can say that it is good that people in a big chunk of the country are paying lower income tax rates, but, on the other hand, the fact that 75 percent of Kiwis have incomes of $48,000 and below is not good enough. That is why I am so proud of what we have put together in this Budget. The projections are that real incomes in New Zealand will grow. We can lift the incomes of New Zealanders and continue to grow those incomes.

I am proud of what we have delivered in this Budget today. I think it is a fantastic step forward. It ring-fences money to help to repair the likes of Mr Cosgrove’s electorate. I think that is a fantastic thing. This Budget provides a real vision, something tangible, that people can have going forward. The Budget brings debt under control and lifts wages in the long term. This is an excellent Budget, and I commend it to the House. Thank you.

Hon SHANE JONES (Labour) : Kia ora nō tātou—greetings, Mr Assistant Speaker Robertson. Today we saw a Budget that really has to be called the “Tui Budget”—yeah, right! It is so far to the right that there is no way that members on this side of the House will shrink from fighting an election on, firstly, the wholesale privatisation and sell-off of our assets. Those assets are not starved of capital. Those assets are well run, but we are to lose their valuable revenue and valuable dividends. Worse still, the Māori Party will be there, as an active and consistent helper, to watch the dilution and liquidation of those historical assets of the Crown estate.

The Prime Minister got up and delivered one of his trademark Eurotrash contributions. He is a man who has learnt his oratory and his life skills as he has wandered around amongst the super-rich of the world. He has no compassion, no empathy, and no understanding. If I were to go to the senior whip on the Government side of the House, and use his figures, then I would tell members that 75,000 Kiwi workers earn less than $45,000 a year. But there has not been a single bit or sliver of empathy from the Prime Minister towards them. He has also had the cheek to tell New Zealanders, as he puts their assets on the block, that they will be the beneficiaries of that. How many of those people will be actually in a position to purchase shares in those assets? We will watch the inexorable slide towards further foreign ownership of key monopoly assets, etc.

Not only is the Prime Minister presiding over the sell-off of those assets but he has based everything on a heroic assumption that he can trust Treasury’s figures. Well, we trust what the Inland Revenue Department had to say, as the Dominion Post showed us yesterday on page one. Those figures will not let us down. Just as they did not let us down yesterday, neither will they let us down in the future. But Treasury’s heroic assumptions were concocted, unfortunately, when aggressive politics met sterile analysis. Those heroic assumptions are all that the Prime Minister’s vision for the future is written on.

Let us just think about what the Prime Minister is telling Kiwis through his “Tui Brewery Budget”. The first thing is that everything is for sale. The second thing is that he wants people to save, but he will not actually incentivise or help them to do so, because encouraging savings is a Labour legacy. Muldoon destroyed the first savings initiative, Jenny Shipley destroyed the second savings initiative, and John Key and Bill English, as a consequence of their narrow partisanship against the legacy of Dr Cullen and the Labour Government, are continuing to tinker with and unravel the savings legacy that we put into place. The man has said to Kiwis that National wants to see savings increased, and that it wants to reduce the country’s reliance on overseas sources of capital, but National has used this Budget to further undermine and gut KiwiSaver.

These are great issues upon which to fight the next election. At least we did not hear simpering from the Prime Minister—but we have heard it from the Māori Party—when he told Phil Goff that National would meet us in the halls and on the hustings, and would fight the election on these issues. Labour cannot wait for that.

OK, so we have heard a little from the Māori Party, which is a brief improvement on the simpering contributions that we have endured over the last couple of days. I have news for those members: the love-in is over. The love-in is over, as the low tide has revealed how unpopular and irrelevant the Māori members on the Government side of the House have become. They have been able to secure nothing else but what we might call kongakonga, crumbs. That is a simple reprioritisation where Peter pays Paul, or, as we might say, it is a nick-and-tuck contribution for the Māori Party—a nick-and-tuck contribution. Its legacy is to be the nick and tuck. The assets of hard-working Kiwis, politically speaking, are about to be nicked, and the Māori Party is tucked up. Those members do not care that ordinary, hard-working Kiwis—or should I say garden-variety Kiwis—will be worse off as a consequence of this asset sell-off. No. The Māori Party members are focused on constitutional reform, yet they will definitely lose Tāmaki-makau-rau and Te Tai Tokerau. They have already lost them anyway as a consequence of poor management with regard to Hone Harawira, without a doubt.

Given the importance of jobs, a decent income, and the provision of housing, why have our colleagues on the Government side of the House, whether they are the Māori in discredited National or in the ebbing Māori Party, forgotten about those core issues? Why are they running around talking about flags and, now, a constitutional review, which, as a consequence of their mean-spiritedness, they did not invite this side of the House to contribute to? How can they with any sliver—with any measure—of sincerity say they want to change the constitution of New Zealand, then wander off and with Wīremu Pākehā, Bill English, as their handmaiden think they are going to do it on behalf of all iwi? Their views about constitutional review will be revealed on 26 November and they will be in the form of a UB40—that is, an application for an unemployment benefit. That benefit is likely to disappear as a consequence of the very parsimonious approach that we have seen evidence of today in Bill English’s speech.

I really need to come back to the Budget in order for the members on the Government side of the House to fully understand the sort of electoral debate that we are about to have. Where are all the contributions about cutting red tape? There is not one single initiative—not one single initiative. Rodney Hide—off he goes, and Don Brash comes in, ceding to those villains the opportunity to cut red tape. Where is the supposed business-friendly party delivering opportunities for both small and medium sized businesses? Those opportunities are somewhere near zero. Although the ACT Party vaunts itself and promotes itself as being a great friend of the world of business, it is not. There is destruction of savings and a sell-out at knock-off prices of State-owned enterprises. There is absolutely no plan in terms of the long-term growth of the key pastoral sector. What have we seen? We have seen ongoing further corporate welfare—ongoing corporate welfare.

We realise that the Māori Party has not learnt all the acronyms—along with Steven Joyce—nor has it actually understood what the man is doing in terms of the damage to the taxpayers as a consequence of his broadband scheme. No, there is no plan. In fact, although the man boasts about infrastructure, the only infrastructure we are going to see there is a new subsidy that the taxpayer will write out as the much-vaunted infrastructure plan sinks out of sight. The man will not back down. It shows how ill-conceived the plan was that Steven Joyce was outsmarted by Rahui Katene. If there is any evidence that this is not a plan to take this country forward, there it lies.

I am sorry, Mr Assistant Speaker Robertson, but please let me explain to Māori that there are 2 more minutes of this wisdom—of this very judicious contribution. Let me also talk now about Mr Steven Joyce and his contributions via the discredited script that is otherwise known as the Budget. Why is he stinging Aucklanders with a $500 million bill for a transportation system that the super-city mayor has a mandate for? Not only has the Government alienated savers, disappointed the business community, and shown an absolute barrenness of empathy and of compassion through the Eurotrash contribution of the Prime Minister today in what ought to be a prime ministerial speech, but it is now sticking it to Aucklanders. Aucklanders do not want Steven Joyce to continue in that supercilious manner. They do not want that. They are waiting for the opportunity to show him the exit. But it will be a crowded exit, because as he moves to that door, Te Ururoa Flavell, Tariana Turia, Rahui Katene, and, indeed, Dr Pita Sharples will be singing “Now is the Hour”. Kia ora tātou.

CHESTER BORROWS (National—Whanganui) : I raise a point of order, Mr Speaker. I wish to seek a clarification in respect of language used in the House. I was watching the debate earlier when the Hon Clayton Cosgrove was speaking, and I believe I heard him refer to a member on this side of the House as “Sooty”.

The ASSISTANT SPEAKER (H V Ross Robertson): The member will be seated. Points of order have to be raised at the time. You cannot come down and do it later on.

Dr PAUL HUTCHISON (National—Hunua) : It is indeed a pleasure to speak on the second reading of this Taxation (Annual Rates and Budget Measures) Bill. But I must say that perhaps it is a dubious pleasure to be following the Hon Shane Jones, who is the quintessential example of the Labour work ethic. After all, he was the man who on Make the Politician Work went off through the Manukau Heads. But what happened to him? He slept. He was asleep. Out he went, through the Manukau Heads, but, when the crew came looking for him, they could not wake him up. In fact, they had to turn on a fire alarm to wake him. If they had not had the fire alarm, he would have gone out there for 3 days and come back, having achieved nothing.

I acknowledge firstly the Hon Bill English for delivering a highly intelligent and balanced Budget for the times. It is a Budget that is extraordinarily prudent and responsible, and a Budget that ensures that health, education, and our justice services are well provided for. Indeed, they are the core winners of this Budget, and they are the core concerns of ordinary New Zealanders. The Budget delivered by the Hon Bill English makes a clear setting for our country to come out of deficit by 2014-15.

Secondly, I acknowledge the outstanding Prime Minister, the Rt Hon John Key, for the finest Budget speech I have ever heard. It was the finest Budget speech I have ever heard, and it rebutted the Hon Phil Goff at every single point, and clearly demonstrated the dire position that Labour is in.

Thirdly, I acknowledge the Hon Peter Dunne, who is responsible for this bill that deals with the fiscal costs of the KiwiSaver scheme and the Working for Families tax credit programme. This bill is one of the reasons why health, education, and our justice services are winners in this Budget.

I pay tribute, by the way, to the outstanding stewardship of Vote Health by the Hon Tony Ryall, because in health alone we see that $54 million in this Budget will be delivered to maternity services, including Plunket and Well Child checks. Those are hugely important for the potential of our children. There is $44 million in the Budget for dementia care. Again, that area is often left out, but this excellent National Government has put in that extraordinary amount in difficult times. There is $68 million more for elective surgery—and how we remember the days when Annette King grew the waiting lists to over 130,000 and then culled them at the rate of 10,000 at a time. There is $20 million more for medicines at a time when Governments around the world are cutting their budgets for health, and certainly for medicines.

There is a spectacular graph that shows the trajectory of where spending would have gone under a Labour Government from 2008, if its rate of spending had continued in the same way. The graph demonstrates that by 2023 the public debt would have ballooned to 60 percent of GDP. That is the sort of irresponsible trajectory that a Labour Government would have put on the people of New Zealand. Any sensible economist I have come across, when talking about the New Zealand economy, has said that we must curb our spending. We have heard the rhetoric of David Cunliffe, the man of the people, who runs his electorate, downtrodden there in Grey Lynn—

Hon David Cunliffe: New Lynn.

Dr PAUL HUTCHISON:—oh, it is New Lynn—by remote control from St Mary’s Bay. We have heard him, and the Hon Phil Goff, talk about at least $5 billion worth of more spending, and probably significantly more than that.

In stark contrast to the spending promises of David Cunliffe and Phil Goff, this John Key - led National Government will bring New Zealand’s deficits down to nothing by 2014-15, and if the same wise and prudential trajectory is followed, the deficit will be down to 20 percent of GDP by 2020. If it continued on further, it would possibly be down to no debt whatsoever, which would be a huge achievement for New Zealand.

It appears that Phil Goff is in absolute denial of reality. He claimed that this was a do-nothing Budget. He claimed that there was no plan, yet this Budget is built on National’s 2008 election policy, a six-point plan that clearly showed a sustained pathway to growth. First was changing taxation to ensure that we delivered a world-class taxation system, with clear signals that those who were prepared to work hard would be rewarded. Second was reducing waste in the Public Service, and that has happened palpably, particularly in the health system. Third was reducing red tape and enhancing regulatory reform in the use of the Resource Management Act, and fourth was bringing in legislation for a flexible labour market. The New Zealand Institute of Economic Research has shown that an extra 13,000 jobs were created as a consequence of that legislation being brought in. Introducing standards in education was a further priority, along with making science, research, and development central to Government policy.

This Budget is indeed a well-crafted, responsible, and pragmatic Budget. Labour, which opposes it, must be kept out of office for a very, very long time.

Hon RICK BARKER (Senior Whip—Labour) : I raise a point of order, Mr Chairperson. First, I say that I accept without reservation the Chair’s uncontested right to make a decision on when to put a closure motion. But this is very heavily contested ground, and I want to make a point before we get into the Committee stage—right from the outset—about the rules of engagement. The first point I make is that the Taxation (Annual Rates and Budget Measures) Bill has not been to a select committee. This bill has only just been put on the Table today, and therefore I think the Chair needs—and I am just asking before I come to the matter later—to ensure that the rights of the Opposition are well protected, and that the rights of the Opposition to examine a bill extensively are taken into account. I hope that the Chair is very lenient in consideration of when to put a closure motion, because I have no doubt that the Government members—

Hon Sir Roger Douglas: Oh, there’s nothing in the bill.

Hon RICK BARKER: I raise a point of order, Mr Chairperson.

The CHAIRPERSON (Lindsay Tisch): Points of order are to be heard in silence, and the member has the floor. There will be no other comment.

Hon RICK BARKER: This bill has not been to a select committee. The Opposition has had limited time to read the bill. I know it is not extensive. I know it is short, and that there are lots of numbers in it, but I hope that the Chair will give a lot of forbearance in allowing the Opposition to have plenty of calls and to put plenty of questions to the Minister in the chair, recognising the fact that we are in urgency and the bill has not been to select committee. I hope that the Opposition is given plenty of time to examine the bill over time. I just make that point before we start.

The CHAIRPERSON (Lindsay Tisch): I thank the member. This is an important debate. It confirms the annual tax rate, and I thank the member for his contribution. The member will be aware that the discretion to accept a closure motion is that of the Chair. The Chair will always be looking at the relevancy. I hear what the member says, and this is an important debate. I am sure that we will have a lively debate, and there will be full participation from all sides of the Chamber.

Hon DAVID CUNLIFFE (Labour—New Lynn) : It is appropriate at this point in the debate to come up a level and consider the broad framework of tax policy that stands behind the Taxation (Annual Rates and Budget Measures) Bill. It is appropriate in the Committee stage to repeat what we have said in the first reading debate, and to stake out the ground upon which the Labour Opposition will be fighting this bill. Although it is uncontested that a significant and serious debt problem, with net international liabilities equalling 85 percent of our GDP, confronts this country, and that a deficit of $16.7 billion per annum cannot be sustained, it is also true that in reducing those deficits, the tax system plays a key part, and that the equity and efficiency of any tax rate changes must be carefully considered as a means of deficit reduction.

It is essential that the Committee recalls the changes that have recently been made. When I say recently I mean during Budgets 2008, 2009, and 2010, which formed the basis of the rates that we are being asked to pass today. In 2008 a number of changes were made to tax rates, mainly in the middle and the bottom brackets, which cost the country about $8 billion in forgone tax revenue. That was passed against the background of a somewhat slowing economy, and there was a view that that was an appropriate level of stimulus, based on the information available at the time the Budget went to print in about March 2008—in other words, 6 months before Lehman Brothers collapsed, the global financial crisis, and the terrible deleveraging process that has since ensued affected New Zealand. I think it is a fair bet that had we known how bad that was going to be, there may have been some reconsideration of the depth of those tax remissions. However, that was the information available. Nonetheless, even with those reductions in tax rates, Labour was able to bequeath to the incoming National Government—

Hon Dr Nick Smith: Rubbish!

Hon DAVID CUNLIFFE: Dr Smith is a man of letters, a man of intelligence, discernment, and an impeccable reputation. He has declared that my sentence is “rubbish” before I have even finished it. He cannot, therefore, know what he is rubbishing—except himself. The Labour Government bequeathed to the incoming National Government a net debt position, including the assets of Crown financial institutions—Treasury numbers—of 7.6 percent of GDP. I have it in front of me on a spreadsheet. That has deteriorated to a net debt position, including financial assets, of minus 15 percent, and is headed for minus 30 percent before the measures taken in this Budget. There could be no clearer deterioration in position than that.

The CHAIRPERSON (Lindsay Tisch): I reminded the member right at the beginning, on two occasions, that we are debating clause 3. Clause 3 is about the annual rates of income tax for the 2011-12 tax year. The member must come back to clause 3.

Hon DAVID CUNLIFFE: Clause 3. As I said at the start, but I will repeat, the passing of the rates today has to be considered in light of how we got those rates. Three preceding Budgets are essential for us to recall. The first was 2008. I have acknowledged that it may have been somewhat brave in the remissions it offered in those rates. In 2009, as the Chair will remember, National incorporated rate changes into the 2009 Budget that were passed in urgency around Christmas of 2008, so urgent were they. It was the first part of a three-part rate reduction programme by the incoming National Government, which dropped the top rate from 39c to 38c in the dollar. Then, in their wisdom, in the 2009 Budget, those members cancelled the rest of the three-part programme, only to re-instigate them the following year in the 2010 Budget. How is that for leadership? It was a reversing of the reversal, rather like KiwiSaver, for which today they were brave enough to half-reverse the reversal of last year’s Budget change. But in this case, in terms of income tax rates, which is what we are discussing in clause 3, those measures in Budget 2009 cost another $8.5 billion in forgone tax revenue over 4 years.

When we get to Budget 2010, which was, of course, the doozy, the Government was so concerned about the Crown’s fiscal position and the growing deficit that what did it do? It dropped the top tax rate from 39c to 33c in the dollar, and the company rate from 30c to 28c. That was extraordinary. That cost $14.3 billion in forgone revenue growth over the 4-year forecast period, resulting in an accumulated amount of revenue forgone—wait for it—of $23 billion under the National Government over 4 years, plus Labour’s $8 billion, which equals around $31.5 billion. Why is that relevant? Because today we face a deficit of $16 billion, which is roughly half the quantum of the tax remission in gross terms in the last three Budgets. So, go figure! The Government reduced rates, reduced revenue, and could not manage the economy out of a paper bag; growth fell in a hole, and now we do not have any money to spend.

That brings me to the second important point of the argument about tax rates. If we are contracting Crown expenditure to accommodate the size of the deficit, might we not also consider changing some of those rates back up? Why is it that the top tax rate is somehow sacrosanct? Why is it that when middle-income New Zealanders are having KiwiSaver cut and Working for Families cut—and I see that those cuts go way below $70,000 combined family income; $60,000 is caught by these changes—why is the top tax rate sacrosanct? In other words, if the country is being asked to tighten its belt, why are the tight belts the first to be further tightened, and the rather more generously proportioned waistlines of certain other taxpayers allowed to expand further? Are we creating, in short—

Craig Foss: Leave Parekura out of this!

Hon DAVID CUNLIFFE: —I am not speaking about the distinguished chairman of the Finance and Expenditure Committee in person; his waistline is no business of mine. But why are some being asked to bear the brunt, and not others? Why are we building two New Zealands? Those who have not, who shall have less, and those who have, who shall have more. This seems wrong to me, but, hey, I am only a social democrat—what would I know? I represent, very proudly, only the electorate of New Lynn. I do not represent some other electorate such as Grey Lynn, those latte-sipping socialists from the inner city. No, no: New Lynn, where good working people live, and I am very proud to be their MP. Does Cam Calder come from the North Shore and commute to South Auckland? The nice thing about New Lynn is that when I look up on a crystal-clear day when the birds are singing, I can actually sometimes see John Key flying over us in his helicopter to get from his mansion in Parnell to his electorate in Helensville. I count that a great privilege—but back to the rate issue.

What would a sensible moderation of tax rates look like? We have to have regard for international competiveness, and I am sure Mr Dunne in the chair would remind us of that. Therefore, changing the corporate tax rate would not be top of our list of things to do. But in looking at the marginal personal rates, it seems to me that some rebalancing there that brought a stronger sense of social equity to the exercise of reducing the Crown’s deficit would be appropriate in most ordinary Kiwis’ sense of fairness. Of course, we have to balance the growth aspects of this—the building of the strong export-oriented economy that we need. That brings me back to the part of the discussion in the first reading of the bill where we noted—I think, collectively; I think Government members joined with the Opposition on this—that there was no economic development strategy anywhere in this Budget, no pretence of one. That is not what they do; they are conservatives. They are good with a little nip and tuck here and there around the fist, they reckon. Even so, some of them take us backwards. But growing the pie? That is not for them. That is for us. When the public wants the pie grown they will vote them out and vote us in. Is that not right, colleagues? And that is what we do. They are also the party of continuity. They are the Holyoakes of the modern era, there to sit on their well-proportioned bottoms while the country goes to rack and ruin. It is Labour that historically has been the party of change.

Coming back to the bill: if we want rates changed again, this is unlikely to be the Government that will do it. They seem to think the epitome of courage is to semi-reverse last year’s reversal. That is not strategic; that is not the kind of change this country needs. It will not take us forward.

This is a rare opportunity. It happens once a year for Parliament to recall what has happened to tax rates. What has happened to tax rates in three successive Budgets before this one has been massive tax remission to the public, and, proportionately speaking, much of it to the top end. That needs to be rebalanced.

Dr CAM CALDER (National) : What a pleasure it is to rise to speak on the Taxation (Annual Rates and Budget Measures) Bill. That was a very learned discourse from the member opposite on the relative merits of lattes in Grey Lynn, New Lynn, and possibly St Mary’s Bay. There was a very brief discussion about taxes, but he did mention at one stage that, yes, the default position is that he wants to raise taxes. Can members believe that? He wants to raise taxes. Actually, I can believe that, because that seems to be the default position of his leader, Mr Phil Goff, as well.

Incidentally, we heard Mr Goff make the breathtaking assertion in the House earlier today that the global financial crisis finished in 2009. What, then, is happening in Portugal and Ireland—Mr Goff has completely missed that on the radar—as well as in Greece and Spain? He seems to be completely unaware of the EU bail-out or, in fact, the IMF bail-out masterminded by DSK, before he himself bailed out. There were billions of dollars in quantitative easing.

Tax, borrow, spend, and hope seems to be, once again, the default position of the Labour Party. We heard Mr Phil Goff confirm that Labour members have not learnt. Punitive, pusillanimous, and pathetic describe Labour’s politics of envy as it once again wants to hit the 13 percent of New Zealanders who pay over 50 percent of tax in this country. Labour members want to wallop the wealth creators, evict the entrepreneurs, and bash the businessmen and businesswomen who are so—[Interruption]

The CHAIRPERSON (Lindsay Tisch): The Hon Pete Hodgson knows he cannot be on his feet while interjecting.

Dr CAM CALDER: —crucial in growing the economic cake for the benefit of the most vulnerable New Zealanders.

National’s tax changes will provide more money for hard-working New Zealanders. We heard from the Prime Minister this afternoon that three-quarters of New Zealanders pay a top marginal tax rate of only 17.5 percent. Despite international pressures on food and petrol, tax reforms have allowed after-tax wages to go up faster than the cost of living. Wages have gone up 7.1 percent in real terms. If my memory serves me well, in the blighted 9 years of the previous administration real wages went up 3 percent.

As a result of our tax changes, a typical married couple on superannuation has seen their joint income increase by $166 per fortnight. That is almost 20 percent over the last 3 years; 8.5 percent if adjusted for inflation. Interest rates have fallen dramatically to their lowest level since 1964. Our tax rates have put more money in the pockets of hard-working New Zealanders. I commend the Taxation (Annual Rates and Budget Measures) Bill to the House.

Hon DAVID PARKER (Labour) : I will refer to clause 3 of the Taxation (Annual Rates and Budget Measures) Bill. I ask the Minister in the chair, the Minister of Revenue, to take a call in order to advise the Committee on the income tax rates proposed in clause 3. According to this clause, “Income tax imposed by section BB 1 of the Income Tax Act 2007 must, for the 2011-12 tax year, be paid at the basic rates specified in schedule 1 of that Act.” In my reading of that clause, the rates of income tax are not being adjusted for the losses that most New Zealanders in the KiwiSaver scheme are suffering as a consequence of the decrease in the tax credits applying for KiwiSaver. As I understand it, despite the fact that people are losing the member tax credit, and therefore the effective tax burden they suffer in New Zealand is greater, their income tax is not going down. That is my reading of clause 3. It would be good if the Minister would take a call to confirm that the tax credits are going down—so people do not have the old benefit they had for saving under KiwiSaver—but their income tax rates under clause 3 remain unadjusted, and therefore they are worse off. I ask the Minister to take a call in respect of that point.

The second point I would like the Minister to confirm is that the adjustments that are made to Working for Families are of similar effect; that the middle-class tax bill after the changes to Working for Families in the later part of the bill, which take money off them, is not adjusted in this part of the bill by an amendment to the income tax rates. At the same time, I would be grateful if the Minister could explain why, if I am right, it is fair that there has not been some redistribution of the disproportionate tax cuts that went to higher-income earners in respect of National’s income tax cuts in the last Budget. Remember that the statistic we were given was that 42 percent of the income tax cuts last year went to the top 10 percent of income earners. If I am right in my assessment of what happens overall in this bill, why has there not been some redistribution so as to make that fair, because it does not seem to me to be fair.

Similarly, why are there no significant changes to the rates of income tax in respect of the farming sector? There was a headline in the paper yesterday on this subject, and I agree with some of the criticisms that were made of what I think were sub-editorial changes to the heading, which suggested that farmers got $500,000 of income but paid only a small amount of tax. The headline did not make clear whether it was gross income or net income, and that should not have been the case.

Amy Adams: Yeah, it did, it was just wrong.

Hon DAVID PARKER: It did not make it clear whether it was net income or gross income, and some people, like Amy Adams, read it and chose to interpret it as being a reference to net income, which it never was. None the less, it was clear that, effectively, an insufficient rate of income tax was being paid by the rural sector. Why is that not addressed here?

I ask the Minister whether it is right that the only change that is signalled in respect of those tax settings is a future review of the livestock valuation schemes that are open to farmers. One of the ways in which those effective income tax rates are low in practice for the farming sector, one of the ways that members of the farming sector can effectively minimise their taxes in New Zealand, is by opting in and out of different livestock valuation schemes. At the moment, if the value of livestock is going up, farmers can opt in to the capital scheme, and the increase in value is not attributable to them for tax purposes, because it falls into a capital scheme. But when the value goes the other way, at the moment farmers can opt out of the capital scheme and go into the revenue-based scheme for the valuation of livestock, the value of their livestock goes in, and they decrease their income for tax purposes on that part of the cycle. So farmers capitalise the upside and put a drop in value into the revenue scheme.

Even that problem is not fixed in this Budget. The Government knows that it is a problem that decreases the effective rate of tax, and these tax rates are set for the forthcoming year by clause 3 of this bill. The Government could have fixed that problem in this bill this year by saying that it is plainly wrong, but, no, all it has done—as far as I am aware, and I have seen the press release from the Hon Peter Dunne today—is to say that it will look at the situation in the future. I congratulate him on doing that, because it is better than doing nothing, but given how little tax is being paid by this sector, looking at it and maybe doing something tomorrow is actually better summed up as doing nothing in this Budget, because nothing is done in this Budget to remedy it. That is one of a number of areas of unfairness in the tax system relating to farmers, and I thank the Minister for identifying that one, but there is a long list of other things that are not being fixed that I do not have time to go into today.

I come back to my primary point. Will the Minister confirm that notwithstanding the other changes to taxes for individuals that increase the effective tax burden of middle-class people in KiwiSaver and middle-income people who are having their Working for Families abatements made more severe, the income tax rates that clause 3 in Part 1 of this bill sets remain unchanged, so the net effect of both of those things is that the tax payments, in effect, go up, and, notwithstanding that last year 42 percent of income tax cuts went to the top 10 percent, that is not revisited, and, instead, there is an increase in middle-class tax burden.

Hon PETER DUNNE (Minister of Revenue) : The member who has just resumed his seat, David Parker, raised a number of points that I want to respond to. I am sure he will forgive me if I do not get them all in order.

I will start with the last one first: the question about the change in the livestock regime that we foreshadowed in an announcement today. His analysis of the problem is correct. One of the reasons why we are going to have a look at this regime is precisely the situation he described to the House. I remind the House that what we are doing is the normal way of addressing these changes. We will issue an issues paper that will lead to some decisions being made. I imagine there will probably then be either a discussion paper or draft legislation to follow. The member should take it from me as a very clear indication that this area is not being looked at just for the sake of it. An issue needs to be addressed and we are keen to address it.

That leads me back to the question about the material that was in the media yesterday relating to the amount of tax paid, or not paid, by dairy farmers. As I said at the time, it was a shoddy piece of reporting. I think the member partially acknowledges that. It was a case of apples and pears. I will explain some of the reasons why. We have a self-assessment tax system. When people put in their tax returns they describe their occupation. A number of people describe themselves as dairy farmers. That led to the categorisation of those people and the amount of tax that was attributed to them. From memory it was around $26 million.

But if the member had looked down the table he would have seen that there was another category—effectively, “other”—that had $1.5 billion of tax assessed for it. A lot of the people in that category would be dairy farmers or other farmers who would simply describe themselves as farmers, agricultural businesses, or whatever. It becomes a classification issue. The issue was also raised about the distinction between taxing on turnover and taxing on income. I do not want to canvass that point any further, because it has been well canvassed today.

I will come back to the other questions that David Parker raised relating to the status, in effect, of Part 1 of the Taxation (Annual Rates and Budget Measures) Bill in relation to the changes made in Part 2. I see from the wry smile on his face that he knows the answer as well as I do. I am happy to confirm for the member that Part 1 of this bill confirms the rates of taxation that were put in place in the companion measure last year and that they are not being changed in this bill.

I come to the other point that underpins both his contribution and the contribution of Mr Cunliffe earlier. I say to the Committee that it is now very clear that Labour and, I suspect, the Greens—although, to be fair, the Green Party members have not yet spoken in this debate—will go into the election with a policy of increasing taxes. It is only a matter of by how much.

Michael Woodhouse: They won’t tell us.

Hon PETER DUNNE: They will not tell us.

Hon David Cunliffe: We are.

Hon PETER DUNNE: I am grateful for that admission.

Hon David Cunliffe: Read our lips.

Hon PETER DUNNE: The member says we should read his lips. I place as much credibility on him as I placed on the original George Bush when he made that comment. Let us take the member at his word: Labour will increase at least the top tax rate.

Hon David Cunliffe: We said that.

Hon PETER DUNNE: He has confirmed it. Let me then work though the consequences of that increase, which is where I come back to the points raised by Mr Parker. The biggest adverse tax change made in this country in the last decade was when Labour put up the top personal rate as its first act in Government in 1999. That triggered the explosion in the growth of loss attributing qualifying companies, the explosion in the growth of family trusts for tax avoidance purposes, and the explosion in a whole raft of people trying to define their income as something else in order to minimise it in respect of their tax obligations. All Labour is doing by signalling that it will go back to that policy is again setting off those massive distortions that we have spent the last few years trying to tidy up. The member may well say—

Hon David Cunliffe: We haven’t announced that.

Hon PETER DUNNE: That is exactly the point. It is the consequence of his actions. He knows it, because he was part of a Government that started the process of trying to unwind the problem.

The next issue that arises from that increase relates to differential rates. At the moment we have a top personal rate of 33 percent. The company rate is at 28 percent. There is an argument about whether a 5c gap is too great. In an ideal world it probably is, but it is survivable in these circumstances because we aligned the trust rate with the top personal rate. If Labour wants to put up the top tax rate again—I think I heard Mr Cunliffe say this evening that Labour will not touch the company rate, which will remain at 28 percent—

Hon David Cunliffe: I didn’t say that.

Hon PETER DUNNE: He did not say that.

Hon David Cunliffe: No, I said we’d be reluctant.

Hon PETER DUNNE: This gets better the more we go on. The company rate would probably go up as well. The question we are then left to answer—and we may get an answer if I push Labour members—is what Labour’s attitude to the trust rate is. Unless the trust rate is aligned to the top personal rate, then it will set off that whole process of avoidance that we spent the last decade trying to get over.

So far we know from the debate this evening that an incoming Labour Government at some theoretical point in the future will put up the top tax rate. It will probably put up the company rate, although by not quite so much. It is bound then to put up the trust rate and—[Interruption] As the member interjects quite correctly, because it will need to in order to get the support of the Greens, it will have a capital gains tax, a carbon tax, a resource tax, and all sorts of other things.

I am grateful to Mr Parker for raising the question of what is in Part 1 of this bill. It confirms the annual tax rates as they were passed in last year’s Budget. We have no intention of changing those. I am delighted that we have now confirmed that just about everything is on the table to be increased if Labour gets into power.

STUART NASH (Labour) : We are talking about Part 1 of the Taxation (Annual Rates and Budget Measures) Bill, but I feel as though I have to clarify a couple of things that the Minister in the chair, the Hon Peter Dunne, has mentioned. First and foremost, I find it a little rich that we have the Minister of Revenue in the chair talking about the bad things Labour did when it was in power, when that Minister was also the Minister of Revenue under Labour. If the loss attributing qualifying company structure was so poor, then why did the Minister of Revenue in the previous Government not do something about it? If there was such a discrepancy between the trust rate and the company rate, then why did that Minister not do something about that? I find it a little bit rich to have him stand there and lecture Labour members on what they did wrong, when in fact he was the Minister in charge of revenue under Labour. The irony has not escaped any member on this side of the Chamber.

There is one thing the Minister said that I think I am allowed to rebut. He talked at length about dairy farms. He said that the figures were a little bit disingenuous, because there was a figure under “other” that contained $1.5 billion worth of revenue. But I would like to say to the Minister that in the line for dairy farms, over 17,000 entities classified their primary activity as dairy farming. They were companies, trusts, and partnerships. The definition, according to the Inland Revenue Department, was that they had to have tradable activity. There were no shelf companies there, and there were no trusts that hid assets. Instead, these were trading trusts, trading partnerships, and trading companies, as defined by the Inland Revenue Department. I am more than happy to send over to those members the information that I received from the Minister, and that he received from the Inland Revenue Department. These were not shelf companies; these were trading companies. The statistics from the Inland Revenue Department said that dairying was taxed $26 million.

The statistics also showed that 9,000 of those trading entities declared a loss. I have had a number of calls from farmers, and one was from a very high executive in Federated Farmers. He said to me that I was right, and that the farming industry was in trouble.

Peseta Sam Lotu-Iiga: Name and shame!

STUART NASH: The member really wants me to? Conor English called me and said that, yes, the farming industry was in trouble. This is a debate that we need to have as a country, because the farming sector is the backbone of this economy. It is a very important part of this economy. No one on this side of the Chamber would deny that. But the question that was posed, and the question we pose, is whether the sector is in such a dire state that it can afford to pay only $26 million in tax. That is the question we pose.

The other question we pose, which goes back to Part 1, is whether the integrity of the tax system is in such bad shape that it has allowed farmers to claim expenses for a whole lot of stuff they were able to write off against their incomes. They were allowed to write them off against their incomes to the point where they paid no tax.

Amy Adams: What are you smoking, mate?

STUART NASH: I would love Amy Adams to take a call, because she has three farms that are all held in trusts. She is a lawyer, and I would like Amy Adams to stand up and tell us how she did that.

Amy Adams: I do—sheep farms. You hate them, too?

STUART NASH: It does not matter, because the statistics on dry stock were just the same. In fact, according to the figures from the Minister, which were supplied by the Inland Revenue Department, 75 percent of dry stock farms earned $20,000 or less. Are they really in such a bad shape that they cannot pay tax, or is the integrity of the tax system in such a bad way—

Amy Adams: You’re a moron.

STUART NASH: Am I a moron, Amy Adams? Mr Chair, I take personal offence—

The CHAIRPERSON (Lindsay Tisch): The member knows that that is not a parliamentary term. I ask the member to withdraw and apologise.

Amy Adams: I withdraw and apologise.

STUART NASH: Thank you very much. All I am saying is that I know the difference between income and payout, and I know about expenses. I know how economics works, but I also know that when a sector that describes itself as the backbone of this country pays only $26 million in tax, some serious questions need to be asked.

JOHN HAYES (National—Wairarapa) : I would like to say to the listening public that that was the voodoo economist in this Chamber, or possibly the “member for misleading information”. I accept that he is not a moron, at all, and I am pleased—

The CHAIRPERSON (Lindsay Tisch): No. I ruled against the use of that term, and it is not appropriate to bring it into any form of debate following. I tell the member to not do that.

JOHN HAYES: Thank you—

Hon Rick Barker: I raise a point of order, Mr Chairperson. The other point I would make—and you have been very good on your rulings to make sure the Committee is in order—is that the member made reference to a member for such-and-such. I thought that was a disrespectful reference to members on this side of the Chamber. Members are either members for an electorate or they are list members, but to call the member the “member for misleading information” was, I thought, disrespectful to a member in this Chamber.

The CHAIRPERSON (Lindsay Tisch): The intent of that was not directed particularly to a member. These are debating points, and I am sure they will be taken in that light.

JOHN HAYES: The point of the issue is that we have had two members speak in this Committee who are both list members of Parliament—unlike myself, who deals with a provincial area of New Zealand, the Wairarapa. I have a great connection with dairy farmers, sheep farmers, and beef farmers. I can tell members that there has been a very important rain event in the northern part of my electorate, which, if members will bear with me, bears on this argument. The reason is that some of the farms in my electorate have lost more than 60 percent of their land area between Porangahau and Cape Kidnappers. For that reason we have tax rules, as I am sure the Minister in the chair, Peter Dunne, understands, that allow farmers to remove their capital stock from their land, sell it, and raise capital from it. That money is treated as capital, not as income, because when the pasture is restored and the grass starts growing in the spring, those farmers will want to bring back capital stock on to their pastures. So it is fundamentally important that we have flexible arrangements, as we have in the legislation, for allowing this sort of transaction.

I have to say to the member Stuart Nash that he is quite wrong, and I do not believe he understands the difference between a person who draws wages or a salary, and a person who pays an employee. All of those people take money from the business entity for which they work, and they pay full tax on that at whatever is the relevant rate. That does not mean that the business, and all dairy farmers, pay no tax. That is absolutely outrageous to suggest—

Stuart Nash: I’ll send you the figures.

JOHN HAYES: I think the member needs to look at the issues he was talking about, and it is how he was talking about it. I have to assert again that this is voodoo economics, and the member is just taking headline figures and wrongly interpreting them for the benefit of his argument.

I return to clause 3 of Part 1. I need to say that when the Government took the reins of office in the financial crisis, the economy had gone into recession and had shrunk 3 percent a year, topping off 5 years of historically low growth. Then what happened was that exports flattened out completely, Government spending—which the member David Parker, who spoke earlier, was responsible for—was out of control, and Treasury books showed never-ending budget deficits spiralling out to 60 percent of GDP and beyond. Despite the surprises of the two earthquakes and the global recession, our economy now, under John Key’s leadership, is far stronger than it was 3 years ago. We have improved the tax system so that we are setting up signals for people in my electorate and elsewhere in New Zealand who want to improve their lot by working hard, by saving hard, and by paying tax through GST rather than on income tax. We have done that to improve the efficiency of the economy and to set up signals so that people will respond better. They will put money in their pockets and spend it as they wish.

If we did not do that, what would the list member across the Chamber do? He would be involved in a Government that would tax businesses on revenue, not on profit. David Cunliffe has already explained that Labour plans to spend $5 billion a year, but it will not tell anyone where the money is coming from. The member opposite has a really good opportunity to do that. It may be a turnover tax. I expect that Labour is going to give people a discount on GST; it has already said that in the House. That discount would cost about $250 million. It would benefit 10 percent of households by a magnificent amount: $1.50 a week. The Labour Party is talking about having a $5,000 tax-free threshold, but David Cunliffe said that the tax-free regime will not happen for 5 years, and even then it would be worth about $10 per week. A month ago Labour had fully costed policies, according to Mr Cunliffe—fully costed policies on a spreadsheet.

BRENDON BURNS (Labour—Christchurch Central) : I take the first opportunity in this debate to acknowledge that the Government is making some effort in respect of the recovery in Christchurch. I acknowledge also that it will, of course, be hard-working New Zealanders who provide the money for that recovery through their taxes, and that is what is provided for in clause 3.

I also want to pick up on the point made by my colleague Mr Nash about taxes being paid by particular sections in the community. I acknowledge too that we have a situation in respect of the dairy farming community where tax liabilities are also created because of the failure of the Minister for the Environment, who is sitting opposite, to deliver in the national water policy statement of last week any mechanisms for environmental control. So we have taxpayers funding the clean-up of some of the inputs that the dairy industry provides. We need only look at the lakes in Rotorua and at the Waikato River for examples of where taxpayers, through their annual rates set in bills like this one, are paying twice, in effect. Not only is tax not being paid effectively by many across that sector but also we are paying, through taxes, for the clean-up.

Then, of course, provided for under this Budget will be the irrigation schemes, which the dairying industry will, with others, be a major beneficiary of. That, of course, will also be funded by taxpayers—ordinary hard-working taxpayers who, on about a $50,000 income, are paying 10 times what, at least in one recent financial year, some dairy farmers were paying. That is a matter of fairness and equity, and it is simply not acceptable to have that kind of imbalance in the taxes being paid by two sectors of society.

The Prime Minister commented today that the largest amount of tax is paid by a relatively small part of the community, and that is always the case when we have a progressive tax system. This part of the bill is implementing that progressive tax system, and I for one believe that that is an appropriate tax system for us in New Zealand. Just last night I attended the graduation of my daughter from Victoria University. She graduated as a primary teacher. I was a very, very proud father there last night, amongst many, many others; there were many other parents there. Those students, of course, will have contributed somewhere around 20 percent of the cost of their tertiary education. We as taxpayers will have contributed 80 percent, as provided for under the clause in this bill where we have set the annual rates for our taxes.

But I make the point that those students, as they graduate and go into high-earning jobs, will be the beneficiaries of the stable and orderly society that we treasure in New Zealand. How do we provide for that stable, orderly society? We provide for it through our taxes. We provide for it through parts of bills like this one tonight.

We have rules in our society, and those at the top end are generally as much, if not more, the beneficiaries of those rules as those at the bottom end. Things like the courts, things like regulations in business, and things like tenancy requirements are all paid for, overseen, supported, and facilitated through the taxes we pay, and we as taxpayers also get back benefits for those. Those of us on higher incomes tend to get more benefit back because we get the regulations in business and tenancies, and things like that, which lower-income taxpayers may not be receiving, even if they might sometimes be getting more in terms of particular other benefits.

We get a welfare net and we get the provision of health care, and I would rather live in a society where somebody is able to go to a hospital provided for in a health system, funded through our taxes, through clauses like this, than have the system we see in other countries, where, as David Lange once put it: “They feel for your wallet before they feel for your pulse.” That is part of having a progressive tax system.

Of course, the Government makes much play sometimes about the fact that it has cut taxes, and it points to the fact that there have been three tax cuts across the last 3 years. But it usually fails to take account of the fact that the first of those tax cuts took place under the guidance of Dr Michael Cullen, and that those tax cuts were really sheeted home to lower and middle income earners, not to the top end of town. We have seen in the latest two tranches of tax cuts, without any doubt, that the top end of town has been the real beneficiary, and we have seen some of the figures on that provided to the House on numerous occasions.

I will pick up on some of the commentary in the Economic and Fiscal Update, as tabled today by the Minister of Finance, around tax matters. I say to the Minister that on page 80 it is acknowledged that we are yet to see a full year of GST at the new 15 percent rate. I just wonder whether the Minister can give us any assurance as to whether there is any work consideration going on for any further lift in the GST rate, under the potential of a re-elected National Government, should he still be there as part of that. I think that is an important question to ask.

I also draw attention to page 82 of the Economic and Fiscal Update, which is reflected, I think, by this bill and the annual setting of the tax rates, and to the differential between Treasury and the Inland Revenue Department in respect of the tax revenue forecasts, and as Treasury—

Craig Foss: All Budgets always use Treasury forecasts.

BRENDON BURNS: No, but Treasury notes that the Inland Revenue Department has produced a set of tax forecasts that are much lower than Treasury’s—

Craig Foss: Read the whole paragraph.

BRENDON BURNS: —much lower than Treasury’s. In this update—

Craig Foss: Read the whole thing.

BRENDON BURNS: —yes, I will—the total difference between those tax forecasts across the 5 June years, 2011 to 2015—it is on page 8; it will help the member with his own guidance—is nearly $4 billion. That is not an amount to be sneezed at or to be dismissed as just a minor variation between two Government departments. It is an actual $4 billion difference in projections between—

Craig Foss: Four years.

BRENDON BURNS: That is right, and that is a billion dollars a year in anybody’s language. A billion dollars a year is not to be sneezed at. Why has that come about? It has come about because the Inland Revenue Department is less upbeat on the business tax—

Craig Foss: At the same time they upsized the risk—

BRENDON BURNS: That is right. The bulk of the difference—I am again quoting from the papers—is the difference in estimates for corporate tax, because Treasury is upbeat. It is saying the corporate sector is bouncing back. The Inland Revenue Department, which is a less political organisation, if you like, is simply there to make sure that the revenue comes in to meet the needs and objectives of the Government. It is simply there for that reason, and it is simply not prepared to be as upbeat as that on that issue.

I refer the member opposite and the Minister in the chair, the Minister of Revenue, to the regulatory impact statement for this bill, which refers to the issues of KiwiSaver. That is another issue of analysis by credible officials. It is actually an analysis by both Treasury and the Inland Revenue Department, if my memory serves me right. It has, I think, the Inland Revenue Department’s fingers all over it, because it is talking about the department’s concern that we are making changes to KiwiSaver when it is less than 5 years old. It was launched only in 2007. There have already been several significant changes to contribution requirements. Who made those? Those changes were made in 2008 and 2009 by the National Government, which wanted to fund the first round of its tax cuts. So it took away the 2 percent contribution.

Craig Foss: Half the people are on 4 percent now.

BRENDON BURNS: Yes, it did. It took it away, and now it is going halfway back to reinstating it because we need a new savings regime. Here is what the department says about that in the regulatory impact statement: “The KiwiSaver industry has not experienced any period of stability in which to establish its core products, and this uncertainty and unpredictability is not helpful to either the industry or savers.” The National Government’s track record on this issue is appalling, dating back to Muldoon.

MICHAEL WOODHOUSE (National) : So now we know that Labour is going to campaign in the general election on a new top tax rate. It was not very clear in what Mr Cunliffe said, but if we take the Leader of the Opposition’s speech, there will be a new top tax rate, because the alternative is that Labour simply puts up the existing top tax rate. Let us analyse why that will be so bad for New Zealanders. I will give members a scenario. It is of a family with two kids under the age of 13 where the gross income is $60,000. I will take another family with exactly the same circumstances, but the gross income is $90,000.

Stuart Nash: Do you know the difference between income and revenue?

MICHAEL WOODHOUSE: Yes indeed, absolutely. This chartered accountant knows the difference. That is one-and-a-half times more income. A progressive tax system says that the higher-income family should pay more than one-and-a-half times more tax. How much more? Is it 200 percent or 250 percent? At the moment that family is currently paying 675 percent more in effective income tax than the family on $60,000 pays. That is nearly seven times more income tax. They are looking at each other and saying: “How can that be?”.

Stuart Nash: It’s called a progressive tax system.

MICHAEL WOODHOUSE: It is the system that the member put in place.

• Debate interrupted.