Thursday, 20 May 2010

Thursday, 20 May 2010

Thursday, 20 May 2010

Mr Speaker took the Chair at 2 p.m.

Prayers.

Bills

Appropriation (2009/10 Supplementary Estimates) Bill

Procedure

Hon BILL ENGLISH (Minister of Finance): I hereby present the Supplementary Estimates of Appropriations for the Government of New Zealand and supporting information for the year ending 30 June 2010 (B.7).

Mr SPEAKER: That paper is published under the authority of the House.

Bills

Appropriation (2010/11 Estimates) Bill

Procedure

Hon BILL ENGLISH (Minister of Finance): I hereby present the Budget 2010 Minister’s Executive Summary, the speech, the Fiscal Strategy Report, the Economic and Fiscal Update (B.2 and B.3), the Estimates of Appropriations for the Government of New Zealand for the year ending 30 June 2011 (B.5), the information supporting the Estimates of Appropriations for the Government of New Zealand for the year ending 30 June 2011 (B.5A, Volumes 1-10), and the departmental statements of intent.

Mr SPEAKER: Those papers are published under the authority of the House.

Points of Order

Chamber, Lobbies, and Galleries—Audio System

Hon TAU HENARE (National): I raise a point of order, Mr Speaker. Some of us at the back cannot hear.

Mr SPEAKER: The sound technicians will be aware of the concerns of the member and will do their best to improve the situation. I apologise, but I expect improvements will be made before the Minister commences the second reading.

Bills

Appropriation (2010/11 Estimates) Bill

First Reading

Hon BILL ENGLISH (Minister of Finance): I move, That the Appropriation (2010/11 Estimates) Bill be now read a first time.

Bill read a first time.

Budget Statement

Budget Debate

Budget Debate

Hon BILL ENGLISH (Minister of Finance): I move, That the Appropriation (2010/11 Estimates) Bill be now read a second time.

Mr Speaker,

I move that the Appropriation (2010/11 Estimates) Bill be now read a second time.

On election day 2008, New Zealanders voted for a more prosperous, ambitious New Zealand, where Kiwis have opportunities to get ahead.

The National-led Government came into office with the New Zealand economy well into recession and with the world’s financial system experiencing its worst crisis since the Great Depression.

By necessity, last year’s Budget was focused on getting New Zealand through the global crisis. Budget 2009 maintained the nation’s credit rating, preserved income support entitlements and fulfilled commitments from the 2008 election.

To help sustain economic activity and support jobs, the Government absorbed much of the shock of the recession on its own balance sheet, thereby significantly increasing its borrowing.

The worst of the global crisis has for now passed and the economy has begun to grow again. In fact, New Zealand has weathered the economic storm better than many other developed economies.

Government policy struck the right balance between blunting the sharp edges of recession and maintaining control of public finances.

But we have work to do. That’s why Budget 2010 is about building the recovery, creating jobs and helping Kiwi families get ahead.

Creating and passing through this House a budget each year is at the heart of stable government. I want to especially thank the Government’s support parties, ACT, the Māori Party and United Future, for their contributions.

I am pleased to tell the House that this Budget will fund improved services to the public, will produce a lower track for future debt, and will deliver a tax package that will be good for the economy and good for families.

Mr Speaker,

I now turn to four main objectives of this Budget.

The first is lifting the long-term performance of the economy.

The second is reform of the tax system, to make it fairer, more sustainable and more supporting of economic growth.

The third is better delivery of public services, to make them better for users of those services and better for taxpayers.

The fourth is to maintain firm control of the Government’s finances, so we can return to budget surpluses and pull back our rising debt.

Mr Speaker,

Growth matters. It is the only way that we can lift incomes, create permanent jobs and build the kind of country we aspire to be.

Lifting the long term performance of the economy will require considered and consistent change over the next decade because the challenges are significant.

It is convenient to blame sluggish growth on the global recession, but that is not the sole cause.

Our economy entered recession well before the financial crisis began in late 2008.

Growth in the three years prior was below one per cent per annum. This was less than half our trading partner average, and less than one-third of Australia’s growth rate.

From mid-decade on, growth had been fuelled by a mix of rising household debt and ballooning Government expenditure, which grew 50 per cent in the five years to 2009.

By contrast, output from exporters and import competing industries had been in decline since 2005.

These include sectors such as agriculture, horticulture, mining and resources, forestry, fishing, food manufacturing and tourism, all areas where New Zealand should be benefiting from its natural advantages.

Too many New Zealanders have discovered that growth driven by debt, Government spending and property speculation does not create permanent, worthwhile jobs.

The consequences of this decline in our earning capacity are now clear: too few jobs created, a balance of payments deficit over 8 per cent of GDP until its recent decline, and negative productivity growth between 2000 and 2009.

The economy has spent more than it earned and borrowed to make up the difference.

New Zealand’s largest single vulnerability is now its large and growing net external liabilities. New Zealand owes the world $168 billion, or around 90 per cent of GDP.

Private sector debt to foreign lenders has grown steadily over the last decade and our vulnerability will be increased by growth in government debt to foreign lenders over the next five years.

The dangers of too much debt are well illustrated by a number of European nations who are currently undergoing painful changes, involving increasing taxes, cutting public services, or both.

The Government is committed to policies that will reduce our vulnerabilities by tilting our economy away from debt and consumption toward savings, investment and exports.

Mr Speaker,

These policies underpin the updated Treasury forecasts showing steady growth of around 3 per cent over each of the next four years.

The forecasts also show that this growth will raise real incomes of the average household by about $7,000 over the next four years, and create 170,000 jobs.

Unemployment has already fallen to 6 per cent. We share with both ACT and the Māori Party a common desire to help New Zealanders move off welfare and get ahead under their own steam.

Global developments highlight the opportunity for New Zealand to stand out. We will emerge from recession with sound finances, quality public services and low and stable tax rates.

We will naturally appeal as a place people want to live and do business.

Mr Speaker,

The Government’s growth strategy has identified six key drivers of stronger economic performance—a better regulatory environment for business; skills and education; quality infrastructure; science, innovation and trade; improved public sector performance; and tax reform.

These jointly form a programme to address economic imbalances and lift growth.

The Government is making progress in all six areas.

Mr Speaker,

I now turn to the Budget’s second objective, that of improving the tax system.

Tax reform is a centrepiece of this Budget.

We want a system that rewards effort and helps families get ahead.

One that attracts and retain skilled people in New Zealand.

One that encourages savings and productive investment.

And we want to make the tax system fairer.

Mr Speaker,

Tax has a powerful influence on savings and investment decisions. Uneven tax rates have been a major drag on growth. Sectors with low effective tax rates have expanded at the expense of the rest of the economy.

The Government is strongly of the view that investments should stand on their own merits, and not be unduly influenced by tax.

There is also compelling evidence of widespread avoidance, mostly brought about by taxpayers exploiting differing effective tax rates. The system lacks integrity and fairness.

The Tax Working Group of 2010 echoed the findings of the earlier McLeod Tax Review of 2001 on these matters.

We also required any changes to be broadly fiscally neutral. Given the increase in public debt of recent years, it would be irresponsible to saddle the next generation to pay for tax cuts now.

Over four years the package delivers around $15 billion of tax cuts. This is matched by a similar level of revenue increases from less economically damaging sources.

The total package has a cost of $460 million in the first year due to some revenue initiatives which cannot be immediately implemented.

The main elements of the tax package are a shift towards lower and more uniform rates of income tax, more indirect taxation and broadening the existing tax bases.

It represents the most thorough and beneficial overhaul of the tax system in 25 years.

From 1 October 2010 we will lower personal income tax rates, and increase the rate of GST to 15 per cent.

The increase in GST has been estimated by Statistics New Zealand to raise the level of prices by about 2 per cent.

To put this in perspective, this is less than actual CPI inflation in each of the past six years.

The Government is concerned to protect the vulnerable and those less well off from this one-off rise in the general level of prices.

This continues the approach taken in last year’s Budget, which preserved income support and entitlements in the face of the global recession.

The tax package will protect the incomes of New Zealanders in two ways.

First, for income earners at all taxable income levels, the reduction in personal income tax will be sufficient to match the increase in GST.

Second, the package will provide, from 1 October 2010, an immediate lift in the levels of New Zealand Superannuation, all main benefits, student allowances and Working for Families payments. This will be sufficient to offset the estimated impact on prices due to the rise in GST.

The payments will be adjusted to ensure the full CPI effect is captured, excluding the CPI impact of the tobacco excise increase.

Revenue raised, from GST and other base broadening measures, will be used to fund an across the board reduction in all income tax rates.

The changes to personal income tax rates, to apply from 1 October 2010, will be as follows:

The initial income tax rate applying up to income of $14,000 will reduce from 12.5 per cent to 10.5 per cent.

The tax rate applying to income between $14,000 and $48,000 will reduce from 21 per cent to 17.5 per cent.

The tax rate applying to income between $48,000 and $70,000 will reduce from 33 per cent to 30 per cent.

The tax rate applying to income over $70,000 will reduce from 38 per cent to 33 per cent.

These are substantial and worthwhile tax reductions.

They mean that, for example, a typical two earner family, with two children who earns the average household income, will, after allowing for the increase in GST, be better off by $25 per week, or $1,285 per year.

When combined with the tax cuts already delivered from 1 April 2009, that family will be better off by over $43 per week or $2,245 per year.

The changes also mean that since March 2009 the marginal rate of income tax faced by taxpayers earning between $40,000 and $48,000, just below the average wage, will have almost halved from 33 per cent to 17.5 per cent.

Taxpayers wanting to know how their own position is changed by today’s tax package can consult our website, www.taxguide.govt.nz and make this calculation.

Mr Speaker,

The Government believes that in a world of mobile capital, business income is particularly sensitive to tax rates.

When New Zealand’s company tax rate was set at 33 per cent more than 20 years ago that rate was competitive by world standards.

Since then company tax rates show strong downward momentum around the globe.

The tax rate applying to New Zealand companies will reduce from 30 per cent to 28 per cent. This will apply from the start of the 2011/12 income year.

28 per cent will also become the standard tax rate applying to most savings vehicles.

It will apply to vehicles taxed as companies, including Group Investment Funds, unit trusts, life insurance and superannuation funds. It will also be the maximum tax rate applicable to Portfolio Investment Entities, known as PIEs.

Lower income taxpayers will still have access to lower rates via imputation credits from companies and electing lower PIE rates.

The tax rate applying to trusts will remain at 33 per cent, the same as the new top personal rate of income tax.

The previous gap between the 33 per cent tax rate for trusts and the 38 per cent rate for higher income individuals has spawned widespread use of trusts as tax planning vehicles. Trusts have an important role in our economy, but this should not be driven by tax advantages.

Applying a lower and more uniform tax rate to most forms of capital income will improve the durability and integrity of the tax system. It will encourage individuals to save and companies to invest.

Mr Speaker,

The Tax Working Group also reported that anomalies arise through the use of taxable income as a means of determining eligibility for certain Government assistance. Taxable income may not always be a good measure of true economic circumstances.

As an initial step, from 1 April 2011 investment losses will be added back to taxable income for the purpose of determining a family’s eligibility for Working for Families assistance.

Further changes of eligibility for Government assistance, including student allowances, covering areas such as distributions from trusts and income from cash PIEs, will follow after the Budget. Officials will release a paper setting out the issues and proposed solutions later this year for implementation from 1 April 2011.

Mr Speaker,

The Budget will also introduce a range of measures to broaden tax bases. These measures are being introduced to improve the fairness and efficiency of the tax system, and to improve the economy.

The existing 20 per cent loading on depreciation for new investments will be removed for assets acquired after today. Assets already purchased will continue to receive the loading.

This allowance explicitly departed from the principle of allowing deductions for true economic depreciation. It results in other taxpayers effectively supporting investments that might not stand up on their own merits.

In addition, the Government is not convinced that all buildings actually depreciate.

It is clear that some do. But many New Zealanders live happily in houses constructed over 100 years ago.

Allowing tax deductions for depreciation provides an unfair tax advantage for these assets.

Accordingly, the depreciation rate for most buildings with an expected life of 50 years or more will be set to zero from the start of the 2011/12 income year.

Those buildings where the current depreciation schedule is consistent with a useful life of less than 50 years will be unaffected.

Building owners who believe that, under these rules, a class of buildings should qualify for depreciation, may seek a provisional rate from Inland Revenue as they do at present.

Following the Budget, the treatment of commercial building fitout will be reviewed and if necessary amended prior to 1 April 2011 to clarify the law on the split between buildings which will not be depreciable and separate assets which will continue to be depreciable.

Taxpayers will, of course, still be able to claim deductions for repairs and maintenance.

Many investors hold property through Loss Attributing Qualifying Companies, or LAQCs. After a short period of consultation, legislation will be proposed so that from 1 April 2011 all LAQCs will be taxed as limited partnerships.

The main impact of this change will be to ensure both profits and losses are assessed at the marginal tax rate of the investor.

The Government has also reviewed taxation of inward investment into New Zealand. International tax law generally provides that income should be taxed in the jurisdiction where it is earned.

However, it is relatively easy to transfer income between jurisdictions by use of debt, often between related parties.

New Zealand, like most countries, operates “thin capitalisation” rules to limit this practice. The current “safe harbour” limit for gearing on foreign owned investments, will be reduced from 75 per cent to 60 per cent from the 2011/12 income year.

Mr Speaker,

This package of tax changes represents a major step forward. By improving incentives to save, and evening up effective tax rates across sectors and across vehicles, it directly addresses some of the problems that have beset the economy in recent years.

The package improves fairness and the integrity of the tax system. It ensures that taxpayers with similar circumstances and true economic incomes will have similar tax positions.

The package is broadly neutral in terms of income distribution.

While higher income earners pay more tax and therefore receive larger personal income tax reductions, these groups also bear most of the impact of the tax base broadening measures.

In addition, the compensation package is targeted to those on lower incomes.

On average most New Zealanders receive roughly a half to one per cent average increase in real disposable income.

The impact of the tax changes on economic growth will be positive, though only a small allowance has been made for this in the fiscal projections.

Finally, I thank my colleague, the Hon Peter Dunne, who as Minister of Revenue has worked tirelessly to help deliver the tax package before the House today.

Mr Speaker,

Budget 2010 also contains a range of other initiatives that will promote growth.

We have focused funding on investing in innovation and encouraging growth in selected productive sectors.

The Budget allocates $321 million over four years for a range of science and R&D incentives, lifting total spending to $750 million per annum.

This includes business R&D grants and assistance for firms to access new ideas, science and technology from Public Research Organisations, stronger commercialisation within CRIs and universities, and research infrastructure.

The global financial crisis was a setback for tourism. The Budget allocates $30 million of new spending in 2010/11, mostly to increase the marketing of New Zealand as a tourism destination internationally.

The Government will legislate this year to support the aquaculture sector’s objective of becoming a billion dollar industry by 2025, working with industry and other stakeholders to lift regulatory barriers.

Late last year the Government agreed to most of the recommendations of the Capital Market Development Taskforce, and is in the process of implementing them.

The Government released a plan to unlock New Zealand’s petroleum and mineral potential in November 2009 and has begun implementing it. This Budget funds implementation of that plan.

Water is also a key strategic resource. The Government is currently working on improving the regulatory regime, including those parts that impact storage and irrigation, as part of an efficient and sustainable water management programme.

Mr Speaker,

Another important leg of our growth plan is to improve access for New Zealand exporters to world markets.

China has recently and rapidly become our second largest trading partner.

Given the increasing importance to New Zealand of trade with Asia and the Pacific Rim, we have also recently signed Free Trade Agreements with Hong Kong and Malaysia, and are negotiating with Korea and India.

Our Agreement with the 10 countries of ASEAN recently came into force.

We are working with the Trans-Pacific Partnership regional grouping, including the United States, to open further markets and opportunities for New Zealand exporters.

Mr Speaker,

To ensure that these and related initiatives continue to benefit the economy, we have established the Productivity Commission. This will be a standing body with high level expertise, operating independently with a wide brief to undertake inquiries into productivity-related matters. It will be in place by April 2011.

The Government also intends to release a discussion document on ways to ensure that all new and existing regulation is subject to proper scrutiny. This will help avoid proliferation of red tape.

For both of these initiatives the Government is grateful for the leadership shown by the Hon Rodney Hide and the ACT Party.

Mr Speaker,

I now turn to how the Government can ensure better delivery of services to the public.

A more efficient public sector will deliver better quality services, while reducing fiscal and tax pressures on the rest of the economy.

The Government determined that rather than spread new spending resources thinly, it would focus on those few high priority areas that really mattered.

Three quarters of the new spending allowance has been allocated to improving health and education services, and to lifting science and innovation. Most of the other votes received either small or no increases. Many will see no additional funding for several years.

The Government is working with public sector chief executives to deliver higher quality services more efficiently, as every other organisation in the community has had to do over the past two years, and I thank them for their efforts. We will continue to scrutinise every dollar of public spending.

As we committed a year ago, Budget 2010 lives within a new operating spending allowance of $1.1 billion per year. In addition, a further $1.8 billion has been made available between now and 2014 by redirecting resources into higher priority areas, including within health and education spending.

Core Crown expenditure also increases due to rising benefit and superannuation costs, increased finance costs and expenditure on the emissions trading scheme.

In total, core Crown expenditure is forecast to increase by $5.9 billion, to over $70 billion, in 2010/11.

Mr Speaker,

The largest share of new spending has been dedicated to improving core Government services.

In total, Health has been allocated an additional $2.1 billion over the next four years, including an extra $512 million in 2010/11 to cater for ongoing demographic and price pressures.

This includes $93 million for disability support and $60 million to boost elective surgery over the next four years.

The Government’s commitment to education remains strong. This Government wants all young New Zealanders to reach their potential and be given the opportunity to succeed.

The Budget provides an extra $1.6 billion for education over four years.

This will fund a 4 per cent increase in operating expenditure for schools. It also includes $349 million for school property, $92 million to raise participation in Early Childhood Education for families in areas currently under-represented, and $48 million to extend the Youth Guarantee.

Social services are also a priority. Building on the success of the Government’s Community Response Fund, the Budget provides $91 million over the next four years for Non-Government Organisations to deliver extra services.

Justice receives $147 million in new operating expenditure, as well as significant capital expenditure. This will fund a lift in prison capacity, legal aid restructuring and increase Family and Youth Court professional services.

Our commitment to Whānau Ora is matched by funding of $134 million over four years. The first wave of 20 Whānau Ora providers will be selected through an Expressions of Interest process that begins next month.

The Budget provides almost $20 million for two new Whare Oranga Ake reintegration units.

I particularly thank the Hon Dr Pita Sharples and the Hon Tariana Turia as the Ministers responsible, together with the rest of the Māori Party.

The Government retains an on-going commitment to growing the supply of affordable housing for New Zealanders and their families. $20 million has been provided to extend Housing New Zealand’s Housing Innovation Fund for another year.

Mr Speaker,

The Government is determined to improve management of government owned assets. Too often Government assets have been poorly managed and liabilities poorly monitored.

As at 30 June 2009, the Crown balance sheet showed $217 billion of assets and $118 billion of liabilities.

The Crown has a wide range of holdings, and is by far the largest asset owner in the country.

It holds around $100 billion of what could be termed social assets, including roads, national parks, state housing, schools and hospitals.

It holds around $70 billion of financial assets, comprising a wide range of local and overseas investments, all of which produce commercial returns.

And it holds over $50 billion worth of commercial assets, comprising mainly SOEs and KiwiRail.

These assets have been funded by New Zealanders paying taxes and fees over decades.

The Budget forecasts show that over the next four years the value of Government owned assets is expected to increase by some $32 billion. This represents growth in taxpayer wealth.

This level of investment demands a high standard of stewardship by Government.

Since taking office the Government has been working hard to understand the capital demands of its operations, and to allocate capital to where it can best be used.

We have produced the first National Infrastructure Plan, tightened commercial disciplines on SOEs and started to introduce better disciplines on procurement processes.

New capital spending decisions in this Budget reflect this increased emphasis on managing the public’s resources to promote growth.

We continue to invest in our $7.5 billion infrastructure programme over the next four years.

The Budget funds major investment in the rail network.

The Government has committed in principle to investing $750 million over the next three years, as its contribution to KiwiRail’s $4.6 billion turnaround plan.

This is in addition to $500 million over four years to purchase electric commuter trains.

Another major investment is the Government’s ongoing investment in ultra-fast broadband infrastructure through Crown Fibre Holdings.

Budget 2010 allocates a further $200 million of capital funding, in addition to the $248 million allocated last year, as part of a total expected investment of $1.5 billion.

This funding will enable Crown Fibre Holdings to start making substantial contract commitments with the private sector to start rolling out the new fibre network.

A further $48 million has been allocated for ultra-fast broadband in schools.

Funding has been set aside for a new prison, potentially delivered via a Public Private Partnership.

Mr Speaker,

I now turn to the Government’s fourth objective, that of maintaining firm control of the government’s finances, so we can return the budget to surplus and reduce our rising debt.

The fiscal outlook has improved from last year, due to the economy returning to growth and the positive impact of Budget 2009 decisions.

The projected operating deficit for the next financial year is $8.6 billion or 4.2 per cent of GDP.

It is projected to improve steadily in each subsequent year, and to reach surplus in 2015/16, three years ahead of last year’s projection.

As a result of this improved outlook the debt projections have also become more favourable.

Net core Crown debt is now projected to peak at 27 per cent of GDP in 2014/15 and then decline steadily. This is both a lower and earlier peak than was projected in last year’s Budget. It contrasts strongly with the outlook of ever rising debt which the Government was presented with in late 2008.

By 2024, net core Crown debt is projected to be back to 14 per cent of GDP, or about the level before the crisis struck.

However, it will require at least a further decade of disciplined fiscal management to deal with the effects of the global financial crisis and the huge lift in Government spending during the boom years leading up to that crisis.

Financing new and maturing debt will require the Government to borrow around $240 million every week over the next three years. Debt is projected to reach $68 billion by 2014/15.

This substantial rise in debt will mean that interest costs more than double.

Our long term fiscal objective remains to ensure that net debt is brought back to no more than 20 per cent of GDP by the mid 2020s. The current projections show this being achieved by 2022.

If possible it would be preferable to return to this low level of debt earlier.

Mr Speaker,

The improvement in the debt outlook gives the Government some flexibility to absorb part of any future shocks, as it did in the last recession.

Our intention is that any favourable surprises will be used for deficit reduction and debt consolidation.

When the books are balanced and debt has stopped rising the Government will have more choices about where to invest, spend or reduce taxes.

Mr Speaker,

Budget 2010 is about building the recovery and helping New Zealanders prosper.

The Prime Minister has made clear this Government’s aspirations for an economy that values enterprise, rewards people for effort and encourages them to get ahead.

New Zealand has successfully navigated the worst global crisis in a generation. The challenge now is to build growth and create new jobs. Sustained growth provides opportunities for New Zealanders to achieve their aspirations.

Budget 2010 drives the New Zealand economy forward, moving away from debt and consumption while increasing investment and exports.

We set a path for responsible Government spending last year, and we maintain that path in this Budget.

We have changed the tax system to rebalance the economy, to put cash into people’s hands and to encourage them to save more and consume less. This will have a long term benefit.

We now have our debt under control and unemployment is beginning to fall. We will emerge as one of the countries that other nations aspire to be more like.

There are risks to the recovery. A mountain of debt hangs over a number of our export destinations, and will also influence the markets that lend to New Zealand.

We cannot take for granted the contribution that the Australian and Chinese economies have made to our growth.

However, we are on track to a position most developed economies will envy.

This includes more new jobs, falling unemployment, rising family incomes, quality public services and sound public finances.

Mr Speaker,

This Budget continues to build a platform for a much more ambitious New Zealand.

Mr Speaker,

I commend this Budget to the House.

Hon PHIL GOFF (Leader of the Opposition): I move, That the words after “That” be omitted and the following substituted: “this House has no confidence in the National Government led by John Key which has blatantly broken its clear promise not to raise the Goods and Services Tax, has pushed up prices when working people have had their lowest wage rises in more than a decade, has failed to implement a plan for jobs, lacks any vision for a smart, high-skill, high-tech and high-wage economy, has cut services and assistance to the most needy in our community, and has rewarded the most wealthy at the expense of middle and low income New Zealanders.”

Today the National Government had the opportunity to deliver a Budget that was fair for all New Zealanders—a Budget for the many, not the few. Today, the National Government had the chance to produce a Budget that invested in the future, a Budget that promoted a modern, smart economy with more and better jobs and higher wages. This National-led Government has failed absolutely in those objectives. There were no new ideas to create jobs and the future that they need. Instead, the Government has pushed up the price of just about every good or service that New Zealanders buy. It has borrowed extra to give a windfall to the most wealthy people in this country. It has broken its promises to senior citizens. It has created the highest level of inflation in decades—nearly a 6 percent rate of inflation. In the time that we have had, our estimate is that average earners will be $30 a week worse off after inflation—$30 a week worse off after inflation. Those on the average wage will get a $15 a week tax cut. Goods and services will go up by $45 a week. That leaves them $30 a week worse off, by Mr English’s own figures. The top 1 percent of income earners will get 12 times the cut in their income tax of the average earner—12 times the cut of the average earner.

This Budget is a short-term plan that will look after the interests of the highest-income earners, which this National Government represents, but it is a Budget that comes with a huge cost. It was ironic to listen to the National backbenchers cheering the figures on health. Why would they cheer the figures on health when those figures left a $300 million gap in maintaining health services even at the current level? That is a $300 million hole in the health budget.

When we look at the education budget, we see that there is not the additional funding in education that will come even near to meeting the cost of extra inflation. If we take the critical area of education where the foundation is laid for our children to learn, early childhood education, we see a slashing of $400 million over 4 years—$400 million over 4 years. My challenge to the Prime Minister is to ask how that cut will be met. Will it be met with additional fees on all of those who are trying to get a quality early childhood education for their families, or will it mean a cut to the quality of early childhood education? Either way, that is a disastrous failure to invest in the future of our country—our children.

Before the election, Mr Key promised that the average wage earner would get a tax cut of $50 a week. That has not eventuated. There is no $50 a week tax cut for the average income earner. The Government promised tax cuts. Last year it cancelled the tax cuts and it talked about a tax switch. But this year they have actually delivered a tax swindle—a tax swindle. There is no $50 a week tax cut for those on the average wage. National has done what it never told New Zealanders it would do. It promised income tax cuts, but it never told New Zealanders that they would be paying for those cuts themselves through the increase in GST. In fact, 2 weeks before the election Mr Key stood up, looked down the barrel of the camera, and said that National would not increase GST. Every time he denies or tries to qualify that, his credibility goes down. That is a broken promise by the National Government.

This Budget will do nothing to create jobs or fix the problems that need to be fixed for New Zealand.

Hon Bill English: Tell us your GST position.

Hon PHIL GOFF: Bill English has given himself $240 extra a week, not to mention doubling his housing allowance until he was caught out. I say to Mr English that this not a Budget that looks after the middle and low income earners; this is a Budget that looks after him and his mates on his level of income, but it is unfair to ordinary New Zealanders.

The cuts in income tax were designed to compensate for GST going up by 2.5 percent, but they will not compensate for the rise in the cost of living. Bill English never told New Zealand that he would be pushing up inflation to 6 percent after his second Budget—6 percent. That is the highest rate of inflation that we have seen in decades in this country, and it will eat into the living standards and the wellbeing of our people.

National has increased consumption tax by 20 percent. I say to Mr Key that that consumption tax is regressive. Mr Key might have said that the wealthy will pay more GST in dollar terms, but a far higher percentage of the income of low-income earners will be consumed by the GST increase than that of high-income earners. Make no mistake—that is a regressive tax and it is not being adequately compensated for by the cuts in income tax. The big cuts in income tax go to the wealthy; the big increases in income being spent on consumption taxes land on the lower and middle income earners. This country now has one of the highest rates of consumption tax in the world, because there are no exemptions to GST. We have the fourth or fifth highest consumption tax in the OECD. Consumers never voted for GST to go up, because John Key promised them that it would not go up.

Businesses are not in favour of GST going up. In a recent survey of small businesses across New Zealand, 8 percent supported an increase in GST—8 percent, I say to Mr English. Businesses know that the increase will be bad for them and bad for New Zealand. In this Budget we were going to have a rebalancing of incentives to invest in the productive economy rather than the property speculation part of the economy.

Hon David Cunliffe: Wimped out!

Hon PHIL GOFF: This Government wimped out because so many of its supporters are the very property investors that that rebalancing would have hurt.

Hon Gerry Brownlee: Not correct.

Hon PHIL GOFF: That is correct, and I say to Mr Brownlee that it would have included a lot on that side of the House. The Minister should know that nothing in this Budget will be effective in rebalancing investment from the property investment sector to the productive economy. This Budget fails absolutely on that count.

The income tax cuts, such as they were, were designed to compensate for GST, but I ask what the Minister of Finance has done for the lower and middle income earners of this country to compensate for all the other taxes that have been imposed. There is the tax on business and innovation, in Mr Brownlee’s portfolio. They cut the 15 percent research and development credit, and a year later put 39 percent of that money back into research and development. It is too little, too late, and an embarrassing acknowledgment that they got it wrong in the first place.

There is the $200 million windfall in tobacco tax. I would have thought that a Government introducing that for reasons other than simply gaining the windfall revenue might put some of that money back into tobacco-use prevention programmes or addiction treatment programmes. But no, that money is being taken as a windfall, the cost will fall disproportionately on some in the community, and there is nothing in a positive sense that will lead people to break that addiction with the assistance of at least some of that $200 million.

National promised that it would cut taxes and not increase them. It has not delivered on that; the net position of average New Zealanders will be worse as a result of the costs imposed on New Zealanders, compared with the so-called cut-the-tax swindle. The costs facing New Zealanders will go up dramatically in the next year, and this Government has done nothing to protect middle and low income earners against that. Homeowners will face three or four hikes in the interest rate they pay as the official cash rate goes up in the next 18 months. Inflation at 6 percent is higher than even the banks estimated would be the result of the impact of National’s actions. The only people who come out of this Budget better off in net terms are the wealthy. Mr Key, as Prime Minister, will get $350 a week, the average Cabinet Minister will get over $200 a week, and the average New Zealander will be struggling to get $13 a week—and that will be totally consumed by the additional inflation.

We heard a lot earlier in the week about closing the loopholes where the wealthy were escaping their obligations to pay even their share of the tax. I ask Mr English where the evidence is that that Minister has made any difference at all to those loopholes. Options were put up by the Tax Working Group, and that Government has lacked the courage of its convictions to implement the recommendations that were made. The wealthy will not be paying more tax as a result of this Budget but the 40 percent of New Zealanders at the bottom, who Mr Key said were not pulling their weight, will be paying more because they will be paying more GST on everything they buy.

Mr Key said earlier in the week that New Zealanders should not be jealous of the fact that the wealthy were getting the biggest share. They are not jealous, I say to Mr Key, but they are angry that this Budget does not give ordinary New Zealanders on low and middle incomes a fair go. Some of those New Zealanders who will be angry are people like Henry Lindsay and Vicky Drew, and the thousands of other elderly, frail New Zealanders who have paid taxes all of their life, only to find that when they are elderly and in need and need some help—a very small amount of help, $30 a week in home care—that has been cut. Mr English should explain to those people why that small amount of assistance to enable them to maintain their independence is regarded as low-quality expenditure while $700 a week extra in tax cuts to chief executives is regarded as high-quality expenditure. The people who were given a wage rise or a salary rise last year of $1,000 a week, who were given the big tax cuts last year, have again benefited from the big tax cuts this year. I ask Mr English where the fairness is, where the equity is, in hammering people who are the most needy to reward those who are the most privileged.

This Budget is not just a Budget of broken promises; it is a Budget of lost opportunities. We need an export-led recovery, but where is the evidence in this Budget of anything that will stop the continuation of the cycle of higher interest rates and inflated exchange rates that stop the export sector being able to do as well as it should? Where is the evidence of assistance to savings? The Government cut KiwiSaver contributions from 4 percent to 2 percent, while Australia increased its superannuation contributions from 9 percent to 12 percent. Then Mr English wonders why he does not have the investment capital to invest in growth so New Zealanders can have ownership of their own future.

The Minister of Finance has not put back the additional payments into the superannuation fund. In the last year, since Mr English gave his last Budget, the superannuation fund increased in value by $3.5 billion. We are losing a million dollars a week in forgone interest alone because of the short-sightedness of that Minister.

Where is the evidence in this Budget of increasing skills? What is being done about the 70,000 young New Zealanders who are not in work, not in training, and not in education? That is a social and economic disaster for the future. Where are the additional apprenticeships when we know that once the economy recovers, there will be a major skills shortage this year? Where is the help for the thousands of young New Zealanders who are being turned away from polytechnics and universities because the Minister of Education has capped entry to those institutions? Where is the investment in research and development to get the smart economy so that New Zealand can be innovative and create jobs? This Government has cut research and development. It cut 2 billion from the Fast Forward fund, and the 15 percent research and development tax credit. This Government has failed to put in place a vision and a plan to build a stronger New Zealand for tomorrow. Where is the evidence that this Government has responded to the Top 100 business people in the country who have talked about a cleantech, added-value economy? Their pleas have been ignored.

This is a Budget of missed opportunities. This is a Budget that promotes inequality in a way that no Budget has since 1991—the “mother of all Budgets”. This is a Budget of unfairness. This is a Budget of more new taxes. This is a Budget that will damage hard-pressed New Zealand families to reward the few instead of looking after the many. This Government has failed in its obligation to the people of this country.

Hon JOHN KEY (Prime Minister): Shane Jones was happy with that speech, I have to tell you. The one conclusion we can draw from Phil Goff’s speech is that he has to stop reading those Greek economic textbooks, because that speech was about borrow and hope. It was Greek economics, Labour Party style. That is all Labour knows how to do.

When I went to bed last night at 12.30 I read the Dominion Post. In the Dominion Post Vernon Small listed 10 things that are highly predictable about today’s Budget, and one was a vein-popping speech from Phil Goff.

Chris Tremain: He got that right.

Hon JOHN KEY: No, actually he did not get it right. That was not a vein-popping speech from Phil Goff. Do members know why? Other than Labour wanting us to borrow, we did not hear one suggestion, one policy, or one good idea from Labour, because Phil Goff does not know what his policies are. He does not know whether GST is going up. He does not know whether GST is going down. He does not know whether GST is coming off a cooked chicken or an uncooked chicken. Neither does the rest of the Labour front bench, after that speech. Labour members do not have a clue.

Interestingly enough, in Phil Goff’s speech I did hear—[Interruption] It is interesting that members opposite are paying more attention to my speech than they did to their own leader’s speech. But I digress. There were crocodile tears in that speech from Phil Goff, but the question is this and it is a good one: did they ring true? That is an honest question that any New Zealander might ask. Let us wind the clock back to 1988, when Phil Goff was in Cabinet. The then Labour Government dropped the top personal tax rate to 33c—exactly as it is in today’s Budget. Did Phil Goff resign? No. Did he protest? No. He came down to the House and said that that reduction would allow Kiwis to keep more of their own money. I say: “Right on, Phil!”; I agree with him. In 1988 that Cabinet—wait for this, and Roger Douglas knows exactly what I am talking about—dropped the company tax rate to 28 percent—exactly what it is today. Did Phil Goff resign? No. Did he quit? No. He came down to the House and said this: “That will create an environment in which enterprises can succeed—both New Zealand enterprises and those attracted from overseas.” [Interruption] Yes, it is a good Budget. But, wait, it gets better.

Mr SPEAKER: I hesitate to interrupt. The debate has been robust, and that is fine, but the noise has reached such a level that I am sure no one in the gallery can hear what on earth is going on, because I cannot either. I have no problem with it being a robust debate, and I do apologise for interrupting the Prime Minister, but we cannot let it just become bedlam.

Hon JOHN KEY: The truth is I have never seen so much support from Labour for a National Budget! In 1989—wait for this—Phil Goff was in Cabinet. Guess what Labour did? It raised GST by 2.5 percent. Guess what? It was with no compensation—nothing for those on benefits, nothing for those on pensions, nothing for anyone. Did Phil Goff resign?

Hon Members: No!

Hon JOHN KEY: Did he protest?

Hon Members: No!

Hon JOHN KEY: Did he get in a bus, paint “Axe the Tax” on it, and wander round New Zealand? No, he did not. He said the virtues of it were great.

Last week I read in the New Zealand Herald something very interesting. It was Phil Goff talking to Labour supporters. He said: “should Labour regain the Treasury benches …”—note to self: the operative word in that statement is “should”—“we are going to be doing a lot of reversing.” That is what Phil Goff said—“we are going to be doing a lot of reversing.”—and we will hear about that in a moment. Well, ain’t that the truth! Phil Goff has been doing a lot of reversing throughout his whole political career. But this is what he will be reversing. Today Bill English delivered control of Government spending. Well, under Labour’s spending-type matters, that would be reversed under a Labour Government. Bill English today delivered Government debt under control and falling. That would be reversing under Labour’s borrow and hope. Today Bill English carried on with orthodox monetary policy, which is something Labour has supported since 1989. According to Phil Goff, that would be reversing. Today Bill English delivered a comprehensive GST system, something Labour has supported since 1985. According to Phil Goff, that would be reversing. I give him one hint: he should have told Trevor Mallard before he wrote the blog in April of this year in which he had a go at the Māori Party. That is what he should have done. There has been a lot of reversing in that thing.

It is as simple as this: if New Zealanders want to see debt go up and their country get into worse shape, they should vote Labour.

Mr SPEAKER: I apologise to the Prime Minister again, but I cannot hear a thing. I think the Government benches need to be a little more reasonable. OK, the noise at the final point was from both sides, but the Opposition has actually not been as noisy as the Government benches in the last few minutes. We have to be able to hear. It is no use if we cannot hear what the Prime Minister is saying.

Hon JOHN KEY: It is time to leave Labour behind, but I can only make this observation: if the only thing Labour has learnt in the last 18 months is to borrow more money, then those members need to go and have a good look at Greece. The only assumption I can draw is that the bus they have been on for the last 18 months has spent a lot more time on Mykonos than it has in Masterton! They need to get in the real world.

This is a great Budget. It will get our economy going. This Budget will create 170,000 jobs—170,000 jobs. It is tackling the long-term issues that our economy and our country face. There will be some fairness in the New Zealand tax system. There are a lot of things in this Budget, and we have delivered on many, many important issues. Let us take just one of them: $1 billion for leaky homes. It is a problem we inherited from a Labour Government that spent 9 years ignoring the problem. We will see whether homeowners up and down the country who will have access to a solution to their leaky homes, who are currently living in rotting dwellings, and who now can see light at the end of the tunnel think this is a good Budget.

We are living in very difficult economic conditions, but today this Government delivered a record amount of expenditure on health care—$2.1 billion more over 4 years. But I want to make a very important point: it is not just about more money; it is actually about how we spend that money. It is about value for money. It is about putting more money on the front line. It is about more money for nurses and doctors, and for retaining people in our system. It is about more money for subsidised drugs, not just more money for the sake of it.

The same is true of education. There is a record spend-up on education. There is 4 percent extra for operations grants for schools up and down the country.

We need to put science at the heart of our economy. This Budget makes a step in that direction. When Labour had billions and billions of dollars to spend, it did not spend it on science, research, and development. Labour members will want to talk about their rinky-dinky little fund, which never actually got off the ground. Not one dollar of that fund was spent, because it was 9 years too late. What have we done in science, research, and development? Well, we have given a huge amount of money to those companies that want to use that technology. We are linking the Crown research institutes, universities, and private institutes to our businesses, so that those businesses can be smarter.

When it comes to infrastructure, this Government is investing in the future of New Zealand though infrastructure, even if we are having to bail out KiwiRail, which Labour bought for far too much simply for political and ideological gain. We campaigned on ultra-fast broadband as a device to change New Zealand.

Hon David Cunliffe: Where is it? Where is it?

Hon JOHN KEY: Well, actually, in the Budget—hundreds of millions of dollars of expenditure. The Crown Fibre Holdings board is making tremendous progress. This is a country getting ready to be wired so that we can deliver to New Zealanders their opportunities to connect with the world through a low-cost, highly efficient, world-class leading technology; we are letting small businesses in New Zealand all of a sudden connect to the world.

But in the end this Budget, with not a lot of money to go around, has tackled one very core thing, which is the unfair and inappropriate way in which the tax system has evolved in this country. Today that is what we have done. Let us forget about the rhetoric from the Labour Party and go to what Treasury is telling us: there will be 170,000 new jobs and nearly 1 percent growth. Even at Treasury’s most pessimistic view, this Budget will grow our economy by 1 percent extra. That is thousands of dollars to everyday Kiwis, in their pockets, in their households, and in job security. That is what a good tax system does.

Let us have a look at some of those taxpayers. Under the previous Labour Government someone earning $39,000 a year paid tax at the rate of 33c in the dollar. Has the National Government stood back and accepted that? No, it has not. It has effectively halved that rate to 17.5 percent. But that lower rate is not for just a few New Zealanders; three-quarters of all New Zealanders will face a top statutory rate in this country of 17.5 percent. Let us put that another way: three-quarters of New Zealanders will get to keep 82.5c in the dollar. That is about an incentive to get out there and train, work, and get ahead. That is two-thirds of the tax package. Let us understand the size and scale of this tax package. Four billion dollars of personal tax cuts are being delivered from a Government that is struggling with an economic environment that is difficult. That is commitment. Those cuts are worth $15 billion over a 4-year period. Where will that money go? Two-thirds of it will go to those on the bottom two personal tax rates. That is fairness.

What will this package do? Let us think about the young couple that have recently got married. They earn $50,000 each. As a result of this package they will have choices, because they will have thousands of extra dollars in their hands. Even if they decide to consume the lot, they will still be better off to the tune of thousands of dollars, and if they want to save, if they want to buy a house, they will now have the choice to do that. We in National are believers in a property-owning democracy; if people want to live in their own homes, if they aspire to own their own homes, National is the party that believes in that. Today, through this Budget, we have delivered the opportunity for New Zealanders to live up to that dream, to have that opportunity, and to get out there and build their own homes.

There are many other component parts of this package, but one of them is about making sure there is fairness in the system, fairness to all New Zealanders. Labour members will spend a lot of time talking about tax cuts for the rich, but they have missed a simple point: the rich in New Zealand largely do not pay the top personal rate. The rich funnel their incomes through trusts, and today we have essentially aligned all of those incentives. We have made sure that when people who are well off go to their accountants, it is to talk about how to grow their businesses, it is to talk about how they can do better in their lives, not to work out ways in which to get round an “envy tax” that was put on by the Labour Government for no good reason.

National has been fair across the board, which is unlike Labour when it increased GST with no compensation. We have recognised the cost on low-income and fixed-income New Zealanders, and have done something about it. Let us take the married superannuitant couple who have no other income—no other income. As a result of this Budget, even if they consume every dollar they receive through superannuation, they will be over $500 a year better off.

In the months and years ahead, I guess that Labour members will have to consider what they would do. If they decide to put on a high personal tax rate—for those on, let us say, more than $100,000—will they be getting the rich to pay more tax? No, the rich will continue to funnel their incomes through trusts.

What we have delivered today is extreme efficiency in the tax system. We have lowered taxes on savings—we have aligned them at 28 percent—and we have done something very special: we have given New Zealand companies a head start over their Australian counterparts by cutting the company tax rate to 28 percent. A lot has been made of Australia, but here are the facts. Before this Budget, only those who earned more than $228,000 paid less tax here than they would have paid in Australia. Do members know what the result of this Budget is? It takes that amount from $228,000 to $55,000. That is about competitiveness with Australia!

In the end, this was a Budget about growth, a Budget about jobs, a Budget about the future of New Zealand, a Budget about getting on top of debt, a Budget about keeping our expenditure in order, and a Budget about fairness. When I look at the millions of New Zealand who will be better off after this Budget, I am left with only one conclusion: this was a Budget for the many, not the few.

Dr RUSSEL NORMAN (Co-Leader—Green): This Budget is a triple deficit Budget. It runs a fiscal deficit, it runs an environmental deficit, and it runs a social deficit. Perhaps most sadly, it portrays a deficit of vision for New Zealand. This Budget takes money from overseas creditors to fund its fiscal deficit.

Mr SPEAKER: I apologise to Dr Russel Norman. I ask members leaving the House to please do so quietly, and I ask people in the galleries to please not talk, because the noise volume just escalates here in the House and it is so hard to hear. It is totally unfair to Dr Russel Norman. I apologise for that.

Dr RUSSEL NORMAN: Shall I start again?

Mr SPEAKER: I think just carry on.

Dr RUSSEL NORMAN: This Budget takes money from overseas creditors to fund its fiscal deficit. This Budget takes away the dreams of our young people with its social deficit. This Budget takes away the chance for our kids to love New Zealand as we do with its environmental deficit. This Budget adds to the deficit of vision that has so far marked this photo opportunity Government.

New Zealanders believe in more than just money. New Zealanders want prosperity, which is enough money to live comfortably, but also warm homes; safe, healthy food for their kids; a transport system that works; and an Aotearoa that they can love for ever—not mine for a quick buck. The Green Party supports this vision and therefore cannot vote for this Budget.

Mr SPEAKER: I apologise to the honourable member speaking. No member in the gallery may take part in the debate in any shape or form. I make that very clear to members in the gallery. They will not interfere in the debate, or they will be removed from the gallery. I apologise to the member.

Dr RUSSEL NORMAN: This Budget was an opportunity to take Aotearoa down a new, smarter economic path. This Budget could have provided the map and the funding to transform the New Zealand economy from one based on commodities and extractive industries towards one that rides the clean technology wave, and has a reputation for high-quality, sustainable commodities, and for knowledge-intensive, high-tech, cleantech industries.

New Zealand could be a brand of integrity. Our country can be more than just extractive industries—cow faeces in our water and national parks desecrated by mining. We can be more than a quick buck, more than what we can dig up, suck up, and sell off. Indeed, this Budget from National, ACT, and the Māori Party proposes to consume our capital—our financial, natural, and social capital. We should pass on wisdom to the next generation, but we are passing on financial, environmental, and social debt. Most of all, this Budget makes manifest the contradiction at the heart of our age. We live in a society whose central rationale is maximum economic growth at any cost, yet we know that this growth threatens our well-being and even our long-term survival.

I start by addressing the fiscal deficit. This Budget borrows to fund tax cuts, more motorways, and climate pollution subsidies. We are already borrowing $240 million every week for new and roll-over loans, yet this Government has introduced huge tax cuts that will cost $4.6 billion in the 2011-12 financial year. We are already borrowing, yet this Government is spending $9.5 billion on holiday highways and other pet motorway projects that even the Government’s figures show will cost us more than they will deliver in benefits. We are already borrowing, yet this Government will spend $630 million in 2011 on subsidies to climate polluters. This is fiscally irresponsible. The impact of these measures will mean that Government debt balloons out to 26.5 percent of GDP, that annual finance costs will go up to nearly $6 billion in 7 years’ time, and that we will not return to pre-crisis debt levels until 2024.

This unnecessary public debt, when piled on top of the mass of private debt in our country, reduces our economic sovereignty. Future generations will bear the burden of this debt and will be beholden to the international lenders who own so much of our economy. This is not freedom, and this is not the sovereignty New Zealanders seek. The build-up of national debt will also provide an excuse to privatise public assets after the next election. John, Bill, and Gerry plan in 2012 to sell off what is left of New Zealand’s public assets. The so-called mineral stocktake, which prepares the very best of our conservation estate for mining, is not the only stocktake in town. Mark my words: John Key will use Government debt to justify a “For Sale” sign over our State-owned assets, such as Air New Zealand, Television New Zealand, Solid Energy, Meridian Energy, Genesis, New Zealand Post, and the Accident Compensation Corporation.

John Key blames tax loopholes for his decision to increase GST and cut tax rates. He could have closed the tax loopholes, but he has legalised them instead. He has rewarded tax avoidance with a tax cut. That is not smart and it is not fair.

A capital gains tax is smart, and we can make it fair by excluding the family home. Sam Morgan does not think it is fair that he pays less tax than his secretary; nor do I. A capital gains tax is part of the solution to our property crisis. It can broaden our tax base and strengthen our economy. A capital gains tax is sharply progressive because income derived from capital gains is concentrated amongst the wealthiest. The United States uses a capital gains tax. It shows that those earning more than $1 million a year get around 40 percent of their income from capital gains. Meanwhile, those earning less than $75,000 per year get less than 2 percent of their income from capital gains. Capital gains taxes are sharply progressive because the tax falls on those who can afford it most, whereas GST is regressive because the tax falls on those who can afford it the least.

The Green Party stands for smart, fair taxes, and it has the courage to say what National and Labour both know—that a comprehensive capital gains tax, excluding the family home, would help protect New Zealanders from property speculation. It would help make the dream of homeownership a reality for more Kiwis, and it would feed much-needed capital to the starved productive sector. We also know that there is a need to increase housing supply at the same time. Building more State housing can counter upward pressure on rents and boost the building sector of our economy, while helping our most needy families.

John Key may talk about taking a balanced approach, but when it comes to rebalancing our economy, there is little action. Our tax system remains skewed. The tax treatment of property, changes to loss attributing qualifying companies, and depreciation measures are a step in the right direction, but it is a timid step. The time for a capital gains tax is right now—this year, in this Budget—and the Government has missed the moment to strengthen our economy, just as it has missed the chance to tighten foreign investment rules on property. To ignore those opportunities fails the fortitude test.

The tax cuts in this Budget from National, ACT, and the Māori Party will go mostly to the well-off, while raising GST hits those on low incomes disproportionately. This widens the gap between the haves and have-nots. It punishes those who already struggle to make ends meet, and the punishment falls most heavily on Māori and Pacific peoples. This Budget will increase inequality, the social deficit, and ultimately the fiscal deficit.

Looking after our most vulnerable children should be at the heart of any Budget, because one day those kids will fill either our workforce or our prisons. The Budget from National, ACT, and the Māori Party increases the money for prison beds, adding to the fiscal deficit and betting on which direction the social deficit is heading. New Zealand is one of the most unequal countries in the OECD, and that inequality drives crime, illness, violence, poor educational outcomes, and so much more. The cost of prisons, courts, and the police in this Budget alone has increased, to $3.7 billion from $1.7 billion just 10 years ago.

Inequality costs everyone. Because some New Zealand families cannot afford to heat their draughty homes, it costs taxpayers $54 million each year to treat respiratory illness. It costs businesses 180,000 sick days, and it costs $400 million in electricity that we do not need to use, doing untold, unnecessary environmental harm along the way. There are many more examples of how inequality hurts everybody.

Earlier this week my colleague Metiria Turei launched a plan to reduce inequality and to help make New Zealand a place where everyone gets a fair go—a plan called Mind the Gap. It includes a tax-free threshold of $10,000, which would benefit everyone, but it would give the most help to the New Zealanders who need it the most: the low-income earners. Mind the Gap also suggests giving every family a reasonable amount of electricity at a fixed low rate so that they can stay warm and healthy. Under a progressive pricing plan, additional power would be charged at a higher rate, so it would still pay to save power. Again, this measure helps all of us, but it has the biggest positive impact on our poorest families.

Those are just two of eight practical and fiscally responsible steps described in Mind the Gap. Measures such as those can address the social deficit that this Government has inherited. Instead, John Key chooses to concentrate on tax cuts that help the wealthiest ahead of the neediest. John Key’s Government chooses to dishonour the Treaty of Waitangi by ensuring that Māori remain in poverty.

The eight-point plan in our Mind the Gap package is part of what we have called a Green New Deal for New Zealand. It sits alongside two economic stimulus packages that the Green Party released last year—packages that offer practical solutions to our economic, environmental, and climate crises. Green New Deal solutions tackle all these pressing problems at the same time. Green New Deal solutions account for the fact that these challenges are global in nature. Green New Deal solutions see opportunity and lay out a practical path to prosperity. The most high-profile of our Green New Deal solutions is the $323 million home insulation fund, which has already made 40,000 New Zealand homes warmer and healthier. It is evidence that we offer practical answers to New Zealand’s problems. Indeed, we have a surplus of solutions to offer to a Government in deficit.

As well as having a vision deficit, a fiscal deficit, and a social deficit, the Budget deepens our environmental deficit. We are currently clearing native vegetation at the fastest rate since European colonisation, which is an extraordinary fact. We are in the middle of a biodiversity crisis in this country, a crisis caused by us. The key reason for that loss of native vegetation is agricultural intensification, according to Landcare Research. We know that a key driver of agricultural intensification is the rapid increase in rural land values. Rural developers are seeking the tax-free capital gains that come with dairy conversions, and dairy corporations are pushing land harder in order to make the interest payments on the big loans. A capital gains tax would put downward pressure on rural land prices and it would take some of the pressure off our land and off our biodiversity.

Agricultural intensification is also driving the desperate decline in water quality across our country. Drinking water for rural towns like Dunsandel is polluted by dairy corporations. Rivers are being dammed and drained for irrigation, and the water is being replaced with runoff thick with faeces and fertiliser. We have health warnings now that newborns are at risk of nitrate pollution.

Hon Maurice Williamson: This speech should have a health warning.

Dr RUSSEL NORMAN: The Government members think it is funny that our infants are now at risk of nitrate pollution because the water has been so polluted by nitrate from dairy corporations. Well, the Green Party does not think it is funny. The Government might think it is funny that they are polluting our waterways to such an extent that it is dangerous for our children and infants to drink that water. The Green Party does not think it is funny; we think that we should do something about it. The Government does not care. The Government is giving funds to irrigation companies in order to expand irrigation in New Zealand so that we can pollute our groundwater even further. Well, the Green Party does not think that is funny; the Green Party thinks that is wrong.

This Budget does nothing to address New Zealand’s environmental deficit. There is no capital gains tax, there is no charge for using the public’s water for private profit, and there is no charge for pollution. In fact, the Government grants for irrigation schemes subsidise the destruction of our rivers and aquifers. How about that? We are now passing a Budget where taxpayers’ money will be used to subsidise the destruction of rivers and aquifers. This is environmentally tragic and it is economically stupid. Likewise, the Government’s plan to subsidise greenhouse pollution to the tune of $100 billion over the next 40 years, according to Treasury estimates, is also environmentally tragic and economically stupid.

The Greens have shown how we can make a 30 percent reduction in our greenhouse emissions, put our economy on a competitive footing to trade in a global economy where carbon matters, and do our bit to secure a safe future for our children. Instead, John Key’s Government has locked New Zealanders into subsidising our biggest polluters. The more they pollute, the more we pay. We teach our children that if they make a mess, they should clean it up. But John Key’s lesson to industrial polluters is that there is no accountability for them. Their mess is our problem. They have little incentive to cut emissions through smarter technology. National will keep hidden how much taxpayer money subsidises each individual polluting company. National will publish the welfare details of a couple of mums on the domestic purposes benefit who upset Paula Bennett, but it will not publish the details of billions of dollars worth of corporate welfare handed out to greenhouse polluters. John Key’s Government will no doubt also remain silent on the 27 percent cut to environmental research in this Budget.

The Green Party will not vote for this Budget, but we respect the Minister of Finance and acknowledge his hard work. As a Minister who takes his responsibilities very seriously, he no doubt argued for a capital gains tax. We extend our sympathies that he lost out to his Cabinet’s more conservative instincts. The result is a Budget that takes our country in the wrong direction. It adds to the nation’s fiscal, environmental, and social deficit, and has a terrible deficit of vision at its heart. It adds to the fiscal deficit and takes away the sovereignty of future generations by borrowing to pay for tax cuts that heavily favour the wealthy, borrowing for Steven Joyce’s pet holiday highway projects, and borrowing to subsidise polluters. It adds to the social deficit by entrenching inequality and locking our society into a further cycle of poverty, crime, and illness. It adds to the environmental deficit and takes away the chance to enjoy the wilderness of Aotearoa New Zealand. The Green Party will not vote for this deficit Budget.

Hon RODNEY HIDE (Leader—ACT): The ACT Party is proud to be part of this Government. We are proud to support it on confidence and supply, and we are pleased to vote for this Budget. Along with the majority of all Kiwis, we are pleased that we have a Government that is addressing the scandalous abuse of taxpayers that we saw over the past decade.

We are pleased that we finally have a Government that understands that every dollar that it spends either comes from some hard-working taxpayer or is an attempt to put the tab on our children and grandchildren. We are staggered that after 9 years of grotesque, wasteful spending, Labour members Phil Goff and Darren Hughes have the cheek to stand in this House and urge yet more spending and more borrowing.

Hon Darren Hughes: A picture of restraint!

Hon RODNEY HIDE: The answer to the debt problem, I say to Mr Hughes, is not more debt, yet that is Labour’s only solution.

We are pleased that we are seeing action across a wide range of portfolios. The previous Government did nothing about leaky homes, even when the global boom blessed us with fiscal surpluses, but the current Government is addressing this problem. We are fixing the financial crisis in accident compensation, we are getting better value for money in health, and we are addressing our poor infrastructure, building the roads that are essential to moving our people and our products around. We are looking at common-sense options to utilise our mineral resources better, to give jobs and wealth to New Zealanders, and to help fund essential social services, and we are cutting red tape. We are getting more transparency and more accountability in local government, and the Government is addressing longstanding problems in Auckland—issues that the previous Government ducked. We are creating one strong voice for Auckland. Because of ACT’s “three strikes” legislation, we are sending a message as a Government that repeat violent crime will not be tolerated. This Government will work to keep our communities safe from the violent predators.

This Budget is a welcome attempt to get New Zealand’s fiscal problems under control. The Minister of Finance is to be commended for his attempts to restrain Government spending. In just one term of Government, he will leave New Zealand in much better shape. We should contrast that with the previous Minister of Finance’s legacy, which turned out to be a tsunami of debt. As the cyclical economic decline came, Labour increased spending at an even more frantic rate to forestall its political decline. It was irresponsible, foolish, reckless, and entirely typical of Labour.

I commend the moves to structure the tax system to encourage work and savings, but I have to say that the ACT Party would prefer to do more. We would prefer to attack wasteful spending more vigorously, because there is still plenty of it. If we did so, we would not have to match income tax cuts with tax increases elsewhere, and all New Zealand households would be better off. We need more competition and choice within the vast, creaking, and crumbling State monopolies that dominate our health and education sectors. We could look to the new British Government, which is about to introduce ACT’s education policies.

Although there is much to commend in this Budget, and much more yet to do, there is one gross and glaring failure. There is one elephant in the room, which threatens to undo all the good work that is being done by Government Ministers. We are tuning up the car for peak performance—putting on new tyres, getting a tank full of gas, and removing any aerodynamic impediments—but someone has locked the handbrake in place. That handbrake is the emissions trading scheme. The rest of the world—every one of our trading partners—has that handbrake off, but we have it locked firmly on. We are the only country with an “all gases, all sectors” emissions trading scheme.

Hon Dr Nick Smith: What about the European Union?

Hon RODNEY HIDE: Dr Smith calls out: “What about the European Union?”. Well, he knows that that applies only to carbon dioxide. He knows that it does not apply to agriculture. He knows that it does not apply to households. He knows that it does not apply to small business. He knows that it is riven with so many exceptions and so many outs that it is hardly an emissions trading scheme at all in practical effect.

Hon Georgina te Heuheu: Why are you worried about it?

Hon RODNEY HIDE: Well, I am not worried about the European emissions trading scheme; it is the one here that worries me. Our emissions trading scheme worries me. Georgina te Heuheu is absolutely right.

The only thing that we can say about the National Government’s emissions trading scheme is that it is not as stupid as the one that Labour had, but it is still a damaging and incomprehensibly foolish imposition on our fragile economy and our hard-working export sector. It is stifling our ability to create jobs and to generate higher incomes for working people. Having an emissions trading scheme here but not in Australia will stop our ability to catch Australia, and will see more of our young people depart across the Tasman. The emissions trading scheme is a folly on the scale of past National-inspired disasters. This is up there with Rob Muldoon’s attempts at central planning, and it matches and surpasses Bill Birch’s disastrous Think Big.

The emission trading scheme is an act of total financial, economic, and environmental folly. It will take over $1 billion from struggling households and businesses and bestow that wealth on forest owners whose forests were planted long before the emissions trading scheme was ever contemplated. Have the foresters had too much of an influence? Absolutely. Has the fox been in the hen house? Yes, and we know for sure that farmers and other hard-working Kiwis have been in the outhouse. The costs are about to hit on 1 July this year. The emissions trading scheme is an assault on the agricultural sector. We will have higher energy costs, and it will bite into the profitability of all our processing industries. It is a bigger hit than the increase in GST.

The ACT Party opposes the emissions trading scheme and will continue to oppose the emissions trading scheme. I am pleased to say that the membership of the National Party, from one end of the country to the other, opposes it. Two Saturdays ago the central North Island National Party conference was attended by 300 delegates. They passed a remit to defer the emissions trading scheme. The Manurewa and Tāmaki electorates are proposing a joint remit for the northern regional conference of the National Party to defer the emissions trading scheme, and I say to those National Party members: “Good on you! Keep at it!”. They should make their employees, particularly Dr Nick Smith, listen. They pay his wages; they support him in this Parliament.

We can stop this madness, we can stop this self-inflicted wound, and we can stop the handbrake on growth, jobs, and incomes. I say to the brave, decent, and honest National supporters who are simply urging their party to do in Government what it promised in Opposition—to align with Australia’s policy on climate change, but not get ahead of it—that we in the ACT Party are for them. In fact, if those members gave their support to the ACT Party, they would get the National Party that they thought they voted for.

Hon TARIANA TURIA (Co-Leader—Māori Party): If ever a political speech was made to get the votes away from National, I would have to say that was one of them.

The Māori Party joins with the Government today to congratulate the Minister of Finance on his leadership in trying to chart a pathway forward in this 2010 Budget statement. A challenge that we in the Māori Party face every day in this House is to lay the w’āriki for the long term, and to create the foundation for the generations to come. We have every reason to believe with this Budget and the emphasis accorded to Whānau Ora that this Government is prepared to invest in that foundation.

Whānau Ora is evidence of a Government prepared to back w’ānau, families, and prepared to let the people determine their own solutions. This Budget has given a clear direction to providers and agencies alike that we want to see outcomes that derive from families having real ownership of their solutions. The transformation that we seek through this approach is that in building w’ānau capability and nurturing resilience we are restoring to families that sense of collective responsibility to take care of their own. From the Government’s perspective, $134 million is an investment in outcomes achieved for w’ānau, for providers, and, we believe, for the nation as a whole. But most of all this is an investment in how they do it—how we make the difference by placing trust in people. The Minister of Finance has laid out the challenge for Aotearoa, which is emerging from the sharper edges of a global recession. We have an opportunity as a Parliament either to sink further into a cycle of ever-spiralling debt or to take some initiatives to back ourselves.

The changes that the Budget brings with it—and I am thinking particularly of the tax impact—will not be universally popular, despite the acknowledgment from Mr English that at all taxable income levels tax cuts will more than offset the GST rise. We know that the biggest challenge will be encouraging our constituency to look more broadly at the whole picture of the Budget rather than focusing on one measure in isolation. I am reminded of the wisdom of our rangatira from Whanganui, Dr Whakaari Rangitakuku Metekingi, who told us “Ko te pae tawhiti whāia kia tata, ko te pae tata whakamaua kia tīna”. It means “Seek out the distant horizons; cherish those that you attain”. The grim reality is that we are in a situation in which we have been spending more than we earn. If the horizons we seek are a stronger economic outlook—a future in which our tamariki and our mokopuna will achieve the jobs, the incomes, and the living standards that they aspire to—then we must be prepared to take bold action now.

Lifting long-term economic performance will require a careful balancing of measures of restraint and of support. But it is not as if w’ānau Māori are not used to the concept of making the most of meagre resources. The mastery of Māori in managing massive crowds through tangi, w’ānau reunions, or events such as the koroneihana, poukai, iwi festivals, and the Rātana Church celebrations, is legendary. Our Māori incorporations have acquired a distinctive reputation for being conservative by nature, and at a w’ānau level making do with what we have is part of our history.

But we do not resile from a major issue that neither National nor Labour have ever responded to well, which is the challenge to close the gaps. We have constantly argued for a more equitable society where social and economic justice count for something. In our coalition agreement we made the call to eliminate poverty, and we will not resile from that challenge either. So we have advocated ferociously for this Budget to protect the most vulnerable and for an immediate lift in benefits, superannuation, student allowances, and Working for Families to offset the GST increase.

Some aspects of this Budget will help to focus on growth to help our families to get ahead. There is allocation of new funding to grow Māori productivity and export growth, and support Māori innovation. The $4.5 million allocated for skills and training for Māori in the primary sector and Māori innovation, and the $4.5 million to support initiatives to strengthen and promote Māori tourism are key achievements for the Minister of Māori Affairs and will help to build the recovery that we need. There is $20 million over 4 years for the Māori Innovations Fund in Vote Health, which will support Māori service providers with funding and resources that they need to build and implement innovative Whānau Ora services.

The Housing Innovation Fund has been lifted with another boost of $20 million to extend the fund for another year, thereby growing the supply of affordable housing for w’ānau. The emphasis on the building blocks for families is also evident with an additional $16 million for grants and loans to support social and affordable housing. The additional $24 million to grow the Warm Up New Zealand: Heat Smart home insulation programme is immensely important to our families. The Māori Party is very proud that we were able to increase the number of low-income households that will benefit from this scheme by at least 8,500 families. That is about making a lifetime difference to every aspect of w’ānau well-being, including health, education, and employment participation.

In the disability sector, the lifetime difference has been supported through the $1.5 million invested in promoting accessible housing for disabled people through the Lifetime Design Standard. It will also be supported through the $3 million that has been allocated to improving attitudes towards disabled persons and the $2.34 million invested in promoting, protecting, and monitoring the rights of disabled persons. A key priority for me and this Government is to ensure that the voice of disabled persons is heard, and this Budget does that. Although there is $93 million more for disability support, I particularly draw attention to the very substantial injection of an additional $20 million over the next 2 years for home modifications and equipment. This funding will have a considerable impact on the waiting lists and will mean that people can access equipment and home modifications much sooner than they can now. Although this is fantastic, there is so much more that we need to do, and it will remain a key priority for me to continue this work.

We welcome the injection of $90 million into community-led participation in early childhood education. We believe that this will have particular relevance for Māori and Pasifika families. The increase of $48 million for the Youth Guarantee scheme will help our rangatahi to go forward on a more secure footing. I know that Dr Sharples is particularly pleased about the $12.6 million that will enable kura to benefit from specific and specialised Māori medium assessment tools, which will tell us whether any difference has been made. I am particularly pleased with an initiative within the community and voluntary sector to support w’ānau to access the information highway through $7.9 million to increase the Computers in Homes and the Computer Clubhouse initiatives.

Finally, Budget 2010 is about putting the support where it is most needed, and so I also acknowledge the initiative pioneered by Dr Sharples, with close to $20 million set aside for Whare Oranga Ake—rehabilitation centres that have been founded on kaupapa Māori, which are available to everybody to help pre-release prisoners with their re-entry into their communities. The Minister of Finance has talked about the goals of economic transformation. For the Māori Party, we see this Budget as about a transformation of another kind: the transformation of attitudes. It is about an attitude that backs ourselves, an attitude that supports potential, an attitude that is about being self-sustaining and in charge of our own destiny, and a Government attitude that trusts family and community to know best what their needs are. We are in this for the long haul. It is in that context that we, the Māori Party, support Budget 2010 for investing in the future for the next generation, ngā taonga tukunga iho.

Hon JIM ANDERTON (Leader—Progressive): What is the Government saying with today’s Budget to families on low incomes? Let them eat cake—that is what it is saying. It says not to worry about an increase in GST and rising food prices, because the rich eat more than the poor, so they will pay more in GST. Is that meant to make low-income families feel better? They might not be able to afford to buy food, but just think of the GST they are saving by not eating! The rich have a choice if they want to spend more money and pay more GST; they can choose whether to upgrade the Mercedes or to buy another boat. Those on lower incomes cannot choose whether to eat. What is John Key saying to New Zealand families struggling to pay the bills and to make ends meet on low incomes? He tells them to stop being envious. Well, I say to Mr Key that they will not be envious; they will be angry, like I am.

Are New Zealand families more or less equal after this Budget? They are less equal, and shame on the Prime Minister and the Minister of Finance, and on all those who support those Ministers. After today’s Budget, the wealthiest New Zealanders will take home thousands of extra dollars a week compared with those on average incomes. People like Telecom’s chief executive officer, who earned $7 million last year, will get a tax cut of $6,608 per week. State sector chief executive officers, who earn more than $600,000 in some cases, will get a tax cut of nearly $500 a week. However, if one earns $50,000, after one pays more in GST at the supermarket alone one will take home about $5 a week. The chances are that that $5 will be wiped out by inflation any time soon. Is a chief executive officer who got a $1000 a week pay rise last year really the highest priority for a $700-a-week tax cut this year?

New Zealand is now on a par with the United Kingdom, which has one of the most entrenched income gaps between rich and poor in the world. Our ancestors came to this country to get away from that kind of inequality. John Key is determined to bring it back from his speculating years overseas. Others might be taken in by the Prime Minister’s rags-to-riches story, but not me. I remember that he helped to make a pot of money speculating against the New Zealand dollar in the 1980s, at a cost to New Zealand of $700 million. Guess what! At the same time, New Zealand’s increasing rate of income inequality became one of the worst in the OECD. Over the same period, Australia closed the income gap between rich and poor. Mr Key wants us to emulate Australia, but he goes in exactly the opposite direction.

Income inequality widened again under National Governments in the 1990s—I will not mention the Governments in the 1980s—and it started to get better during the period of the Labour-led Governments in the 1999-2008 period. Mr Key misled the House yesterday when he said that income gaps between rich and poor “became worse under the previous Labour Government,”. I say to Mr Key that they actually became better and they are set to become worse under this National Government. I will table the facts after this speech to prove just that. Here they are: under a Labour-Progressive Government between 2001 and 2008 everyone became richer, even Mr Key, but those on low and middle incomes increased their wealth the most, thanks to the Working for Families tax break. We closed the gap; National will again widen it.

The Prime Minister also said yesterday that it was a terrible injustice that 10 percent of the wealthiest New Zealanders pay 44 percent of the tax. He used to invite New Zealanders to go to Australia to pay less. But what is the truth of that? In Australia, the top 10 percent do not pay 44 percent of the tax; they pay 46 percent of the tax. Should we all go to Australia and pay some more tax? Where does Mr Key come from? Does he read anything? It turns out that most countries do exactly that: those who earn more pay more tax, because they earn a higher share of income. That is what is called a progressive, fair tax system. I do not think that Mr Key has ever heard of it.

John Key is no Robin Hood. I saw Robin Hood the other night; John Key looks more like the Sheriff of Nottingham to me, and this is the Sheriff of Nottingham’s Budget. Will the average New Zealander be better off after this Budget from the “Sheriff”? No, because they will not be getting the lion’s share of the tax cut; the top 10 percent of income earners will. Can members guess who got the lion’s share from the last round of tax cuts by the National Government? The same top tax earners. Has the penny dropped yet? If people are not on a high income, this Government is not interested and will not help. Some might have voted for them in 2008, but in 2011 they can make this National-led Government a one-term Government—the first one since 1975—and I say good riddance to them. If New Zealanders are on an average income and have aspirations to do better, they can forget it. This Budget puts reinforced glass into the glass ceiling. This Government is showing its true colours today. It does not want our people to prosper; it wants them to know their place. It does not want them to be envious; it does not want them to worry about buying any food, because they will be saving some GST, for goodness’ sake! This Government is out of touch with the way in which poorer and low-income people live in this country.

Will more children be lifted out of poverty after today’s Budget? The answer is no. A recent Unicef survey of the well-being of children put New Zealand almost last—24th out of 25 countries. It measured immunisation levels, infant deaths, and early death from injury and illness. The Ministers have laughed at Greece over recent times. It is collapsing, the streets are on fire, and the people protest. But do members know what? It is way ahead of New Zealand when it comes to looking after its kids—way ahead. A respected professor of epidemiology in New Zealand said recently that “ … in New Zealand social injustice”, which means income inequality, “is killing and maiming our kids on a grand scale.” What do we mean by that? We top the scales for OECD rates of whooping cough, rheumatic fever, pneumonia, and other diseases in children.

I ask whether these tax cuts to the richest New Zealanders help any of that. The answer is that they do not; they make it worse, because the Government denudes itself of income to do it. We spend less than the OECD average on child health, and the only thing that will change as a result of this Budget is that this appalling situation will get worse. Twenty-eight percent of our children still live in poverty. The Government that I was proud to be associated with lifted 100,000 kids out of poverty, and we were heading in the right direction. This Budget goes in exactly the opposite direction. I was disgusted to hear the backbenchers in National clap for the Budget. They do not understand what they are doing. It is absolutely disgraceful. This rate started to decline under the last Labour-Progressive Government for the first time in decades. As I said, Working for Families lifted 100,000 children out of poverty.

Senior people in the medical profession know what the problem is. Two professors of child health wrote to me yesterday—and I think they wrote to all other parliamentarians—saying that they were absolutely embarrassed by the fact that things have got worse for kids on their watch. They were begging the Government not to make them worse this time, but they will be deeply disappointed. I was touched by that letter.

How do we get rid of poverty? We increase people’s incomes. We give people decent wages and jobs. Will there be more jobs after today? Will there what! There is nothing in this Budget to create new jobs. Where on earth does the Minister of Finance gets his figures from? How many jobs were created by the Prime Minister’s great cycleway from the north to Bluff? The answer is none—not one single job. How many jobs have been created by the amount of money invested in research, science, and technology, which we provided $2 billion for through Fast Forward? The answer is not one cent in the 18 months since this Government was elected.

This country does not have a tax problem, as we have one of the most modest income rates for low to middle-income earners in the world; it has a wage problem. There is nothing in this Budget to fix that, at all. If John Key thinks that cutting the top tax rate will stop young doctors and entrepreneurs from going overseas, he is dreaming. Australia’s top tax rate in 45c in the dollar, and we have already discovered that the top 10 percent pay more tax there than they do here. Yet is that a disincentive? John Key should ask himself why he left the country to go into the world of international speculation. Did he leave to avoid our high taxes? I do not think so. I think he left to get more money. He succeeded, and I say: “Good on him.” But tax cuts for the wealthy will not increase the wage or incomes of ordinary New Zealanders. Will the economy grow as a result of this Budget from the “Sheriff” today? No. There is nothing in this Budget for increased exports. The Government is dreaming if it thinks otherwise.

I will wind up. This Budget has not turned out to be a smiley Robin Hood Budget; it has turned out to be a nasty Sheriff of Nottingham Budget. This Parliament should be ashamed to have received it today.

Hon PETER DUNNE (Leader—United Future): The best way to create a sustainable economy that deals with poverty, that deals with disadvantage, and that gives all the things that the previous speaker, Jim Anderton, and others have said we ought to be providing to people is to have one that is funded on a sound basis. The reality is that until this Budget there were real questions raised first by the Tax Working Group and second by some of the actions taken in years gone by that put the long-term viability of our tax base at risk.

Let me give the House an example. With the benefit of hindsight, what some of us suspected at the time to be true has been proven to be correct. The most disastrous tax decision in the last decade was the previous Government’s decision to hike the top tax rate in December 1999. The consequence of that has been as follows. We have seen a huge explosion in the use of trusts for income-sheltering purposes. The calculation has been that that move alone, driven by that differential in the tax rate, has cost the revenue around $300 million a year. That is $2.7 billion lost over the last decade as a consequence of that policy shift. But it gets worse. A lot has been said about loss attributing qualifying companies and how they have become another diversionary tactic along the way. The growth in loss attributing qualifying companies in the same period has been over 240 percent. We now have in the order of 130,000 loss attributing qualifying companies in New Zealand. The value of their tax losses is now $2.3 billion, which is 400 percent higher than it was at the start of the decade. If we put those two figures together, we can draw the reasonable conclusion that the net consequence of Labour’s hiking of the top tax rate in 1999 has been a $5 billion revenue hole for the New Zealand taxpayer.

The speaker who preceded me, Jim Anderton, asked why we were not doing more to alleviate poverty. I would love to do more to alleviate poverty. I would love to give a bigger boost to child health. But when we have a $5 billion hole to fill, it becomes a little difficult. And it gets worse. If members listened to the Leader of the Opposition this afternoon, they would have heard that he proposes to restore the hole. He is opposed to the cut in the top tax rate. He would restore it to what it was and set the whole process off again. We heard him and also Russel Norman, the co-leader of the Greens, say that coming in alongside that would be a capital gains tax. We have a situation where members on that side of the House say that this Budget is all doom and gloom, it is terrible, people will be punished, etc., and to vote for them to have the top tax rate go up, a $5 billion hole in our revenue, and a capital gains tax, as well. That is what does not add up; that is what does not make sense.

I say to those who advocate a capital gains tax because it is efficient that it is efficient in the sense that it captures just about everything, but it is not efficient in terms of producing revenue. I heard the Greens say the other day that with the $4.5 billion we would gain from a capital gains tax we could do all sorts of marvellous things. I have a couple of points about that. That would probably be over a 10-year period, because it assumes that assets are moving all at the same time, and, actually, at a maximum of about $450 million a year it is not the huge windfall that people make it out to be.

As a result of the tax package in this Budget, we have a dramatic change in the arrangements that will affect the average New Zealand family. For nearly three-quarters of taxpayers in New Zealand, as a result of this Budget’s changes their maximum tax rate will be 17.5 percent. That compares more than favourably with the situation in any other jurisdiction we like to compare ourselves with. We also see a package that supposedly gives more to the rich, but actually two-thirds of the cost of the package is dedicated to lowering the bottom two rates of tax. Those rates of decrease are greater than the rates of decrease for the higher rates of tax. So we are seeing a significant shift.

Let us talk about the GST increase. Yes, it goes up to 15 percent from 1 October. Let us contrast that with what happened the last time GST was raised. I was part of the Government that did that, too. Unlike now, at that time GST was raised with 6 weeks’ notice.

Chris Tremain: 6 weeks?

Hon PETER DUNNE: Six weeks’ notice, with no compensation. Members can talk about people being adversely affected by a change that is 3½ months away, with compensation and tax cuts on the day it comes into force, but compare that with 6 weeks’ notice, with no compensation, I think it is reasonable to draw a conclusion about who is better off as a consequence.

I am particularly pleased that the changes that will take effect from 1 October include full compensation for contributors to the Government Superannuation Fund and to the National Provident Fund as well, because they are a group that has often missed out in the past when tax changes have occurred. I am pleased they will be addressed in the context of this Budget.

So there we have it. We have a Budget that makes some significant changes in the disposition of taxes, and that gives people more ability to make some choices for themselves about how they spend their income. Surely that is a reasonable proposition. Some may well spend more on food than others; that is a matter of choice. Some may well choose to do other things; again, it is a matter of choice as to how one spends one’s income.

We have heard the suggestion from those opposite that one way of compensating people for an increase in GST is to take fresh fruit and vegetables out of the mix. Let us have a look at that. It is a very arbitrary consideration. It probably would cost about $150 million to do, but there are practical problems about how it would apply. Most retailers operate their GST return off their cash register returns. For a start, every cash register in New Zealand would have to be recalibrated to take out a fresh fruit or vegetable item. There would be a growing industry in that respect. Also, no account is taken of the cost of claiming a GST refund to produce those tax-free items. And it is so arbitrary that other unprocessed items like meat, poultry, fish, and eggs would somehow be in the tax net, but not fresh fruit and vegetables. One has only to look at what happened in Australia when this was tried. The great example was that of John Hewson, Paul Keating, and the ham sandwich. The ham by itself was exempt of GST and the bread by itself was exempt from GST, but the sandwich was subject to GST. That is what the Labour Party is proposing to give us as an alternative to a very clear and straightforward system where everyone ends up better off as a result of these changes than they were beforehand. That is the line that cannot be surpassed.

It is interesting to assess what the public reaction to this has been. At the lock-up this morning, and in the various media commentaries subsequent to the presentation of the Budget, there has been a generally favourable reaction, and it comes around two key points. Firstly, there has been surprise at the extent of the movement on the lower two tax rates; people did not expect as big a reduction, and they certainly did not expect the move to reduce the company tax rate. Both of those things are positive for New Zealand: they certainly boost our competitiveness; they certainly make it easier for those New Zealanders contemplating a shift offshore to make the choice to stay here; they position our economy well for the future in terms of the uptake that will come from the international recovery; they position our economy well in respect of our traditional major partner and competitor, Australia; they send a very clear signal to New Zealanders that what we are about is a better, fairer tax system that removes the distortions that have nobbled it for a long time; and they get away from the envy politics that have actually made it more difficult to deliver quality policies in terms of the areas of traditional concern of members opposite.

So this is a good Budget. It does not do all the dastardly things that were predicted for it; it does a lot of good for New Zealand families, and I suspect that it will be well welcomed and positively accepted.

Hon GERRY BROWNLEE (Leader of the House): I move, That this debate be now adjourned.

Motion agreed to.

Urgency

Urgency

Hon GERRY BROWNLEE (Leader of the House): I move, That urgency be accorded the introduction and passing of the Taxation (Budget Measures) Bill. The simple reason is that this bill gives life to the announcements in today’s Budget speech around personal tax cuts, company tax cuts, and a range of provisions that relate to the taxation of New Zealand business activities. As the previous speaker, the Hon Peter Dunne, mentioned, these provisions have been very well received by the commentariat so far. It is also important to have them locked into place so that there can be sufficient planning in order for there to be a smooth transition to those new arrangements by the date prescribed in the bill.

Hon DARREN HUGHES (Senior Whip—Labour): I raise a point of order, Mr Speaker. As the Leader of the House has moved that the bill be introduced under an urgency motion, which is the impact of the vote we are about to have, Opposition members have not had a chance to see the legislation. I wonder whether the Leader of the House could indicate to us the implementation date for the tax changes in the legislation so we can get a sense of how urgent it is that we pass the legislation over the next 2 days.

The ASSISTANT SPEAKER (Eric Roy): He is not required to do that under Standing Orders. It is a reasonable request but one he does not have to respond to. It looks like he has chosen not to, so I will put the motion, and the member can vote accordingly.

Hon GERRY BROWNLEE (Leader of the House): Perhaps it would help—

The ASSISTANT SPEAKER (Eric Roy): It looks like Mr Brownlee now will respond.

Hon GERRY BROWNLEE: I just want to keep good order in the House. I suggest the member takes the rather large blue book that was handed to him this afternoon, sets aside his colouring pencils, and reads some of the text, which will give him all the answers he requires.

Hon DARREN HUGHES (Senior Whip—Labour): I raise a point of order, Mr Speaker. That simple explanation would have been helpful without all the extra bits that caused the member trouble down the track. The case is that the legislation comes into effect on 1 October and it is only May now, so it is not an urgent matter that the House has to deal with straight away under Standing Order 54(3).

Hon GERRY BROWNLEE (Leader of the House): Speaking to the point of order—

The ASSISTANT SPEAKER (Eric Roy): I am quite happy to respond. The Government has the right to determine whether a motion should be accorded urgency. Under Standing Orders, it has to give reasons. It has done that. There is no debate about that. I will now put the motion. [Interruption] I must remind the House that there is to be no comment during voting, for two reasons. One is that we need some accuracy about recording the vote. The second is that no member of this House will vote under duress of comment. In the past people have been ejected for such behaviour. I remind the House—it is just a cautionary note—that votes will be taken in silence.

A party vote was called for on the question, That urgency be accorded.

Ayes 69

New Zealand National 58; ACT New Zealand 5; Māori Party 5; United Future 1.

Noes 53

New Zealand Labour 43; Green Party 9; Progressive 1.

Motion agreed to.

Bills

Taxation (Budget Measures) Bill

First Reading

Hon PETER DUNNE (Minister of Revenue) on behalf of the Minister of Finance: I move, That the Taxation (Budget Measures) Bill be now read a first time. The measures contained in this bill represent the most significant package of tax reforms for New Zealand in over two decades. Although the measures themselves are wide ranging, their underlying purpose is straightforward. That purpose is to lift the long-term performance of the economy by giving people greater incentives to work, to save, and to invest, by improving the fairness, coherence, and integrity of the tax system so that people pay their fair share of tax, and by encouraging productive investment in New Zealand, thereby increasing productivity and raising wages. The effect of the reforms will be to rebalance the tax mix so that it better supports the economic growth, saving, and investment that New Zealand needs right now, rather than the excessive consumption, borrowing, and overinvestment in housing that we have had in the past.

To encourage people to work and contribute to a better-performing economy, personal income tax rates will be reduced across the board from 1 October this year. The new rates will be 10.5 percent for people earning up to $14,000 a year, a 16 percent reduction in that rate; 17.5 percent for those who earn between $14,100 and $48,000, a 17 percent reduction in the rate; 30 percent for people who earn between $48,100 and $70,000, a 9 percent reduction in the rate; and 33 percent for those earning income over $70,000 a year, a 13 percent reduction in that rate. Similarly, the company tax rate will be lowered from 30 percent to 28 percent from the beginning of the 2011-12 income year, which will encourage productive investment in New Zealand. Tax rates and savings are being reduced so that they are in line with the new personal income tax rates, thus giving people more income to reinvest towards their retirement.

The main balancing feature of the changes is a lift in the GST rate from the current—[Interruption]

The ASSISTANT SPEAKER (Eric Roy): I am sorry to interrupt the member. Interjections are acceptable as long as they are rare and reasonable; discussions across the House while a member is introducing a bill or at any other time is inappropriate.

Hon PETER DUNNE: I was saying that the main balancing feature of the changes in this bill is a lift in the GST rate from the current 12.5 percent to 15 percent. That is in keeping with the intention of the tax reforms to shift the current economic balance away from consumption and spending, and towards greater productivity and investment in the economy. The Government does, however, recognise that the increase in GST will impose increased costs, and for certain groups such as superannuitants, beneficiaries, and others receiving Government assistance, relief will be necessary. This compensation will be provided in the form of immediate compensation from 1 October. For those receiving Working for Families assistance, the bill contains measures that raise the level of support that families will receive as tax credits from 1 October. Those on New Zealand Superannuation or the veterans pension, or recipients of Consumer Price Index adjusted Government Superannuation Fund or National Provident Fund payments will also receive an increase in their payments from 1 October. This one-off compensation will be in place until the normal annual inflation adjustment occurs on 1 April next year.

In weighing up the changes needed to rebalance the tax system, the bill also introduces a number of changes to strengthen the tax rules and ensure that everyone pays his or her fair share of tax. With that purpose in mind, measures are being introduced to tighten the income tax test for Working for Families entitlements so that investment losses such as those from rental properties cannot be used to inflate a family’s entitlement to Working for Families tax credits. The rules around property investment are also being tightened so that no depreciation deductions will be allowed for buildings with an estimated useful life of 50 years or more, from the 2011-12 income year. That change more accurately reflects the way that New Zealand buildings actually change in value over time, which, on average, means that buildings increase rather than decrease in value. Removing this unnecessary tax advantage will reduce the incentives for people to invest in property for tax reasons, and will encourage wider investment in more productive parts of the economy. The 20 percent depreciation loading on new plant and equipment has been removed for assets purchased after today. Finally, stricter rules will also be applied to foreign-owned companies to reduce the interest deductions they can claim against debt allocated to their New Zealand subsidiaries.

Together, the changes contained in this bill form a balanced package of measures that will reward people for the work they do, encourage broader and deeper economic growth, and make New Zealand’s tax system stronger and more equitable for all. I therefore commend the bill to the House.

Hon DAVID CUNLIFFE (Labour—New Lynn): Budget 2010 is a tax swindle. It is a lost opportunity and it is a Budget of broken promises. It rewards the wealthiest and it swindles the middle class by gobbling up their small change with the highest rampant inflation in 20 years. It took the previous Labour Government a decade to get inflation down, yet this Government has blown it out to 6 percent next year. With that, the hopes of middle New Zealand are washed away.

Carmel Sepuloni: Shame on them.

Hon DAVID CUNLIFFE: Shame! Most Kiwi tax cuts, which the Minister of Finance vaunts in the House, are worse than gone. How bad is it? People on the average wage will be $30 a week worse off, on Treasury’s own numbers, after the effect of inflation and GST. Every working family on the average wage will be $30 a week worse off. When they get to the supermarket counter, they will be 30 bucks a week short. People on $70,000 a year will be $45 a week worse off after GST, inflation, and their tax cut. They will be worse off; those New Zealanders will be going backwards.

It gets worse. These tax cuts are unfair. There is a group who will be better off: the upper income earners. People on the same salary as the Prime Minister will be $350 a week better off, as promised. People on $1 million a year will be $1,000 a week better off. What is that? Someone who is already earning $1 million a year will be $1,000 a week better off, but someone on the average wage will be $30 a week worse off. What is fair about that? New Zealanders will vote against that package in next year’s election. This Government will be a one-term Government and that will be a record for the National Party.

The Government has broken its promise to be revenue-neutral. There will be a $450 million fiscal hole in the Budget next year as a result of this tax bill. The Government is borrowing nearly half a billion dollars extra to fund the tax cuts for the millionaires who back the National Party. The Government is borrowing the public’s money to fund its mates. It gets worse. The Government will be $1 billion extra in the red over 4 years to fund those tax cuts.

The Government promised that it would return to pre-funding superannuation when the economy got back into surplus. Do colleagues remember John Key saying that he would resign rather than break the promise to elderly New Zealanders? Has National kept its promise? No, it has not. The economy is getting back into surplus. Actually—wait for this—the economy would have been back in surplus by 2012, if it were not for those upper income tax cuts. But the Government is borrowing to sort its mates out. The economy should be going back to surplus in 2016, but when is its pre-funding of superannuation coming back? That will not be until 2019. That is a decade of deferrals. It will wreck the chances of New Zealanders to feel secure in their retirement.

What about the health budget? The Government promised that health would be paid for, but what has happened? There is a $300 million hole in the budget that health needs just to stand still. The Government will be $300 million short next year alone because of the inflation impact on health. So even if there are no new services, and even if there is no innovation in health, the Government will be $300 million short.

What about early childhood education? It has been put at risk by this tax bill. It will take $25 a week per child out of the pockets of ordinary New Zealand families. That $25 a week per child is a $100 million-a-year swindle out of New Zealand families. The Government says that this is a Budget for all New Zealanders; we say this is a Budget of broken promises. This is not a tax switch; it is a tax swindle.

This Budget does not rebalance the economy. Let us look at that part of it. The Minister said that he would address the bias towards property investment. What has he actually managed to do? The chief Government whip has 15 rental properties, and I guess he probably had a quiet word with him in the corridor. The Government took only half the depreciation write-down on rental properties. But it did take away the short-life depreciation allowance on high technology. That will cut innovation. The Government failed to ring-fence property losses. People who have a portfolio like Mr Tremain’s can write off their costs against their personal income and make a whopping great tax loss. That is wrong. The Government should have at least touched ring-fencing. It did not. It did not have the bottle, it did not have the nerve. It rolled over in front of the Property Council, and it will get back only $600 million a year.

What about loss attributing qualifying companies? The Government had the nerve to state, in the Budget, that it was fixing the rorts around loss attributing qualifying companies. How much has it actually fixed? In 2008 alone, loss attributing qualifying companies cost the Crown $2.3 billion in tax losses. It has mushroomed in the last couple of years. Do members know that the Government is getting back a measly $70 million? That leaves over $2.2 billion a year of the public’s money in the hands of phoney companies being written off against people’s personal income, when it should not be. Labour would fix that—

Hon Steven Joyce: Labour set it up.

Hon DAVID CUNLIFFE: Yes, Labour set it up and Labour has seen it being used for purposes that were never intended. We have the guts to admit that it should be changed, and we will change it. We will change it because National does not have the nerve to do what is right. I say to National that we cannot make an omelette without breaking eggs, and we cannot fix the property imbalance without putting a few property speculators on the wrong side of the ballot box. So it should have the nerve to front up and do the job.

This was supposed to be a Budget for the many. It is quite obviously a Budget for the few. It was supposed to be a Budget for middle New Zealand. Those people will find that their incomes go down when rampant mega-inflation from the Minister of Finance hits them in the wallet. It was not supposed to be a Budget that made our elderly, our sick, our frail, and our children worse off in order to pay for the tax cuts for the rich. But that is what the Budget has done. This Opposition will fight this Budget all the way to the ballot box, because we know that New Zealanders can tell the difference. We know that New Zealanders have a sense of fairness and a sense of decency. They know that when an average earner is 30 bucks a week worse off and a millionaire is 1,000 bucks a week better off, something is wrong. Something is not right in the state of New Zealand. Do members know what it is? It is the current Government. Fortunately for New Zealanders that problem can be fixed relatively easily.

To sum up, this Budget is not a tax switch; it is a tax swindle. Headline numbers pretend people are better off, but the Treasury documents calculated those numbers with a 2 percent inflation rate, while the actual inflation rate that is in the rest of the Budget is 5.9 percent. That is why average income earners are worse off.

Hon Steven Joyce: No, it’s not. You’re making it up.

Hon DAVID CUNLIFFE: That is in the Budget documents, I say to Mr Joyce. I thought he was inside the loop. Obviously, he has been left out. That is a bad sign. He has been consigned to the focus group routine. He has been consigned to reading the focus groups. John Key rings him only after a Tūhoe moment, but not to prepare for the Budget. Now he probably will not ring him at all, after the trouble that Mr Joyce caused over Tūhoe. That was a bad Sunday afternoon phone call, I say to Mr Joyce.

Hon DARREN HUGHES (Labour): I raise a point of order, Mr Speaker. It is a technical point about the bill. The regulatory impact statement that is referred to in the explanatory note of the bill contains a reference to a website, and I am advised that the website address that is in the explanatory note does not actually connect to the regulatory impact statement. It can probably be fixed very quickly, from an information technology perspective, but it is the Minister for Regulatory Reform’s—

Hon Member: Is this a point of order?

Hon DARREN HUGHES: It is a point of order about the bill. We need to have the information. If the Minister in charge of the bill could see to that, it would be great.

The ASSISTANT SPEAKER (Eric Roy): It is not a point of order in relation to the order of the House. I think that, the member having raised the point, someone will now address it.

CRAIG FOSS (National—Tukituki): First, before I comment on the Taxation (Budget Measures) Bill, I acknowledge and thank the Minister of Finance, Bill English, and our Prime Minister, Mr John Key, for a step change Budget, which this bill starts to bring alive and put into effect. The Budget is a step change. It gets rid of some of the imbalances in our economy, it addresses so much of what has been talked about by so many over so many years, and this bill puts the Budget into action. As I acknowledged yesterday, the previous Labour Government talked about some of those issues, but it never did anything about them. In fact, it perpetuated them and made them worse. I also acknowledge our coalition partners, and particularly the Hon Peter Dunne for the work he has done on the taxation changes.

I was quite intrigued that the previous speaker, the Hon David Cunliffe, had a new-found interest in inflation. Under his regime—when he was in Cabinet, in fact—non-tradable inflation was running at about 4 percent, and the rest of the economy was in recession. The reason I raise that is the member made inflation a key point of his speech. Labour is focusing on inflation, yet it is also trying to rewrite the monetary policy framework—it is doing some task groups on it, or something. Members on the other side of the House need to get their story straight. Either they are rigid about inflation or they are not. David Cunliffe missed some other points. Labour assumes life is static. If inflation is going up, one assumes that wages are going up, because wages tend to track inflation; real wages actually increase as our economy gets better.

Fairness and equity are back. This bill brings fairness and equity back. Interestingly, as the Prime Minister noted in his Budget speech, many of the tax rate numbers have been brought back to exactly where they were in 1988 and 1989, from memory, when Mr Goff was in Cabinet. It also puts some of the balance back. There is encouragement for financial assets. We heard time and time again the previous member wrongly, I suggest, talk about nothing being done about the housing bubble and the creation of housing assets or investment property assets. Actually, if we look at the change in the taxation of financial assets—down to 28c in the dollar, matching the awesome corporate tax changes—therein lies the incentive in action. Members should watch those macros change as investment moves to financial assets in New Zealand, and hand in hand with some of the changes the Hon Simon Power is bringing in.

I just say one other thing. There are a few commentaries in already. Regardless of what the previous member said, I will quote from Mr Bernard Hickey’s commentary on the Budget, which is only about 2 hours or 3 hours old. I could not put it better myself, I do not think—apart from the last sentence, perhaps. But I will read it: “This is the most comprehensive and coherent reform of New Zealand’s taxation system in more than 25 years. It goes a long way to tilting the economy back towards productive investment and away from property investment.” That sums up the Budget, which is only 3 hours old. Feeding from that Budget is the bill that is before us tonight. I will not read it right through to page 61. I suggest members read the explanatory note. There are some interesting highlights on page 2, which has the new schedule of taxation rates, particularly the changes—the current rates versus the rates from 1 October 2010.

Fairness, equity, and sustainable growth are back. New Zealand is about to step up and take charge of its destiny again. With the current financial stresses around the globe, this is a Budget for our time and for future generations. Fairness and equity are back.

Debate interrupted.

Tabling of Documents

Income Distribution—1998-2008

Hon JIM ANDERTON (Leader—Progressive): I gave notice in my Budget speech that I would seek leave, and I do now, to table three graphs from the Ministry of Social Development that demonstrate that the gap between rich and poor in New Zealand narrowed, not widened, under the last Government, contrary to what was stated in the House yesterday by the Prime Minister, Mr Key.

The ASSISTANT SPEAKER (Eric Roy): Leave is sought to table those papers. Is there anyone opposed to that course of action?

Craig Foss: Are they Ministry of Social Development reports that have been tabled in the House in some form, or are they from a select committee?

The ASSISTANT SPEAKER (Eric Roy): We have gotten into the habit of finding out precisely the nature and the origin of documents. Have they already been tabled? Are they public documents?

Hon JIM ANDERTON: I cannot ascertain that.

The ASSISTANT SPEAKER (Eric Roy): I will put the leave anyway. Leave is sought for that purpose. Is there anyone opposed to that course of action? It appears not.

Jo Goodhew: Yes.

The ASSISTANT SPEAKER (Eric Roy): It is too late.

Document, by leave, laid on the Table of the House.

Bills

Taxation (Budget Measures) Bill

First Reading

Debate resumed.

Hon CLAYTON COSGROVE (Labour—Waimakariri): That speech by the chair of the Finance and Expenditure Committee, Mr Foss, was—

Nicky Wagner: It was fantastic.

Hon CLAYTON COSGROVE: No, it was not fantastic; it was insightful because of what it said and what it did not say. That member started his speech by talking about this Budget and the Taxation (Budget Measures) Bill being fair and equitable. Let us examine what this bill does. My colleague David Cunliffe said a person on the average wage, after we factor in the increased GST and inflation at 5.9 percent, will be $30 a week worse off than at present. A millionaire earning $1 million a year will be $1,000 a week better off. Now, I do not know how Mr Foss, in his little world, explains and defines fairness and equity, but in my world that is not fair, is not equitable, and is not right.

A person on the average wage apparently—Mr Key said this to every New Zealander, and there are many people who are worse off today—should not be jealous of the guys on the top of the heap, the super-wealthy. They should not look up at the super-wealthy and be jealous. Well, Kiwis, in my view, are not generally jealous creatures. They will not be jealous; they will feel let down, angry, and disappointed. I wonder what people on the average wage will think tonight about being $30 a week worse off because, at the hands of that crew and its mismanagement of the economy, we are about to see some of the worst inflation that we have experienced and the increase in GST. Will people hang on the words of Mr Foss, who says this is fair and equitable, when they realise that if they were earning a million bucks a year they would get $1,000 a week back? I wonder what Mr Foss, on the campaign stump, will say to those people in his constituency, or where he resides, who are on the average wage. They will come to his office and say to him that they do not think it is fair or equitable that they are 30 bucks a week worse off because of his mismanagement of inflation and his GST hike. What will he say to them? Silence—silence is deafening. What will he say to them? He will not have an answer, because he knows—and if he does not know, there is a word that I will not use, but it is the word for what he is—that this is not fair and is not equitable. He knows that this is not fair and is not equitable.

When we look at this Budget, we can see what we get. We get inflation going up by 5.9 percent. We get debt skyrocketing. If we look at page—

Amy Adams: What? Skyrocketing—unbelievable!

Nicky Wagner: That’s amazing. How does he get away with it?

Hon CLAYTON COSGROVE: Oh, hang on; the squawk-boxes are going over there. Well, I invite those members to look at page 30 of volume B.2 and B.3 of the Budget documents. The report states: “Financing new and maturing debt will require the Government to borrow around $240 million every week over the next three years.”

Amy Adams: It’s your mismanagement.

Hon CLAYTON COSGROVE: Hang on; is there a squawk over there? I say to Amy Adams that she should look at page 30. Then the report states: “Debt is projected to reach $68 billion”—that is, billion with a “b”, for the benefit of the uninformed over there—“by 2014/15.” If we look at the next sentence, we see that it is a cracker: “This substantial rise in debt will mean that interest costs more than double.” So inflation is going up, debt is going up, and interest is going up. What effect will that have on the average Kiwi?

If we turn over to page 40 of the same document, and look at “Figure 2—Finance costs”, we see that the financing costs, the interest on that massive debt, will not even start to decline until about 2021. So we know—

Amy Adams: That’s from the party that wants us to borrow more.

Hon CLAYTON COSGROVE: I invite the member to read her own Budget documents, because that is what they say. Debt will be going up, inflation will be going up, and interest costs will be massively exploding, which will effectively mortgage our kids’ future. What is fair and equitable about that, of course, is that the person on the average wage will be 30 bucks a week worse off, but a millionaire, someone who earns a million bucks a year, will get back a thousand bucks a week.

So I ask the members opposite to explain their definition of fairness and equity today. I ask them to tell us in the coming days, and in the coming hours of this debate, how it is possible for people on the average wage to feel that they have been treated fairly or equitably, when they are 30 bucks a week worse off, which is what the documents show. I would like Government members to explain how they will justify that to average New Zealanders.

It was said—I think in Muldoon’s time, when we had an explosion in inflation —that the biggest thief taking money from our wage pocket was inflation. The biggest thief taking money from the pockets of working men and women was, at that time, said to be the spectre of inflation. Now inflation is projected to go to 6 percent. So interest is going up, debt is going up, inflation is going up, and the average Joe in the street will be worse off. I would like those members—

Nicky Wagner: Not true.

Hon CLAYTON COSGROVE: Nicky Wagner says no, and shakes her head. I doubt whether she has got past the contents page of most of the Budget documents, but I give her an invitation. I know that members on this side of the House are quite happy to go out to their constituencies, have a group of average New Zealanders on the average wage come in, and debate the Budget with the National crew. Let us have a meeting about it. Let us get the responses of people who are on the average wage to the Budget, in a hall anywhere in this country—in Ōtaki, in Dunedin, in Rimutaka, or in Auckland. Let us get a group of them together in a room, and ask them whether they feel they have been dealt to fairly and equitably by that crew over there.

Phil Twyford: They’ve been dealt to, all right.

Hon CLAYTON COSGROVE: They have been dealt to, my colleague said—absolutely; they have been dealt to.

The only rooms that the members opposite, the National crew, will be happy and comfortable in are the cabins of the yachts parked in the Viaduct Basin harbour, which belong to the people who will be a thousand bucks a week better off. I can see Gerry Brownlee in the galley, with his mates who are on a million bucks a year. They will be congratulating Mr Brownlee and saying how wonderful it is that he is giving a thousand dollars a week back to them. But we will not see Gerry Brownlee at the food bank—well, we might, but for different reasons—talking with ordinary New Zealanders. The food banks in my electorate and around this country are chocker, but we will not see Gerry Brownlee and Bill English at the Salvation Army, at Presbyterian Support, or at the Methodist Central Mission, as people rock up day after day, trying to make—[Interruption] “Evidence”, Mr Bennett says. He wants to be given evidence. Well, I invite him to come to Kaiapoi and visit Kaiapoi Community Services—old “Cue-ball” in the back row over there—where I will introduce him to some of the lost and lonely people in my electorate. I will introduce him to them, and they will be very happy to sit down with that member, Mr Bennett, and explain to him how life goes for people who are on the bottom of the heap.

It might be instructive for Mr Bennett to actually meet somebody who is scratching for it. It might be instructive for Mr Bennett to meet a couple of constituents in my electorate, one of whom is a builder who lost his job. His wife is in two part-time jobs. They have a vegetable garden and grow produce that is better than that of Turners and Growers. They preserve that produce, freeze it, and do everything else that they can to make ends meet. They have a couple of kids. But that family cannot make it, and their mortgage may well be foreclosed. I can tell members that after the Budget today, that family of four will not be any better off. They will not feel that they have been treated fairly. They will not feel that the veil has been lifted from politics in New Zealand, that there has suddenly been a redistribution of wealth, and that they will be looked after. Oh, no!

Nicky Wagner: They are.

Hon CLAYTON COSGROVE: So if Mr Bennett and the other member over there whose name I cannot remember want to come to my electorate and meet some of the lost and lonely people—those who live on income that is below the average wage—let alone the people on the average wage, who will be $30 a week worse off, then I am quite happy to take them around. But they just squawk over there.

I am sure that Kate Wilkinson, a Cabinet Minister who resides in my electorate, would not know a poor person if she fell over one. I wonder whether she is prepared to have a public meeting with a group of people on the average wage, and to front up and explain to them that she is a Cabinet Minister, and that she sat in Cabinet and voted for this package. I wonder whether she is prepared to say that she sold out Waimakariri and the rest of New Zealand, and that she did not oppose a thing. I wonder whether she will tell that to the people on the average wage, or whether she will swan around the various public houses and clubs in New Zealand where those members over there enjoy the finer things of life. She will feel very comfortable in those places, I am sure, because she will not be challenged there; she will be congratulated.

I say to Government members that they should have a good look in the dictionary and see what “fairness” and “equity” mean. They should go and talk to a few ordinary people who are scratching for that now. They should not go and talk in the fashion-ways of Christchurch—no, no—but should go and talk to some ordinary people, and ask them whether they feel equitably and fairly treated today. Those members should ask ordinary people whether they feel ambitious for New Zealand or inspired by this Budget. Oh, no! They feel let down, angry, and disappointed.

Dr RUSSEL NORMAN (Co-Leader—Green): I stand to speak on the first reading of the Taxation (Budget Measures) Bill. This bill is part of the Government’s overall Budget package, and part of the Government’s overall fiscal strategy. I said earlier today, in reference to the Budget, that in many ways this Budget is a triple-deficit Budget. It runs a fiscal deficit, it adds to the social deficit, and it adds to the environmental deficit. I appreciate that the Government inherited some deficits; there is no question about it. It inherited a fiscal deficit, and with this Budget it is making it worse. It inherited a social deficit, and with this Budget it is making it worse; and it inherited an environmental deficit, and with this Budget and this bill, the Government is making it worse. But it is worth examining some of the particular measures that are being proposed in this combination of tax changes.

I think that when the Minister of Finance said we should look at the tax changes as a whole, he has a point. We should look at the tax changes as a whole. When we look at the impact of the income tax changes, which lower the tax rates very significantly, and combine that impact with the impact of a GST change, we see that the two tax changes together are doubly regressive. When the two elements of them are incorporated—one of which lowers the top tax rates and the other of which increases GST—we get a doubly regressive tax policy, and the tax changes announced in this bill will be doubly regressive for that reason.

We know that GST is a regressive tax, because those on the bottom decile spend about 14 percent of their incomes on GST, whereas those at the top spend about 4 percent. So GST acts as a regressive tax because it punishes the poor more than the rich. At the same time we know that the changes to income tax will make the tax scale flatter and not as progressive as it currently is. So when we combine the two elements together—the changes to GST and the changes to income tax—we end up with a more regressive tax system.

That might not be the worst thing in the world, if New Zealand did not already start from a position of being one of the most unequal countries in the whole OECD. If we started from a position of massive equity, from a very flat income scale, then it would not necessarily be a big deal that we flatten the progressivity of the tax system, and that we increase GST. It would be a problem, but it would not be a big deal. But when our starting point is that New Zealand is one of the most grossly unequal countries within all of the advanced industrialised countries on the planet, it does not make any sense to introduce a combined tax package that, put together, is highly regressive. It is hard to fathom why a Government that is governing a country that is already grossly unequal would introduce a package that increases inequality.

It is important to understand just how grossly unequal our country is. For example, we know that the top 50 percent of income earners earn 84 percent of all the income, and the bottom half of income earners earn 16 percent of all the income. Eighty-four percent of all income goes to the top half, and 16 percent of all income goes to the bottom half. When we look at those numbers, we get a sense of how out of touch the people in this Chamber are. Almost all the people in this Chamber are paid well above the average wage. They have no idea that half of the country earns 16 percent of the income. How else could we pass a tax package that adds to inequality? How could we possibly pass that tax package, which National, ACT, and the Māori Party are proposing to do today? How could those three parties support a tax package that will increase inequality in New Zealand, when we already start from a position of being one of the most grossly unequal countries in the OECD? Why would we add to that inequality?

One of the justifications the Government gives is that it will increase GDP growth. The Green Party is a bit sceptical about GDP growth. We recognise that we live on a finite planet, and we cannot continue to grow the use of resources and the use of pollution when we live on a finite planet. There is that small issue that there is only one planet, which pretty much every other party in the House struggles to come to terms with. Let us put that to one side, in order to just indulge the Government’s argument that it will grow GDP.

We know that in 1986, the last time there were very significant tax cuts, the New Zealand economy, in terms of GDP per capita, absolutely flat-lined. It flat-lined straight after the biggest tax cut package this country has ever seen. It was a huge cut. We cut it from I think 66 percent down to 33 percent, or something like that. We went from a very high percentage, down to 33 percent. That was during Labour’s term, when Roger Douglas introduced the package. I know that colleagues in the Labour Party do not agree with that any more, and recognise the wrongs of their ways back then when Roger Douglas was in charge. What happened after Labour cut the taxes so significantly? GDP flat-lined; it absolutely flat-lined. That was the impact. I am not saying there is cause and effect, because there are so many more complicated factors—the relationship between GDP change and income tax rates is very complicated—but we certainly cannot walk away from that and say that if we cut personal income tax rates, it results in an increase in GDP, because the exact opposite happened.

Of course the other thing that happened in 2000 was that we increased tax rates. The top tax rate went from 33 percent to 39 percent, and what happened? Did the economy, in terms of GDP, flat-line? No, it grew. We had the situation that after the increase in income tax rates the economy grew, and after the drop in income tax rates, overseen by Roger Douglas, who is sitting to my left, the economy flat-lined. The evidence is compellingly against the argument that the Government is putting forward.

The second argument that is put forward is the one around tax avoidance. That is a really interesting argument. The tax avoidance argument says that there are all these people who are using the loopholes in the tax system to avoid tax. Did it never occur to the Government that maybe it should close the loopholes? If there are loopholes in the tax system, maybe the Government should close the loopholes. Let us take the example of people avoiding other laws, such as the laws around shoplifting. If a whole bunch of people are coming into a shop and shoplifting all the time, does the proprietor say: “Well, that’s a bit of problem. What we need to do is to drop all the prices and put a fixed charge on everyone who comes into the shop, in order to cover the difference.”? Instead of saying we will enforce the rules against shoplifting, the opposite is that we say no, obviously our prices are too high so we will cut the top prices, and because there will be less income, every person now coming into the shop will have to pay a little fee at the door. That is effectively what the Government is doing. That is the Government’s argument around tax avoidance. The Government’s argument is that there are people avoiding the tax, so what it needs to do is to cut the top tax rate, rather than enforce the rules. There was another option here. The Government—the National Party, the ACT Party, and the Māori Party—had an option other than making our tax system more regressive. The option was to enforce the tax rules as they currently exist. That is an option the Government has chosen not to take.

I would like to talk briefly about the property tax changes. The Green Party obviously has been a supporter of trying to direct a lot of our savings away from investment property, because we have had a speculative boom in investment property. The obvious solution to it is a capital gains tax, excluding the family home—we all know that—even though the Government does not have the political courage to do what it knows should be done. There are two parts to the problem with the way the Government has addressed investment property. It is far too weak and will not have the effect we are talking about. David Cunliffe said earlier that loss attributing qualifying companies will be only marginally affected. The other part is that to the extent it puts an impact on rent—and to the extent that it is effective, it will have some upward pressure on rent prices—what we have to do is make sure there is a supply of affordable rental properties to account for that.

The Green Party has a programme, for example, of massively increasing the number of affordable State houses so that we can deal with the fact that the Government is putting upward pressure on rents, which is what this package will do, and make sure that there is more affordable housing available through State housing, through non-governmental organisation housing, and through council housing. Unfortunately, in this Budget the Government has slashed to almost zero the amount of money that is going towards new State housing. At the time that the Government is proposing to put upward pressure on rents, it has cut all new building of, or acquiring of, affordable State rental housing. That is just damn wrong. The Government cannot do that. At the one time that upward pressure is going to be put on people’s rental prices, to the extent that the Government’s changes in property will do that, we should make sure that affordable rental properties are available. This Budget is inequitable. It leaves a social deficit, an environmental deficit, and a fiscal deficit, and this bill is part of the problem.

Hon Sir ROGER DOUGLAS (ACT): I have recently been reported in the newspapers as giving National three out of 10 for this Budget.

Amy Adams: A bit tough, Roger—a bit miserly.

Hon Sir ROGER DOUGLAS: Well, it is slightly tough, I think, but in fact it was not quite what I said. I said that this Budget was being prepared against three trends. The first trend was the fact that New Zealand, relative to other countries, had been in decline for 40 years, and I gave the Government three out of 10 in terms of whether I felt it would make the changes that were necessary. The changes that I felt were necessary were very low taxes—and the Government has gone some way towards that—and the need to introduce competition and private enterprise into the areas of health, welfare, and education. I knew that would not happen, so I gave the Government three out of 10.

I said, on the expenditure front, that, frankly, for 13 years successive Governments have spent way above the rate of inflation. I thought that probably the Government would get a score of six or maybe even seven. I have had to revise that score down to five, I am afraid. But on the other hand, in terms of the Government’s tax proposals, I said that I thought the Government would get maybe four or five, and I would certainly revise that up to six or seven. Just what it is overall, whether it is 3½ or four, I am not sure. Maybe on Tuesday, when I speak in the Budget debate, I will make that decision.

If I look at this particular tax bill, and at what is in it, I would say that there are some good measures. But I think it could have been improved considerably from where it is. I will touch on where I believe it could have been improved.

The first point I will make is that I do not believe there was any necessity whatsoever to increase GST. I believe that it was possible to have reduced Government expenditure by at least the net amount of revenue that GST will bring after compensating superannuitants and welfare beneficiaries. I say that for a number of reasons, and I will give some examples. First of all, in a paper that I put out the other day, I identified about $3 billion worth of possible expenditure savings, which is double what GST net will bring in. If I look at this particular Budget and at items of what I would call corporate welfare—handouts to various businesses, organisations, and the like—I can see that that comes to about $2.6 billion, and I am sure that over the weekend I will find other costs that will take it to over $3 billion. So handouts to corporates, subsidies for this and that, the emissions trading scheme, etc., come to over $3 billion. Again, that is double what will come in, in terms of the net return from GST.

The next point I will make is that if I look at page 15 of the Minister’s executive summary in the Budget documents—and this is why I marked the Government down from seven to five—I see that Government expenditure this year, rather than flat-lining as I thought it would, has actually increased by 9 percent. It has gone up from $64.79 billion to over $70 billion. It has increased by just over 9 percent. I accept, and I think it is being fair to the Government to say, that almost 2 percent of that 9 percent increase is compensation for the GST increase, but even allowing for that the increase in Government expenditure in this Budget is 3½ times the current rate of inflation. I have to say that this country cannot continue to increase Government expenditure at 3½ times the rate of inflation. At some point in time, that has to stop. It has been going on for 13 years. We had a Labour Government that simply did not care and got us in a hell of a mess, and we need to stop that. That is the first point I would make. I do not believe that GST needed to go up from 12.5 percent to 15 percent.

What were the other parts of the tax package that I personally do not really agree with? I would not have reduced the 12.5 percent rate down to 10.5 percent on the first $14,000 of income. The thing that impacts on people’s behaviour is the rate they pay at the margins—what they earn on their extra few hours of overtime. The rate that is paid is what determines whether a person will do overtime; that final rate is what determines whether people will invest, etc. We know that those people who earn under $14,000 actually come from the wealthy families of this country, so when we reduce the tax rate from 12.5 percent to 10.5 percent we are not in fact helping the low-income earner; we are helping the more affluent—the person who is able to income split, etc. I remember that vividly from the time I tried to put in a flat tax rate of 23c, and we were concerned about lifting everyone from 15c to 23c. The fact was that 90 percent of the people who were paying simply the 15 percent came from wealthy families. They were the wives, husbands, or children of people who were earning high incomes. Their families had high incomes. So I would not have done that.

The other thing that I would have tried to do—and I really do not understand why the Government did not do it—was to align tax rates. I believe that the Government should have aligned the various rates, whether of personal income tax, corporate tax, or tax on trusts, at a rate of 30c, and then, maybe next year, it should move the rate down to 29c, and move it in the following year to 28c. But at some point in time it is important that the corporate and the top personal income tax rates are aligned, otherwise we are simply encouraging people to try to dodge tax payments.

AMY ADAMS (National—Selwyn): I am delighted to have the chance to stand here on Budget day and speak to the Taxation (Budget Measures) Bill. Today Bill English delivered a Budget that will move our economy from the sluggish, underperforming, unbalanced, debt-driven, and consumption-focused economy that the previous Government encouraged and presided over. It sat by with its head in the sand for 9 years while our productive sector went down the toilet. This Budget will move us from that position, where we were consistently living beyond our means, and put us back on the track to becoming an economy focused on growth. That is what this Budget is about. It is about having an economy focused on growth.

Why is growth so important? Well, for the benefit of members in the House who do not seem to grasp it, I say that growth is important because through growth we will see jobs. Growth will create real jobs in this country. Members should not tell me that there is nothing in this Budget about jobs. Growth is what will gives us jobs, and this whole Budget is about delivering growth to the New Zealand economy. It will give us not only jobs—and not just jobs in the public sector, but real jobs in the productive economy—but better incomes and a higher standard of living. That is what we in the National-led Government want for this country, and that is what this Budget is moving us towards achieving.

Let us look at some of the projections that we have heard today. They are stunning—they are stunning. We have 3 percent projected growth every year for the next 4 years. That is a staggering turn-round for this economy, and it is a mark of the success of John Key and this National-led Government. Growth of 3 percent every year for the next 4 years will mean 170,000 new jobs—170,000 new jobs. That is what Treasury is telling us. That is Treasury’s conservative estimate of what that sort of growth means to this economy. Not only that, it also means an average of $7,000 a year of extra income for New Zealand families. That is what I came into Parliament to help deliver, and I am incredibly proud to be part of a Government that has delivered a Budget like the one we have seen today, which will give that sort of growth, that number of new jobs, and that level of lift in income to all New Zealand families.

That growth comes about from a couple of very important aspects of this Budget. It comes about through controlling our national debt. Debt is a massive issue, as Greece and the UK know. It is their No. 1 issue. Let us just remember that without the changes that this Government made in last year’s Budget and in this Budget, by 2020 we would have been looking at net Crown debt of 60 percent of GDP. Now it is projected at that stage to be 20 percent. From 60 percent under Labour’s policies to 20 percent under National’s policies—that is the sort of control that will make a difference in this country.

That growth comes from supporting business. All we have heard today, particularly from the Green Party, is how those members would shut down and kill the productive sector. They do not like farming, they do not like the productive sector; all they want to do is to shut it down. We are about supporting our industry and supporting growth, because that is where jobs will come from. Importantly, in respect of this bill, growth is about getting the incentives right. It is about ensuring that, through our tax system, we say to New Zealanders that we will get behind them if they are going out there to work hard and get ahead. We will not be getting behind the consumptive, debt-driven economy; we will support Kiwis who are trying to work hard and get ahead.

Labour spent most of the afternoon trying to tell us that this Budget is about favouring the rich—talk about last resort of the desperate! Let us look at what is really happening. Two-thirds of all the tax cuts delivered in today’s Budget will go to reducing the bottom two income tax brackets. Two-thirds of everything will go to the bottom two income tax brackets. After the passage of this bill, 73 percent of New Zealanders will face a top tax rate of no more than 17.5 percent. Nearly three-quarters of all New Zealanders will face a tax rate of 17.5 percent or less. Labour is trying to tell us that it is about a few rich pricks at the top; well, it is not. This is about fairness. It is about equity. The only reason that Labour is so angry is that this Budget has left it with nowhere to go. National is delivering to all New Zealanders. We are delivering to low and middle income New Zealanders, and Labour knows it. Labour knows it, the public knows it, and the commentators know it.

Let us took at what the commentators say. Bernard Hickey today reported that “Labour cannot accuse the Government of delivering a budget for the rich because rich property investors and foreign investors will be hit most by this Budget.” He is right. Tracy Watkins commented: “If the holy grail of budgets is that they under promise and over deliver, Finance Minister Bill English can score Budget 2010 as a win. … everyone will be better off.” I encourage anyone listening to this debate not to buy into the histrionics and crocodile tears from across the House, because those who know economics know that this Budget today is delivering a fairer, more equitable tax system and a stronger, growing economy for all New Zealanders, and I am very proud to commend it.

Hon DAVID PARKER (Labour): How one values this Budget depends on how much one values one’s word. On this side of the House, members value their word, but this Budget has been built on three broken promises, which the National Party cannot deny. The first promise was that National would not increase GST. John Key was on camera immediately before the election promising that there would be no increase in GST. That is the first broken promise of this Budget. How does one value that? Well, National does not put much value on its word. It lacks integrity. It lacks integrity—

Craig Foss: I raise a point of order, Mr Speaker. I believe that under the Standing Orders, a member cannot question the integrity of other members in the House. As well as that, I take offence at the accusation made by the member opposite.

Mr DEPUTY SPEAKER: The Speakers’ rulings are quite clear that one cannot challenge members’ integrity. I am sure that the member will be able to use some other phrase, and I ask him to continue.

Hon Clayton Cosgrove: I raise a point of order, Mr Speaker. This is not to challenge your ruling, but as I understand it, Mr Parker was talking about the National Party—

Mr DEPUTY SPEAKER: I have already ruled, and I invite the member to continue.

Hon DAVID PARKER: How does one value one’s word? I value my word highly. National obviously does not value its word. It promised before the election that it would not increase GST, but this Budget increases GST.

National’s second promise was that it would not increase borrowing for tax cuts. That promise has been broken. The Government’s borrowing has increased as a consequence of the tax cuts in this Budget. That is the second broken promise.

The third broken promise is that National would not cut public services. In particular, it promised explicitly that it would not cut early childhood education—in fact, it would have made it free. What did National do in this Budget? Audrey Young picked up on this issue in her column today. She stated that it will “save about $400 million over four years in abolishing the top two funding rates for early childhood centres”. That means in those cases a decrease in the subsidy that parents get for their children of about $25 per child per week—$25 per child per week. That is the third broken promise.

Amy Adams: No, it’s not.

Hon DAVID PARKER: Amy Adams says that that is not a broken promise. She does not know what a promise is.

The other thing that needs to be said in respect of the changes to income tax is that we know the projection of the rate of inflation as a consequence of these changes is that, next year, inflation will be 5.9 percent. As for the income tax cuts that people will get to compensate them for the increase in GST, all but the most wealthy people will have them eaten up as a consequence of the increase in the prices they will pay when they go to the supermarket. Rather than being some great boon to people, the money will be gobbled up by an increase in their cost of living. Their rents will go up, their supermarket costs will go up, all of their costs will go up.

We heard Amy Adams say that the income tax cuts are being fairly distributed, but 41 percent of the income tax benefits will go to the top 10 percent of income earners—41 percent goes to the people who already earn the most. New Zealand already has low income tax rates for high earners. That is set out in the Tax Working Group paper that was produced on behalf of the Government. It stated: “The current New Zealand top personal tax rate at 38% is not especially high by OECD standards,”. It was already low by OECD standards, and this Government is cutting it further for the top 10 percent of income earners. The top 10 percent of income earners will pick up 41 percent of the decrease in income tax. That is just not fair.

I will say something about the rebalancing of the economy. The Government said that this Budget is all about rebalancing the economy. The Tax Working Group stated that we needed to rebalance the economy away from speculative investment in housing towards the productive sector. Labour agrees with that as an ambition. Until today, we were all expecting that there would be ring-fencing of losses, so that people would not be able to buy some residential property and offset the interest costs on the loss they make on that rental property in order to decrease their personal income overall. What has the Government done? It has backed away from that. One of the disappointments that Bernard Hickey has with this Budget—and he is right—is it does not properly rebalance the economy away from speculative investment in the housing sector. People can still make those investments in the residential property sector, incur a big mortgage cost and offset that against their personal income tax. Rather than closing that loophole, the Government has gone a little bit of the way and said that people cannot deduct depreciation costs on buildings that will last for more than 50 years. That is a fair enough step and I do not criticise that, but the Government has not taken the more important step of ring-fencing those losses.

What has the Government done about catching up with Australia? Well, the answer is nothing. The growth rates in New Zealand projected for the years out are lower than the growth rates predicted in Australia, so the gap continues to grow between New Zealand and Australia. The wage gap between New Zealand and Australia will continue to grow ever bigger, and this Budget does absolutely nothing to reverse that trend.

What has the Government done in terms of encouraging smart business? It has cut the depreciation rates that businesses can claim for investments in high-tech plant and equipment. It has cut depreciation rates, so it is going in exactly the opposite way there.

Fran O’Sullivan wrote a very good column in the New Zealand Herald a couple of weeks ago, I thought, or it might be about a month ago now. She stated that given the high rates of youth unemployment in New Zealand and given our experience last time we had high rates of youth unemployment, particularly Māori and Pacific Island unemployment—and the last time we had that in New Zealand was in the 1990s, under the Bolger Government and then the Shipley Government—a big mistake made then was that we did not spend enough on training, and the people who were on the dole queue ended that period of unemployment without further skills and had got into the habit of sitting on their bums at home. They did not have a work habit. She said that this Budget needed to be judged in terms of what it would do for the training of the large cohort of young people in New Zealand who are currently unemployed. What this Budget does about that is just about nothing. Rather than increasing the amount of funding that is going into training, the Government is setting quotas on the number of people who can go to university. People are being excluded from university, and we do not have an increase in funding for training for those people who, because of the state of the economy and through no fault of their own, are stuck on the dole.

What does this Budget do in terms of debt? It stated that the amount that will be spent on the interest on Government debt goes from $2.5 billion per annum to $5.5 billion per annum. That is a big increase in the amount of our taxes that is being spent on interest.

What it does in terms of the current account deficit is woeful. We heard the Government say that it will rebalance the economy towards exports. What does this Budget show? It shows the current account deficit going up every year from now on—the current account deficit goes up to 7 percent of GDP. How is that proof of rebalancing the economy? It is not. It is proof of a return to a deficit-based economy, so much weighted towards the property sector with not enough exporting. This Budget does not solve that problem. The effect is that by 2014, New Zealand’s total net assets as a country, including both Government and private debt, will rise to negative 100 percent of GDP—100 percent of GDP. Rather than going in the right direction, the deficits from the Government and the lack of movement of the economy towards the productive sector and exports will mean that total net assets will go to negative 100 percent of GDP.

Lastly, I will mention the fact that the position of the Government and the country would have been even worse were it not for the fact that the previous Government reduced debt. Bill English and John Key, every time, said the previous Government should have had tax cuts, not surpluses, but that would have led to more inflation. It would have to led to higher interest rates and to a higher level of debt than the current Government has inherited. New Zealand would have been closer to the position that Greece and Great Britain are in and closer to the position that the National Government under Muldoon left the country in, with debt at 80 percent of GDP. Instead, we reduced gross debt to 17 percent of GDP and reduced net debt to 0 percent of GDP. This Government has got it going in the other direction.

The Government has not rebalanced the economy. The tax cuts will be eaten up, for all but the most wealthy people, in the extra costs that people face in rent and in inflation on their food costs. But overall, the worst thing about this Budget is that it breaks three promises.

Hon TARIANA TURIA (Co-Leader—Māori Party): In Māoridom we say “Te pō uriuri me te ao mārama”, which basically means “In the darkest of dark and the lightest of light”. The general concept is like the Chinese version of the yin and the yang—the need to balance and achieve a sense of equilibrium as we take a steady foot forward. It is with this sense of balance that I stand to speak to the Taxation (Budget Measures) Bill.

The previous speaker, David Parker, talked about the high unemployment rate amongst Māori and Pasifika and the need for more training. Some in the room will remember that in the 1980s, when we had really high unemployment, our people knew what it was like to be on the “training-go-round” through access training, steps programmes, you name it. Did any of those young people get trained in real job skills? No, they did not. Why did they not? The union movement would not allow the kind of skills training that needed to take place for those young people—training that would have given them really employable skills in the workforce—because it was afraid that by training these young people in those skills they would take jobs away from those who were working. It is one thing to get into the whole notion of Māori unemployment and talk about skills training and development, but our young people want training that will get them into the workforce. They want training and education that will give them the opportunity to improve their life chances and their educational opportunities, so that they will not end up always being the last on and the first off in the job market.

I think it is really important that we had 9 years of plenty, yet Māori youth unemployment rates and Pasifika youth unemployment rates were still incredibly high during those years.

Hon Clayton Cosgrove: What a load of rubbish.

Hon TARIANA TURIA: It is not a load of rubbish. I think it is probably a really good opportunity for those who are shouting at me in the House to go back and look at those figures. Māori youth under 24 years of age had a high unemployment rate in a time of plenty. It is manifestly evident that something is wrong with the state of the nation when we can sit back and think that really a high unemployment rate amongst young Māori people is OK. It is not OK. If we do not have those young people contributing to the economy in the way that they should be, in productive work, we will be in serious trouble with this ageing population, so that needs to happen as quickly as possible.

I will move off that take. Something is wrong when New Zealanders are crowding the property market and feeding their own wealth, yet no new jobs are resulting from it. Something is wrong when our economy is trapped in excessive debt and cycles of long-term borrowing, and business and investment confidence is declining with it. We do not want to pass on this history of unmitigated spending and debt to our young.

We will be supporting this bill in its entirety, as is the expectation of our coalition agreement with National, and in doing so we will seek to promote two particular priorities throughout the passage of the debate. The first is that we want to be sure that new tax rates for companies and savings, the depreciation in capital contributions, the personal tax cuts, and the other tax changes proposed in this bill give confidence to people to invest in businesses, which can then grow and strengthen the economy and give confidence to employers to employ more people.

Hon Clayton Cosgrove: You sold out your electorate.

Hon TARIANA TURIA: Mr Deputy Speaker, I object to the person across the House making the comment that the Māori Party has sold out. I object in the strongest terms possible.

Mr DEPUTY SPEAKER: Is the member bringing a point of order?

Hon TARIANA TURIA: Absolutely. I want an apology.

Mr DEPUTY SPEAKER: The member has taken offence under Standing Order 116; it is a personal reflection on the member. I ask the member to withdraw that comment and apologise.

Hon Clayton Cosgrove: I withdraw. I raise a point of order, Mr Deputy Speaker. I think other speakers have ruled on these sorts—

Mr DEPUTY SPEAKER: I have ruled. The member took offence, and we take her word for that. She was offended by the comment. I have ruled, and that is the end of the matter.

Hon TARIANA TURIA: The second priority is the vital need to guarantee that poverty will be addressed and that household income, standards of living, and economic performance will indeed be lifted. It is vitally important to us that we do what we can to build our economic recovery and to provide more opportunities for New Zealanders to back themselves. We need incentives in place to strengthen the economy and make a brighter future. But this is not just about the Government tipping the scales to create the balance that we need. This is also about us—about our people and our nation preparing for our future.

If my colleague Rahui Katene were here, she would talk to the House about Whai Rawa. Whai Rawa is designed to provide a base level of savings for all registered Ngāi Tahu to support a culture of savings and asset building to encourage and assist Ngāi Tahu w’ānui to improve their financial situation and knowledge. Whai Rawa is about empowerment and giving Ngāi Tahu the ability to create a better tomorrow for themselves and for their children. It is about rebuilding the savings culture that we once believed in. Māori are phenomenally thrifty people who can make a meal spread to feed a crowd. They know how to make the best of what they have in front of them. But also we are a people who focus on the future for the generations to come. In this sense, although our people did not like the proposal to increase GST, they are also not happy with the concept of leaving our grandchildren burdened by the heavy price of debt.

The Māori Party entered into coalition with National with the explicit focus that we seek significant outcomes in Whānau Ora through eliminating poverty, advocating for social justice, and advancing Māori social, cultural, economic, and community development in the best interests of this nation. These are ideals that we hold true to as much today as we did when we signed up to that agreement. Unlike the two major parties of this Parliament, we are not afraid to say the word “poverty”. Indeed, in our policy manifesto we made the explicit commitment to set a deadline to eliminate child poverty by 2020 and to designate an official poverty line. We will not resile from the challenge of preventing poverty.

In today’s Budget an additional $1 million is being invested in Maara Kai, recognising that community gardens are a key means of encouraging us to live more collectively and to live alongside one another, restoring our families to being the gardeners, the hunters, and the gatherers that they once were. In today’s Budget we also have seen honoured one of our policy goals to raise core benefit levels.

Over the past few months as the policy thinking around this Budget has evolved, all of our MPs have hit the road, taking the challenge of the tax question to our constituency. I have to say that no one in our electorates was pleased about the proposed rise, but there was a general acceptance of the rationale for why we needed to support the tax changes. Primarily this issue is a condition of our coalition agreement, and, to that extent, our constituency told us clearly that they want us to continue to have the influence that we do. But other members can understand the precarious financial position that we are in: the situation that, on average, New Zealanders are spending more than they earn—some 22c more than every dollar we make.

I come back to the notion of “Te pō uriuri me te ao mārama”. We believe in balancing up the scales and making things spread. It is in this light that we support this bill.

DAVID BENNETT (National—Hamilton East): I congratulate the Minister of Finance and the Prime Minister today on an excellent Budget. It has been well received by the public and the commentators of New Zealand. It is a Budget that shows leadership in the economic and the political fields that this country has lacked for many years. I bet members that the headlines in the Sydney Morning Herald will read “Why haven’t we got a John Key and a Bill English to take our country forward?” like this country has been taken forward today. People around the world will be looking at New Zealand as an example of how to build a stronger country, of how to create economic management, and of how to have reform in our tax system, which has been long overdue. It seems crazy that in this place Labour, with its position of looking after the downtrodden and those on low incomes, did nothing about property investors for 9 years. They did nothing about that and it came only to us. We had to make that change to taxation, which delivered the right incentives for New Zealanders.

I look forward to the young people of New Zealand knowing that they need to get an education, that they need to work hard, and that the opportunities are there. We will give them the rewards. We will make it worth their while to do the right things in life. That is the signal and the incentive this Budget sets.

I thank our coalition partners, because they see the big picture. They do not see the small petty-mindedness of what one needs to do to win elections; they see that we need to build a stronger people so that we can have a stronger country and that their success will be our success in building that country in the future. We look forward to that. This is a tremendous day for New Zealand. It shows that we can get out of recession quicker than we thought, that we can create tax change that is meaningful and that delivers the future, and that we can look after our public services, and health and education, which need investment. This is a great day for New Zealand, a great day for National, and something that all New Zealanders can be very proud of. Thank you.

STUART NASH (Labour): I want to deal with some facts. The Māori Party member Tariana Turia has sold Māori out. Seventy-three percent of the people in that member’s electorate earn under $40,000 a year. If her support for the Budget is not regarded as selling Māori out, then I do not know what would be. That party is about to vote in a Budget that will increase GST from 12.5 percent to 15 percent whilst it has a member’s bill, which was just pulled out of the ballot, that proposes removing GST from healthy food. Now that is hypocrisy, if I have ever heard it.

Mr DEPUTY SPEAKER: The member cannot use that word. I ask him to withdraw it.

STUART NASH: I withdraw.

Tariana Turia talked about high Māori unemployment. Well, let me tell her about high Māori unemployment. When Labour took over in 1999, the Māori unemployment rate sat at just about 30 percent. The previous Labour Government took it down to a 32-year low of 12 percent. Does the member know what the Māori unemployment is at the moment? It sits at 20 percent—it sits at 20 percent. The previous Labour Government was the first Government to bring down the Māori unemployment rate to a level that was even close to becoming acceptable—in fact, it was not acceptable, at all. Does that member know what this Budget will do? This Budget will be the worst Budget for Māori since the “mother of all Budgets” in 1991. This Budget is a travesty, and for that member to stand up and say it is a wonderful Budget is a complete sell-out of Māori. Seventy-three percent of the people in her electorate earn under $40,000 a year.

Mr Bennett over there talked about the downtrodden corporate property investor. The downtrodden corporate property investor—now that is a strange one. I do not know what sort of electorate he lives in or where his downtrodden people are, but I can tell members that the really downtrodden people in this country will be sitting back and asking how this Budget will help them, when all it delivers is an extra $16 a week, or a mere $5 a week extra to those on the median wage, after the GST hike has been taken into account. I ask members to remember that 50 percent of Kiwis still earn under the median wage. Those people will receive less than an extra $5 a week in the hand, when the Prime Minister will receive $350 a week more in the hand. The chief executive officer of Telecom will receive $1,600 a week more in the hand. That is 100 times more—100 times more—than the increase for a person on the median wage. That does not take into account the inflation rate of nearly 6 percent that this Budget creates. This is not a Labour Party figure; this is not scaremongering. This figure is in the Budget documents. It is the Minister of Finance’s figure, this 6 percent inflation. That is the bogeyman that Mr English does not want to talk about, because he knows that it not only erodes but eradicates the effect of the tax cuts.

Phil Goff, the next Labour Prime Minister and the next Prime Minister of this country, has pointed that out. Mr English informed a horrified National caucus—[Interruption] We can see them. He talked about inflation. The National members had their statements. The National members were ready to go out and tell people how much better off they were going to be, but then Phil Goff told them what inflation would do to the tax cuts. I saw the reaction of the National members in the back row. Those members over there were saying “Oh, goodness me. How will I counter this?”. I ask those members whether Mr English told them about the rise in inflation. No, he did not tell them about it at all, because those members were sitting back saying “Oh, goodness me.” As Mr Cosgrove said, those members should go to halls full of their constituents, and tell them that their Prime Minister will be about $350 a week better off and that they will be worse off, but that that is OK. I ask those members how they will sell that. How will they sell that? I would like to see them do that.

I think the theme song for this Budget should be “(I Can’t Get No) Satisfaction”. That song was about a young man who, no matter what he did, could not get ahead. People kept telling him that everything was better; there were mixed messages, but still there was no joy. That is what this Budget is about: mixed messages from Mr English and Mr Key. They told Kiwis that they would all be better off under this Budget—that this would be a Budget for all Kiwis. It does not matter to Mr English and Mr Key that there is to be $11 billion—$11 billion—in extra revenue from GST over 4 years. They are giving the lion’s share of the tax cuts to the very wealthy, to the likes of Mr Key and the chief executive officer of Telecom, who will receive $1,600 in the hand every week. That money is coming from the 50 percent of Kiwis who earn under $30,000 a year or the 75 percent of Kiwis who earn the average wage. But those members say that is OK, because Mr Key will receive $350 a week in the hand!

I do not think there will be feelings of envy from Kiwis about that, as Mr Key suggested there would be. I think there will be feelings of anger. They will be thinking “Oh my God, we’re being let down again”. Mr Key promised—he looked into the camera and promised—prior to the election that he would not raise GST, but he has done that. He said he would not do that, but he has done so. That is not nice. It is not fair, and it certainly is not what people voted for.

The first principle of tax legislation is that there should be equity. This is about who carries the burden of tax. I argue that those who are less well off will carry the significant burden of tax through the increase in GST. That is a regressive tax, because it is a tax on petrol, food, electricity, and all the items that people need in order to lead a decent life—a life with dignity. GST is increasing, at a time when most people are struggling with rising costs and falling real wages. What we have not heard is that Mr English has said to Mr Brownlee that he wants to have increased dividends from the State-owned enterprises. Do members know what that means?

Brendon Burns: Power prices.

STUART NASH: Mr Burns is right. This will be a real winter of discontent. People will look at the Budget tomorrow and think that they have a bit of extra money, but they will realise that their power bill will go up by 10 percent. Inflation will erode their tax cuts, and their real wages will be eroded. This is not a Budget for the many, at all; it is a Budget for the very, very few.

The Reserve Bank Governor, Alan Bollard, wrote a paper in 1992 entitled New Zealand’s Experience with Consumption Tax. It dealt with the implementation of GST in New Zealand. He wrote: “in 1989 when GST was increased to 12½% the effect on retail sales and subsequently on growth was marked; after experiencing signs of a pick-up the economy dropped back to recession the following year.” Let us remember that when GST was increased by 2.5 percent in 1998, Kiwis at the top end had received massive tax cuts in 1988. Less than 12 months beforehand, the top marginal tax rate had dropped from 48 percent to 33 percent. I wonder whether anyone has asked Dr Bollard what he thinks about the idea of increasing GST. Just as he is managing the economy out of recession, this increase comes along. He probably read through the history books and reread his paper with a sense of impending dread. We are borrowing $1.1 billion over 4 years in order to fund tax cuts for the very wealthy at the expense of the many, and, in all probability, at the expense of the economy. It is a dreadful legacy for those who are at school at the moment.

I would like to point out that last year’s Budget focused on three objectives. The first was to help Kiwis through the recession and support jobs. The Government had a Job Summit, and what did that throw up? The cycleway. How many jobs came from that cycleway? Six. Let us forget about that objective, because the jobs thing seems to have petered out with a whimper. The second objective was to lift productivity. I understand that a report released today says we have dropped five places in productivity down to 20 percent, while Australia has increased its ranking. That one is a failure. The third objective was to keep future Government debt under control. I can tell members that Labour got rid of debt through 9 years of prudent fiscal management. Even Dr Bollard said in his latest statement that the reason that this recession was not as bad in New Zealand as it was overseas was due to the prudent management of the previous Government and the way that Labour left the finances. Dr Cullen’s legacy was set, but it has been destroyed in 18 months by this Government.

I will make one final point, in which I will give the perspective of an entrepreneur. This is a case study—a real-world example. I spoke to a very good friend of mine who is one of New Zealand’s most successful entrepreneurs. He is worth $100 million, give or take a little. He does not like those guys over there in National, by the way. His comment was that the tax rates do not even come into the equation when he is considering a business venture. So Mr Key and Mr English should not tell me that the National Government is cutting taxes in order to stimulate economic growth, because that is just not the case. This is a Budget for the very few, not the many, at all. Thank you.

PESETA SAM LOTU-IIGA (National—Maungakiekie): I rise to support the Taxation (Budget Measures) Bill for 2010. The previous speaker, Stuart Nash, asked about facts. I tell that member that the one fact he has not got quite clear in his head is that his tie is an ugly, detestable tie, and he should not wear it 2 days in a row in this House.

The member talked about electricity prices going up.

Hon Trevor Mallard: I raise a point of order, Mr Speaker. I was waiting for you to intervene on the personal nature of the comments just made by that member about the dress of a member on this side. If we started criticising members opposite for their dress sense, you would intervene pretty quickly.

Mr DEPUTY SPEAKER: I am actually quite fashion conscious on some of these matters, so I did not take offence. I did not take offence myself, but if the member took offence I apologise for not interrupting earlier. Possibly, if someone has taken offence, our clothing might be something to be mindful of.

PESETA SAM LOTU-IIGA: I apologise to the member. I described his tie in such a way only because he—

Mr DEPUTY SPEAKER: No, I have already ruled on this. It has been very clear that exception was taken and I ruled on it. Do not mention it again.

PESETA SAM LOTU-IIGA: This tax bill is about compensating ordinary Kiwis for a rise in GST by cutting personal income tax rates, increasing superannuation payments, and increasing Working for Families payments and benefits—something Labour did not do last time it increased GST. Labour says that this bill compensates only the rich. The previous speaker wanted facts; I will give him facts. Seventy-three percent of income earners will have a top tax rate of 17.5 percent or less. Two-thirds of the tax cuts will apply to people on an income below $48,000—two-thirds. They are low to middle income earners.

This is a Budget that has delivered for New Zealanders. It builds on the good work that has been done in the past 18 months of this Government. It will secure prosperity for New Zealanders. It lowers tax rates. It allows exporters to get on with producing and selling goods and services overseas. The company tax rate is being decreased from 30 percent to 28 percent. We are encouraging savings through various changes in portfolio investment entity rates and personal income tax rates. This Budget will deliver surpluses sooner rather than later. We inherited a bad economy and a bad recession from the previous Government. This Government is about taking action, about investing in New Zealanders’ future, and about the prosperity of our people. I support this bill and I look forward to the second and third readings. Thank you.

A party vote was called for on the question, That the Taxation (Budget Measures) Bill be now read a first time.

Ayes 69

New Zealand National 58; ACT New Zealand 5; Māori Party 5; United Future 1.

Noes 53

New Zealand Labour 43; Green Party 9; Progressive 1.

Bill read a first time.

Sitting suspended from 6 p.m. to 7.30 p.m.

Second Reading

Hon PETER DUNNE (Minister of Revenue) on behalf of the Minister of Finance: I move, That the Taxation (Budget Measures) Bill be now read a second time. I will not traverse the ground that I covered in my first reading speech; I simply make the observation that over the last year there has been a great deal of public debate about our tax system. The Government has responded to that debate with the measures announced in the Budget this afternoon. It is now time to put the results of that into action, so that we have a tax system that supports growth, encourages productivity, and moves us away from the consumption and distorted investment decisions of the past.

In order to achieve those purposes, this bill introduces what we describe as a balanced packet of changes. Lower income tax rates not only will provide greater incentives for people to work and save but also will help to attract skilled people to our workforce and encourage New Zealanders to stay and contribute to our economy. In this regard, it is interesting to note that outside Ireland and Luxembourg, we, among OECD countries, have the highest rate of skilled citizenry living overseas—about one in five New Zealanders.

Hon Trevor Mallard: Why? Why!

Hon PETER DUNNE: There are a number of reasons for that, but the fact is that if we want to attract those citizens back, we have to have a competitive tax environment in this country, and that is what this bill is seeking to establish. The lower company tax rate that it ushers in will encourage productive investment throughout New Zealand, thereby increasing productivity and contributing to raising wage levels. Lifting the amount of GST will help shift the current economic balance away from consumption and spending, and will channel efforts towards saving and investment. As part of the rebalancing of the tax system, certain rules will be tightened and strengthened to make the system more equitable, so that everyone pays his or her fair share of tax. In making these substantial changes to our tax system, the Government has been mindful of those New Zealanders who will need support as a result of the rise in the GST rate. As has been indicated, compensation will be an immediate and permanent part of these changes.

In summary, these are the main features of the tax reforms proposed in the bill. They were well aired in the earlier debate and in the Budget presentation this afternoon. Taken together, they offer a fairer, more balanced system, which will better support the efforts of New Zealanders to get ahead, and for that reason I am very happy to commend this bill to the House.

Hon TREVOR MALLARD (Labour—Hutt South): I think we can tell when there is real enthusiasm behind the speeches made by the Hon Peter Dunne. He is not one to sit down early, especially a third of the way into his speech, if he is truly enthusiastic about legislation he is promoting. He knows that the good people of Ōhariu will not be happy about the Taxation (Budget Measures) Bill. He knows that the good people of Ōhariu know the effect of inflation on their assets. They know that 5.9 percent inflation will not be covered by the extra that they will get as part of this package of measures. The people of Ōhariu know that the person who gets $1 million a year and a $985 a week tax cut will be much better off than they are, as a result of that.

The Hon Peter Dunne is sitting next to the co-leader of the Māori Party. I say to Tariana Turia that I have some sympathy with her and the position her caucus is in with regard to this Budget, especially the increases in GST. Because those increases are so regressive, they will proportionately hit Māori much harder than the Pākehā population generally. There is no doubt that what Mr Harawira was reported in the newspaper this morning as saying was right. I disagree with the fact that he did not front and that his vote did not follow his voice. I had always thought of him as a warrior who would be here, who would be around, and who would not scuttle off after making comments like that.

But, going back to the legislation, I can see the hand of Peter Dunne in it. I think it is fair to say that there is a change to do with middle incomes that he would have had much more responsibility for than John Key or people such as that. I am sure there will be people who appreciate that part of the changes. But what people will see in the end is something that benefits rich people and high-income people much more than those who are on middle incomes. It will be especially bad once Dr Bollard has a look at the inflation. Having myself been involved in a few meetings on this subject with the good doctor over the years, I can accept that he will almost certainly accept the 2.02 percent increase in inflation arising from the increase in GST, but the other 3 percent or 4 percent is something that he will look at, and it will be well outside the requirements for tightening. I have not had a look at iPredict this afternoon, but I would be pretty sure that betting on interest rate increases in the middle of this year, later this year, and early next year has gone up substantially as Dr Bollard has a look at the inflationary effects of this Budget and what it will do to the economy.

What do we need now? What we do not need now is the choking off of business even more through the increased interest rates that will flow from this taxation bill. The Labour Party’s view on the GST increases has been made very, very clear. GST is a regressive tax. It is a tax that disproportionately hurts poorer people. Increasing it hurts them more than it hurts anyone else, and these increases will therefore hurt lower-income and middle-income people much more than they do people on higher incomes and people who have a higher proportion of discretionary income. It is sad because I thought there was general consensus across the House that the current GST was a good, comprehensive tax. At 12.5 percent it is relatively high by OECD standards. I think we have the sixth-highest level of consumption tax in the OECD. If there was a debate, it would have been that at 12.5 percent it is higher than most countries would think reasonable. But I think its comprehensive nature is something that has got support because it is seen to be relatively low and fair. What the Minister of Revenue has done in the legislation he has promoted is start to unravel that. As people see GST going up, as they see us heading right to the very top of the developed world for the level of this type of tax, we will see the support for it beginning to unravel.

Clearly, the Māori Party led the way on that. I have made my views clear on the Māori Party’s approach. The idea that we exempt all poultry and all vegetables would mean that Kentucky Fried Chicken and chips would become GST-free as healthy food—

Hon Tariana Turia: No.

Hon TREVOR MALLARD: It would, under the definition in the Māori Party bill that is on the Table of the House. Kentucky Fried Chicken and chips would be healthy food under its definition. I say to Peter Dunne that the problem is that as he puts up the rate he opens it up to that sort of approach, which I think undermines the tax. I accept what the member says—that as he puts up the tax level he opens it up to a number of other suggestions that would not have arisen if he had not taken the leadership in the way in which he has done in promoting this bill. I think it would be better to stay with the 12.5 percent GST rate and to stay comprehensive, but the member knows my views on that.

I think we have three things happening here—and I would be interested in the Minister’s views when he makes his reply. We have some loopholes being closed. I say to the Minister that no one can argue against closing the depreciation loophole; we all know that it is a rort. The changes made to thin capitalisation are, again, a good thing. I am not there yet on the company tax changes; my view is that the major beneficiaries of those are the Australian banks, because for New Zealand companies, of course, company taxation is effectively a withholding tax, and with the imputation credits it is a matter of timing rather than absolute amounts—and I am glad Mr Woodhouse is agreeing with me. So there is not a lot of benefit to New Zealand companies from these changes. The end benefit of the taxation changes is to overseas owners of New Zealand companies.

In my view, the closing of those rorts has effectively given some money to lower-income and middle-income earners in order to offset the increase in GST for them. But the revenue from the GST is what is effectively paying for the massive tax reductions for high-income earners. People on incomes similar to the Prime Minister’s full income will get about $1,000 a week. People like the Prime Minister will get about $1,000 a week in the hand as a result of these changes. I ask whether we, as Kiwis, think that is fair. I say to Paul Hutchison that most of his voters would have been happy if the Government had raised the threshold for the 38c rate to, say, $150,000, or $120,000. I think his voters would have said that, yes, they liked that, and thought it was fair. When people such as the Prime Minister and a number of his mates are earning—or receiving; I do not want to say that the Prime Minister is earning it—$1 million of taxable income a year, do most Kiwis really think that those people should have an extra $1,000 a week? No, we do not; we think it is fair for them to make a contribution to our system. This is a tax switch bill; it is a switch from the poor to the rich.

Dr PAUL HUTCHISON (National—Hunua): The Hon Trevor Mallard really does display the huge muddle that Labour members are in. After all, what did their leader say about vegetables and GST? Well, this is what Trevor Mallard said in April. He said that it was a very silly idea to take GST off healthy food. He said on his blog: “Just imagine trying to define that. And how much of each we are allowed each hour/day/week before GST kicks in. And the army of inspectors to check the food. And increase the GST or other tax to cover the diff.” It is quite obvious that Labour will be in Opposition for a long, long time; its members have very, very muddled thinking.

It is a huge pleasure to speak on this Taxation (Budget Measures) Bill, because the purpose of this bill is to implement the extremely well-researched, well-reasoned, and well-received Budget decisions announced today. I say “well-received”, because within about 30 minutes employers and manufacturers had said that it was the fairest Budget for many years, and that it contained the biggest tax reforms in many years. Just listening to the news tonight, I heard that five out of five commentators gave it seven points or higher. Even Guyon Espiner gave seven points for this Budget; that has to be pretty good.

Hon Member: 7.5.

Dr PAUL HUTCHISON: That is even better. But it is important to put this Budget in context, because if one thinks back to 2001—if Labour members can think back that far—one can ask what the Labour Government did after organising a highly respected report, the McLeod Tax Review. That Government totally ignored it. If it had actually implemented some of the report’s recommendations, we would not have been in the pickle we now are. In contrast, after this National Government had organised in 2009-10 a highly respected report known as A Tax System for New Zealand’s Future, tonight the National Government is implementing its measures, or the thrust of most of those measures. It is salutary to record in the House what the Tax Working Group report said. It said: “The current system”—this was after 9 years of Labour—“is incoherent, unfair, lacks integrity, unduly discourages work participation and biases investment decisions.” Those are the things that have been corrected, and are being corrected, in this Taxation (Budget Measures) Bill tonight. The working group explained that due to New Zealand’s current financial circumstances, it accepted the constraint to consider tax reform on a neutrally fiscal basis. That is absolutely correct.

So what does this bill do? Firstly, it rewards effort and helps families to get ahead. Just in case Labour members do not know, let me tell them that people respond to incentives. People think that it is fair and equitable that if they work hard, they are rewarded. The great thing about this Taxation (Budget Measures) Bill is that it decreases taxes right across the board. These measures certainly make the system fairer. At all taxable income levels, tax cuts more than affect the GST rise; furthermore, two-thirds of the cost of the income tax cuts goes to reducing the bottom two rates. Two-thirds of these reductions go to addressing the bottom two rates. They are Labour’s people that this Government is looking after.

The third thing this Taxation (Budget Measures) Bill does is help attract and retain skilled people. I was over in Australia a few weeks ago with the Health Committee, and we were deeply concerned by the number of research institutes that had skilled New Zealanders in them. But those New Zealanders wanted to be here, and the measures in the Budget are the very sorts of things that will attract and retain skilled New Zealanders here.

The other important thing is that this Budget encourages savings and productive investment, instead of the Labour Government’s 9 years of vacuuming up hard-working Kiwis’ important earnings, and redistributing them in a nanny State manner. Kiwis had got so used to that that they had forgotten about it. But, as Peter Dunne said earlier this afternoon, when Labour put up the tax rate in 1999 it was a disaster. There are now 130,000 loss attributing qualifying companies in New Zealand, which is four times as many as there were in 1999. Gross distortion has occurred over the last 9 years.

This bill is an extraordinarily great suite of measures to correct the disasters of the past. It will cement in a bright future for New Zealand, and economic growth to ensure that New Zealanders get sustainable, world-class health, education, and welfare.

Hon RUTH DYSON (Labour—Port Hills): For members and those of the public who may have been listening to the contribution from the member who has just resumed his seat, that was Dr Paul Hutchison—

Hon Trevor Mallard: Who?

Hon RUTH DYSON: Dr Paul Hutchison, who is a National member of Parliament. Dr Paul Hutchison is from somewhere just out of Auckland and is also the chair of the Health Committee. I find it extraordinary that in a 10-minute contribution on a tax bill he did not mention the Taxation Budget Measures Bill. I am not all that surprised; I would be ashamed too, if I were the member. Also, despite being a doctor and the chair of the Health Committee, he did not mention the $300 million hole that today’s Budget has left in our health budget. Any basic calculation will show that with inflation at the level it is and with the 2.5 percent increase in GST, which came in with the Budget, there is now a $300 million hole in the health budget. I could say that this makes the job of an Opposition health spokesperson a dream come true in many ways, because all we have seen over the last few months is health cuts. That may make an Opposition health spokesperson’s job easier but they do not make the lives of good, hard-working, ordinary New Zealanders any easier. It has not made the lives of people in Otago and Southland who have had their home support cut very easy. It has not made life any easier for the people in Palmerston North who are terminally ill and who will have 8 hours a day cut from the district nursing services they were receiving. It does not make their lives any easier, either.

So I am not surprised that Dr Paul Hutchison is so embarrassed that during a 10-minute speech he not once mentioned the tax cuts or the $300 million gaping hole in the health budget that was announced today. Nor did he did not mention that the Budget was a Budget of broken promises. The first broken promise was a promise made by John Key before the last election that GST would not be increased; today we saw it increased to 15 percent. Before the election John Key categorically denied that there would be an increase in GST, but today in the House we saw him as Prime Minister break that personal promise.

The second broken promise from the Prime Minister, Bill English, and National was an earlier promise that they would not increase borrowing for tax cuts. What did we see in the Budget today? We saw exactly that; there is increased borrowing for tax cuts, and not even fair tax cuts. [Interruption] The woman from Christchurch who has taught Aaron Gilmore everything he knows about economics says that that cannot be right. But one just has to read the Budget to see that we now have increased borrowing in order to deliver tax cuts. That is another broken promise from John Key, Bill English, and National.

The third broken promise was that there would be no cuts to public services, and I am sure my friend and colleague the member of Parliament for Wellington Central will have further contributions on this later. What are the services that are delivered through our education system and our health system? Are they front-line services, are they public services, and are they being cut now? They certainly are. That was the third broken promise.

New Zealanders are pretty tolerant; they understand when we are going through hard times. They understand when we all need to work together—central government, local government, and members of our community. They understand the need for people to tighten their belts and do a little bit more in hard times so that our country can get ahead. However, what they will not and do not understand, and what is making them very angry, is that this Budget and this legislation that we are debating had an opportunity to lift New Zealand out of the recession, to give people an opportunity for jobs, and to create a fairer tax system in any changes that were being introduced. But that is not what happened, at all. We see that the people who are doing OK still, despite everything—the people who are in the very, very top income bracket in New Zealand—are doing the best out of tax cuts while people who are on the average wage or below doing very, very badly.

Yesterday in the House I heard the Prime Minister announce—it certainly was an announcement and news to everyone, including Treasury—that Treasury had told him that GST was a progressive tax. Well, it is not. It is a regressive tax. It means that people who have less income spend a higher proportion of that income on items that have GST attached to them. Those people do not have a lot of spare money, so a higher percentage of their income goes on items that attract GST, so when GST goes up it is harsher on people who are low and middle income earners. On the Government’s own figures now, we know that most people will not be compensated for the GST increase. Many people will be worse off. People on $70,000 a year, and that is well above the average, will be $45 a week worse off with the tax cuts and GST increases. That does not factor in some other situations—for example, people in an income-related rental house whose income goes up, as it will for many people who are beneficiaries or on superannuation. Their rent will go up as well. So as their income goes up, their rent goes up. That means they will not be better off, but when they go into the supermarket they will not get a discount; they will pay an increased level of GST.

We see that 41 percent of the tax cuts go to the top 10 percent of income earners, and 15 percent of Bill English’s tax cuts go to the top 1 percent of income earners. How can that be fair on people who are just getting through a recession, many of whom have lost their jobs, and have had to get another job at a lower income. They work as hard as people on the top income bracket. I was appalled when John Key said to them to wait for the Budget and the Government would give the biggest tax cuts to the highest income earners but not to get jealous, because those very, very wealthy people are the backbone of the country; they are the people who are important to New Zealand!

I think those people are important to New Zealand, but I think the cleaners who work in this building are important to New Zealand, and as much of importance to our country as the people who are on the highest income. The average-income earner, and people earning right up to $70,000 a year, will be worse off under this legislation. Today the National-led Government squandered an opportunity to put a fairer tax system in place, and create a more modern economy where people would have open opportunities. When we look into the other budgets—like the education budget and the health budget—we see more cuts to adult and community education, introducing costs on people with children in early childhood education, reducing the number of qualified teachers in early childhood centres, and leaving a $300 million gaping hole in the health budget.

The Government has not introduced a fair tax system, as National promised. It is not the $50 a week tax cut that National promised before the election. This Government has introduced a tax swindle. It has broken three promises. It has increased GST when John Key promised personally to this nation that National would not increase the level of GST. It has cut public services, and certainly it has not introduced a fair tax system. This legislation will be a huge disappointment. It will cause more unfairness in our community and a lot of anger. Labour will oppose this legislation.

METIRIA TUREI (Co-Leader—Green): I enjoyed the contribution from my Labour colleague Ruth Dyson. She is quite right about the productivity of low-paid workers. I just inform the House that ACT disagrees completely. If members look at ACT’s alternative budget, they will see that Roger Douglas has said very clearly that high-income earners are the most productive members of our society—not the nurses, not the police, not the people who clean Roger Douglas’ office so that it is nice and tidy for him in the morning, and not the parents of this country. No, the excessively and ridiculously wealthy are, he says, by virtue of their wealth alone, obviously much more productive. That is the kind of extremist position that we see from ACT, and that informs National policy. That is the attitude of John Key when he tells the country that low-income earners, pensioners, and solo parents struggling to make their way with kids and take good care of their kids should not be jealous that they will get virtually nothing out of this Budget, while the very wealthy get the most.

The Greens have a vision for a smart economy and a better society—a smart economy that will deliver real prosperity for our people, for everyone, and for our environment. A smart economy protects our environment. In Aotearoa, particularly, if we have no environment, we have no economy. Upon our environment rests all of our security and our wealth. Whether it is our fresh water, our oceans, our forests, our natural healthy soils, or our most treasured places, we are 100 percent dependent on our environment.

A smart economy will sustain our natural capital rather than squander it, as this Government intends to do. A smart economy includes smart taxes that fairly share the tax obligation and the tax burden across our community. A smart economy delivers real and new jobs and sustainable industries that will enhance rather than degrade our environment and our communities. The Taxation (Budget Measures) Bill and the Budget on which it is premised fail to meet all those criteria for a smart economy, and it is a great shame for those families and their children who will bear the cost of that failure.

On Monday the Green Party launched our Mind the Gap proposal, a Green New Deal package of solutions that would create jobs, generate Government income, and combat the growing inequality that is a blight on our communities. We focused on inequality and its effects on children because income inequality has been shown to be the single most important cause of a wide range of social and economic problems. We chose to focus on children and the effects of inequality on children because they are the future of our planet and our society.

Hon Steve Chadwick: Hear, hear!

METIRIA TUREI: I thank the member. All children are entitled to live in a safe, sustainable society that protects their right to warm housing, safe, affordable food, and quality public education and health care—all within a loving and supportive whānau. We know that inequality hurts every child and every family, not just those people who are at the bottom. We know that New Zealand is one of the most unequal countries in the developed world: we are 23rd out of 30 in the recent OECD report. We were the sixth most unequal country among highly developed countries in last year’s United Nations Human Development Report.

Simon Bridges: Shame on Labour!

METIRIA TUREI: Shame on the Government. Shame on the Government for failing to do anything about it. Shame on John Key’s Government for making it worse, which is exactly what its tax cuts and its GST increase do—they make inequality worse.

New Zealanders like to think of ourselves as an egalitarian society where everyone gets a fair go, but the truth is that we are not—the facts tell a very different story. The Green Party has the vision that we can be a more equal and more sustainable Aotearoa. It is within the choices that we make. But this Budget and this bill produced by the John Key Government choose not to pursue that vision. John Key’s Government has already initiated some very big spending: about $10 billion on new motorways, an estimated $500 million from cutting the top tax rate, and potentially hundreds of millions of dollars in taxpayer subsidies to polluters through the emissions trading scheme. Again, it is always a question of priorities, and the Green Party would prioritise our people and our environment.

I will talk about the area of housing. There are some provisions in this bill for changes in property taxes and speculation. The Mind the Gap package produced by the Green Party recommended the introduction of a comprehensive capital gains tax, excluding the family home. My fellow co-leader, Russel Norman, has talked about that tax in some detail today. We know that, in the longer term, a capital gains tax will provide a serious and significant part of the solution to New Zealand’s property crisis by broadening the tax base and protecting housing from what currently seems to be irrational property speculation intensity. A capital gains tax is necessary to strengthen our economy in the short and the long term. This bill makes some minor changes around property speculation and property taxes. They are a small step towards the changes we need to make, but we also know that any changes in property taxes could lead to increases in rental prices, particularly in the short term, and particularly for those at the very bottom.

In order to make sure that the spread is fair around the tax obligation and the tax benefit, we need to make sure that for any changes in property tax there is also a comprehensive building programme of new State housing to help provide affordable housing for those who need it the most. That is absolutely an urgent priority in this country. We have severe homelessness in this country, in different ways: primary, secondary, and tertiary levels of homelessness. It is incredibly important that families who live in overcrowded, cold, expensive housing have affordable alternatives, but this Government will not be doing that, because it has cut the budget for the building of new State homes. This Government has cut the budget for the building of new State houses by more than $100 million. So no State houses will be built under this Government. That is clear from the Budget cuts. In fact, the Government’s only proposal is to sell off more State housing. It congratulates itself on having sold off 17 houses last year. There is no plan by this Government to increase the supply of affordable housing for those families who need it the most.

The fact is that we must make that change, because safe, secure, and sustainable housing is fundamental to the health and well-being of everyone, and everyone should have access to housing that is suitable for their needs. It is a basic necessity, and we know that being homeless or in overcrowded housing affects income, employment, attendance and truancy at schools, and health. The Human Rights Commission has identified that crowding, dampness, and coldness are key issues for the New Zealand community. There is a State housing crisis, with 10,000 families on the waiting list. Many people are living in rental accommodation where they have to move regularly, which has a huge impact on their education and employment. We know that about 30 percent of at-risk and vulnerable young people are in unsafe and insecure housing. It is a serious crisis.

The cost of cold housing on families in the community cannot be allowed to continue. We know that we are losing about $1 billion per year in costs from cold housing, whether it is in relation to hospitalisation, the cost of respiratory illnesses, or the cost of lost working hours. We have a package that would deal with that cost. The building of 6,000 new State houses over 3 years at the cost of $2 billion would provide 28,000 jobs. Housing is part of the bill. That is a way of providing access to affordable housing and creating 28,000 new jobs, so that people have employment as well. There is no employment strategy in this Budget.

We would also introduce progressive pricing into the electricity market. That is a way of making sure that we can bring 70,000 households that are currently living in energy poverty out of energy poverty by providing a fixed rate of electricity provision at a low cost; anything that is used above that fixed level of provision comes at a higher cost. It is an effective way of providing support to those who are in the worst energy poverty. For example, pensioners who live on their own in old homes have a 97 percent chance of living in energy poverty. We can provide for them and support them out of that energy poverty if we simply choose to do so. The Green Party chooses to do so.

JOHN BOSCAWEN (ACT): There is much to commend in the Budget. In particular, the tax changes that are incorporated into the Taxation (Budget Measures) Bill, which we are discussing this evening, are to be commended.

Let us start with the reduction in the marginal tax rates. There is a significant reduction in marginal tax rates. Those whose annual income is $14,000 or less will see their marginal tax rate drop from 12.5c in the dollar to 10.5c in the dollar, those earning from $14,000 to $48,000 will see a reduction from 21c to 17.5c, those earning from $48,000 to $70,000 will see a reduction from 33c to 30c, and, finally, those on incomes above $70,000 will see their marginal tax rate go down to 33c. Much more was possible in terms of reduction in marginal tax rates, but at least that is a good first start by the Government.

The Government has also moved to close loopholes—in particular, loopholes in relation to qualifying companies, and the tax advantages available through investment in residential and commercial property. The restriction on depreciation claims on properties is a move to see a rebalancing of the economy, and that has to be commended.

We also have a reduction in company tax rates, from 30 percent to 28 percent, from the beginning of the 2011 tax year. Finally, there are moves to incentivise savings with the setting of a new maximum tax rate of 28c in the dollar for portfolio investment entities, or PIEs.

One can look at the impact of the tax changes contained in this bill on page 9 of the Minister’s executive summary in the Budget documents. Those members who have that document might be interested to look at page 9. It shows the effect of the various changes, whether they be the reductions in personal income tax, the increases in GST, or the changes to benefits, for people on various incomes. In particular, it shows that those households earning an annual income of $40,000 or less will have a net impact from these tax changes of 0.7 percent—0.7 of 1 percent. Those earning between $40,000 and $85,000 will have a net benefit of 0.4 percent. I suspect that this bracket includes the great bulk of working households in New Zealand. Those earning in excess of $85,000 will have a net impact of 0.7 percent. The Minister of Finance—I guess—summarises that very nicely when he states at the bottom of page 25 of the Budget speech: “On average most New Zealanders receive roughly a half to one per cent average increase in real disposable income.” That is not much, but one could say that it is better than nothing.

I wish that were the full story, but it is not. What both the Government and the Labour Opposition are ignoring is that, starting on 1 July, we will have an emissions trading scheme tax. We will have a tax on energy, a tax on electricity—

Hon Members: Oh!

JOHN BOSCAWEN: I am interested in the barracking from the Government members, because they should be ashamed. The reason they should be ashamed is that New Zealand’s Treasury estimates that the impact of the emissions trading scheme will be to add 5 percent to the price of electricity and 4c per litre to the price of petrol from 1 July. Those costs will flow throughout the whole economy. They will flow into food prices and into everything that New Zealanders purchase. The Reserve Bank has calculated that the annual effect in the first year of the emissions trading scheme will be to add 0.4 percent to the CPI.

Where does that leave this Budget? Where does that leave the Budget that Mr English and Mr Key are so very proud of—the Budget that says that, on average, most New Zealanders will receive roughly “a half to one per cent”? Well, the people on incomes from $40,000 to $85,000, which the Budget document “B2 and B3” shows on page 9 will get a benefit of 0.4 percent, will be left with absolutely nothing—zero. National members—

Nicky Wagner: Whose side are you on?

JOHN BOSCAWEN: Do I hear a comment asking whose side I am on?

Nicky Wagner: Yes.

JOHN BOSCAWEN: That is interesting. I am very pleased that the member has asked that question, because I find myself, more and more, having to stand up and represent her constituents. Overwhelmingly, National Party members are opposed to the emissions trading scheme. They tell me that at the meetings I have conducted up and down the country. I read with a great deal of interest that at the National Party’s central North Island regional conference in the weekend, a subset of National Party members moved a resolution, unanimously, that the National Government should be delaying the introduction of the emissions trading scheme.

How interesting it is, also, to hear Labour members talk about the impact of this Budget on working people’s incomes and their expenditure. I have heard Mr Goff and Mr Cunliffe talk about the increase in GST, and of how inflation is going up. Well, National members can be proud of one thing. They can be proud of the fact that they are putting electricity up by only 5 percent, because the previous Labour Government would have put it up by 10 percent. That is right; that is the one thing, and the only thing, that the emissions trading scheme has to commend it. If there had not been a change of Government, then, from 1 January, we would have had an emissions trading scheme that Treasury has said would have increased electricity prices by 10 percent.

The National Government is confident and relaxed about the fact that it is increasing electricity and petrol prices, and increasing the flow-on effect of those things, by 5 percent from 1 July. The impact of that is there for all New Zealanders to see, on page 9 of the Budget document. Households earning between $40,000 and $85,000 will get a net impact of 0.4 percent, and the Reserve Bank tells us that the impact of the emissions trading scheme will be 0.4 percent. So everything that this Budget purports to give to those people will be taken away from 1 July, which is 3 months before the tax changes we are debating in this bill will come into effect.

It is actually worse than that. We can look at the position of superannuitants. The Minister of Finance goes on to state, very generously, on page 22: “the package will provide, from 1 October 2010, an immediate lift in the levels of New Zealand Superannuation, all main benefits, student allowances and Working for Families payments. This will be sufficient to offset the estimated impact on prices due to the rise in GST.” Well, is that not generous of the Minister of Finance and the National Government to be making adjustments to superannuation that will be sufficient to compensate for the increase in GST?

I ask about the increase in the price of electricity. What about the 5 percent increase in electricity? I ask about the flow-on effects throughout the whole New Zealand economy. I ask about the 0.4 percent increase in costs that the Reserve Bank of New Zealand said the emissions trading scheme will cause. What about that? There is no reference to compensation in the Budget speech. One thing I will say is that beneficiaries, and those who have their benefits adjusted in line with the CPI, will receive an adjustment, which will be carried forward because those benefits are adjusted in line with the CPI. But superannuitants, those people over 65 who rely substantially on New Zealand Superannuation—and who may be listening to this debate tonight—will receive no permanent compensation for those increases in electricity and petrol prices.

Let us turn to page 15 of the Minister’s executive summary. We see that in 2011, the cost of the emissions trading scheme will be about $907 million. In the following year, it will cost $275 million. I have heard the Minister for Climate Change Issues tell this Parliament that we have to proceed with those electricity increases because we have the massive cost of the emissions trading scheme. We heard Metiria Turei, the co-leader of the Green Party, talking tonight about subsidies for polluters. But this is not a subsidy for polluters. That $1.3 billion over 2011-12 is not a payment to polluters. I am sure that she is referring to the emitters of carbon dioxide, and carbon dioxide is not a pollutant. But that is a totally separate argument.

What is this sum? It is $1.3 billion that will be paid to the people who planted trees in the 1980s and 1990s. That is right. There were 70,000, 60,000, 70,000, and 80,000 hectares planted in trees every year through the 1990s. The people who planted those trees had no expectation of receiving a subsidy, but that is what they are getting. They are getting it courtesy of the taxpayer, so every single New Zealander will have to pay for that. It is a disgrace. If National’s politicians will not represent their members, then the ACT Party certainly will. Thank you.

RAHUI KATENE (Māori Party—Te Tai Tonga): There is a story to be told as one browses the Net to ascertain how the market and the press gallery are responding to Budget 2010. I want to share with the House an absolutely random selection of headlines gathered from cyberspace: “Budget woes for property investors”, “Biggest tax reform in 25 years”, “Major incentives for investment”, “Headaches for retailers over GST rise”, “Income tax slashed, GST to 15 percent”, “Tax changes will keep Kiwis home”, “Dollar responds positively to Budget”, “More in most pay packets”, “Budget politically safe but economically timid”, “Tax package will bump up deficit”, “Higher economic activity picked”, “Experts praise tax cuts for all”, and so it goes on. This is just a random selection of headlines.

Nowhere in that list of analyses did I read that this is a Budget that reflects the melodramatic hype we have heard in the House today. Sure, we read the words “safe” and “timid”, but we do not read that this Budget is a tax swindle or a lost opportunity, as members on the Opposition benches might mutter. In actual fact, we read the exact opposite—that this is a Budget that will crack down on property investors and tax evasion. We read that this is a Budget that will benefit all workers. So much for this being a Budget that privileges the rich and leaves all other New Zealanders out in the cold. The worst that could be levelled at the changes to the tax system would be that they are by and large fiscally neutral. In effect, this means that the increase in GST is offset by cuts to all personal tax rates and the immediate rise of 2 percent in benefit payments.

All payments, including New Zealand Superannuation and Working for Families, will increase by 2.02 percent to compensate for the increase in GST. Two percent might not sound a lot, but it is 2 percent more than the previous Government ever put out there. This is something we argued for, right throughout the lead-up to Budget day—that no one should be any worse off as a result of the Budget tabled today. It has been a hard slog to bring the need to protect our most vulnerable to the forefront of this debate. To be frank, it has not been the easiest Budget to promote amongst our electorate. I have just come from a Māori Party film evening fund-raiser, and there were about 120 people present who are really supportive of this Budget. I spoke to a couple who are superannuitants, and they are just so pleased that they will be getting $10 a week extra in their superannuation payment. An amount of $10 may not sound a lot, but to them it is mana from heaven and they are rapt; and so are the others. It is all about perspective, about restoring balance, and about taking a long, cool look at what will make the difference in order to create the promising financial outlook we all seek.

The Māori Party has spent many hours debating and debunking myths about the facts about tax. We know that in many respects this issue has much to do with perception—the perception of punters about whether a tax cut or a rise in GST will directly impact on their lives. We have been told by National that once all the measures are accounted for, the Budget has almost exactly the same impact on the average incomes of low, medium, and high income households. When we looked at a range of different scenarios, and all scenarios, the GST increase was offset by the income tax decrease. In simple terms, there was no loss of money. What might be the breaking news of the day is that the biggest losers in terms of this tax package are foreigners who lose through a combination of the tightening of tax on foreign investment and also because they own a lot of property.

This is a policy goal that we in the Māori Party campaigned on, to protect and preserve our land, to keep it from falling into foreign ownership, which is something the previous Government did nothing about. The Budget will tighten investment property tax rules. One of the immediate impacts that will be achieved is that wealthy families will not now be able to use losses from rental properties to become eligible for Working for Families. Some might call this practice morally bankrupt—a claim we could also throw at those rental property investors who manipulate the system to dodge tax. In that light, another feature of this tax legislation is that it puts a stop to those who try to rort the system for their own benefit. It seems a pretty hefty amount of money, $26.6 million for the next 4 years, allocated to the Inland Revenue Department, but if it can put a stop to what surely amounts to theft and deception, then that has to be positive. In fact, it is almost incredible to believe that these measures, according to Minister of Revenue Peter Dunne, are expected to generate an extra $2.48 billion in the next 4 years.

I want to return to the concept around the redistribution of wealth to invest in well-being—the “pay it forward” mentality. Paying it forward is a concept of doing good for others, to repay the good that has been done to oneself. In effect, reforming the tax system can make our economy fairer, more sustainable, and able to provide a better support for economic growth. I think, therefore, that those who are hardest hit by this tax legislation are the commercial and industrial property owners. They are hurt the hardest by the new depreciation rules.

I want to return to the discussion around Māori and Pasifika unemployment, generated just before the dinner break. We know that in the population aged 18 to 25 years, the number of Māori and Pasifika young people receiving the unemployment benefit demands that we take action. The figures are startling. Out of 19,000 youth receiving the unemployment benefit, 34.8 percent are Māori—that is 6,500 of our rangatahi—and 13.4 percent are Pasifika, which is another 2,500 young people. We must do something to ensure that they have a future to look forward to. We need to be able to support those young people with skills, work experience, and the confidence to invest in our future. Paying it forward is all about helping us to regain our footing, and in particular to help Māori and Pasifika youth to find employment as the economy continues to recover. We need the pūtea in the national accounts, to help make that happen. I hope that part of the $2.48 billion that Mr Dunne promised can be set aside for just that.

The Māori Party is supporting this bill in the interests of our young people, in the interests of our economy, and, most of all, in the interests of setting a strong pathway forward into our future.

JACQUI DEAN (National—Waitaki): What a pleasure it is to follow that contribution from our colleague in the Māori Party, who understands very clearly what matters in this country. I think this Budget delivers on what matters in this country, which is putting the right incentives into the New Zealand economy and looking after all the people who live here.

This Budget is about across-the-board tax cuts delivered to people in New Zealand. I will go through those tax cuts and tax rates, because I think it is worth repeating them. People who have an income of under $14,000, and who were paying a rate of 12.5 percent in tax, will now get a tax rate cut down to 10.5 percent, and that is significant. The tax rate for those people on an income between $14,000 and $48,000 goes from 21 percent down to 17.5 percent. That is significant for that range of members of our country. The tax rate for the people on an income between $48,000 and $70,000 goes from 33 percent down to 30 percent. That change has been welcomed across the board. The tax rate for the people on an income of over $70,000 has gone down to 33 percent. This Budget is providing across-the-board tax cuts.

It is interesting, is it not, that Opposition members are all at sea with this Budget. They are hardly putting up much of a fight, and do not seem to have latched on to anything they really dislike about this Budget. In fact, it was very interesting to hear the contribution of Trevor Mallard, who has largely agreed with a number of the provisions that have been brought about in this Taxation (Budget Measures) Bill.

There is a rise in the rate of GST to 15 percent from 12.5 percent, and, to balance that, there will be an immediate rise of 2.2 percent in income for those on superannuation, benefits, and Working for Families.

A number of spending boosts are contained in this Budget. In health there will be $2.1 billion more over 4 years. That will go into front-line health services. It is good-quality health spending. In education there will be $1.4 billion more over 4 years for better schooling, and also for early childhood education. In research, science, and technology there will be $321 million, over 4 years, for new initiatives. That is all about growth in the New Zealand economy. And, of course, there is faster broadband—$248 million extra over 4 years.

But I want to talk about a Budget initiative that has not been mentioned so far. It is a tiny initiative, but it just goes to show that a very small amount in the Budget, carefully placed, can have a big impact on growing the New Zealand economy. The first initiative I will talk about is the $30 million to be used to promote New Zealand overseas as a tourism destination. That amount in the Budget is relatively small, but in my view it is significant for tourism in New Zealand because we are an exciting tourism destination. With the Rugby World Cup proposed to be held here next year, I believe that it is important that we promote ourselves overseas.

The other example I will raise is comparatively minuscule, at $5 million, but I am excited that the Department of Conservation is to put $5 million into developing more cycle trails and camping grounds over the next year. Why do I think that is significant? Although $5 million is relatively small in the grand scheme of things, I can tell members that in my electorate, the Otago Central Rail Trail has had a huge impact on the economic well-being of the Otago region. I will focus on one very small provider of tourism services, and that is the Chatto Creek Tavern. Before the rail trail came into being, the Chatto Creek Tavern—which is at Chatto Creek, just out of Alexandra—was struggling. It was one of those small businesses, in one of those very tiny little towns, that was struggling and facing closure. These days, 5 or 6 years later, the Chatto Creek Tavern not only is surviving but also is thriving. There are now 13 people working in the Chatto Creek Tavern. They serve 180 lunches in the high season and 100 lunches in the low season. Members opposite do not see the significance of that—and I do not blame them because they do not represent the provinces—but if we extrapolate that benefit out from Middlemarch down to Clyde, and all along the length of the Otago Central Rail Trail, we can quickly see the benefit that an initiative like the rail trail brings to the local region. Five million dollars is a very small Budget amount, but it is significant.

This Budget is about putting the right incentives into the economy. It is interesting to see how well it is being received. I will leave members with this one statistic. The Close Up poll returned a result of 80 percent of people being in favour of the Budget. That was on prime time television tonight. That is good news. I commend this taxation bill to the House.

Hon CLAYTON COSGROVE (Labour—Waimakariri): For those who do not know, the member who just resumed her seat was Jacqui Dean.

Hon Trevor Mallard: I didn’t know.

Hon CLAYTON COSGROVE: Mr Mallard did not know. She is a member who is famous for two things. First, she is the member who thought that one should ban water. Secondly, she is the member who, during a public meeting with my colleague David Parker, showed that her in-depth knowledge of economics rivals that of Aaron Gilmore. She said: “No, we’re not going to borrow money. We’re going to get it from overseas.”

Hon Trevor Mallard: Who said that?

Hon CLAYTON COSGROVE: It was an economic theorist rivalling Aaron Gilmore.

Let me say that it has been an interesting day today. This is a very prophetic day, because on this day Mark Bryers, the biggest crook in the Blue Chip scam, got 75 hours’ community service. On the same day that Mark Bryers, the biggest crook in the Blue Chip scam, got 75 hours’ community service—he is a very wealthy man, a multimillionaire—the National Government gave him a $1,000 a week tax cut. In fact, it would be more than that, because he earns well over $1 million per year, and we know that, under this Budget, if one earns $1 million per year one gets a $1,000 tax cut.

Hon Trevor Mallard: A week.

Hon CLAYTON COSGROVE: I am sorry: it is a $1,000 tax cut per week. Mr Bryers, thanks to Mr Key, will get that. I am sure Mr Bryers will send Mr Key a nice Christmas card saying: “Thanks very much. I have done my 75 hours’ community service.” There were tears in court today, according to the media, but Mr Key was good enough to give him 1,000 bucks a week.

Hon Trevor Mallard: And there’ll be a pensioner who will deliver the card.

Hon CLAYTON COSGROVE: My colleague Mr Mallard said that a pensioner who was ripped off will deliver the card to Mr Key. It is a very, very prophetic day today. Mr Bryers will have a lot to celebrate tonight as he contemplates his whole 75 hours of community service.

Let us look at the Budget. What do we have? We have inflation. We have the highest inflation, I believe, since 1990—5.9 percent. I really enjoyed the Māori Party contribution, especially the contribution of Tariana Turia. I said that she had sold out her electorate and a number of other members have said the same thing. Well, those members are very proud of this Budget. I ask them how proud they can be when 72 percent of the constituents in Rahui Katene’s electorate earn under $40,000 per year, and when we factor in the increases in GST and inflation, 72 percent of her electorate are going to be worse off. I say to Tariana Turia—and I am sure that she will take another call to try to justify this—that 73 percent of her electorate earns under $40,000, and will be worse off when we factor in the increase in GST and a 5.9 percent inflation rate.

Ms Dean and others have said that it is fantastic that people who earn $70,000-plus will get a tax rate of 33 percent. Well, here is the problem with that for the Māori Party, which signed up to it today. In Ms Katene’s electorate, the number of people who earn over $70,000 equates to 5 percent—5 percent. In Mrs Turia’s electorate, it is even worse; there they equate to 3 percent. So I say: “Well done!” to the Māori Party. Those members have done a wonderful job of getting gains in this Budget for their electorate, because what they have got is some hocus-pocus, and a couple of prisons, which Pita Sharples has put on the deck tonight and which Judith Collins could not explain to the media, and they have sold out 72 to 73 percent of their constituents. I invite them—the weekend warriors that they are—to get up in this House and justify that to their constituents. If they are so proud of this Budget, then it will be very interesting during the hui on the campaign trail, when their constituents get up and say to Ms Katene that they are part of the 73 percent who missed out, and that she and her colleagues inside and outside Cabinet voted for this move, never opposed it, and ripped them off. That is what those constituents will say to the Māori Party. I do not know whether it is mana-enhancing when 73 percent of one’s electorate is worse off thanks to one’s vote and thanks to the fact that one is so proud of this legislation and this Budget.

Then we come to the other aspect of this Budget: the broken promise about the New Zealand Superannuation Fund. Mr English had a history of breaking promises to our superannuitants when he was last in Government, in the 1990s, when, under him, their pension was cut three times. Last year he said: “Oh well, we will suspend payments to the Cullen fund, but when we get into surplus”—and the Budget documents show that, allegedly, that will be in 2016—“we will activate funding again.” Oh no, that date is now 2019.

National members and their leader went around the country with the second broken promise, which was that they would not raise GST. I invite them to front up on a Saturday, if they ever hold electorate clinics, if they ever get off their backsides and go and talk to the 73 percent of the people in some electorates, like the Māori electorates, who are affected, if they ever meet those folks, who are worse off as we speak tonight. I invite them to go to Grey Power and explain why their leader broke that promise. Every last member opposite got his or her backside over the line in the vote and was elected on two false promises.

Mr Gilmore should get off his chuff, go to Grey Power members, and explain to them why he broke his promise. They will not know who he is, of course, but he might get in the door. I am sure they would invite him in, and he could justify the pay he gets by explaining to them why his leader said that he would not put up GST, why Mr English said that he would not mess with superannuation, and why Mr English said that he would pre-fund superannuation when the Government accounts moved into surplus. It is the same with Nicky Wagner. But we will never see them fronting when it is bad news. They stand up in here, but none of them will front up out there. Well, I challenge them. Let us have a meeting. Let us get every person in their electorate, let us get 10 of them, five of them, three of them. Let us get Mr Gilmore, who does not have a patch, of course, to talk to everyone in the area where he lives who is on the average wage. After we factor in National’s broken promise on GST and factor in record inflation of 5.9 percent, let us hear Mr Gilmore explain to them why National has ripped them off and why they are worse off. They are the battlers, the strugglers, and the people who are trying to provide for their families.

I remember polls about Budgets, too—rolling out the 80 percent. Well, I have always held the view as a member of Parliament that people are not stupid. I know this about Budgets: the Government might win on the night, when the flashbulbs are flashing and certain people are tripping over camera cords, but as the days go on, and the pay packets are opened, and the GST receipts are added up at the end of the week, the people are not silly, and it is very dumb and stupid politicians in this House who think they can hoodwink the ordinary folk in the street. I say to them that it is a simple equation: get up and explain why the Government will borrow $240 million per week for the next 3 years, and get up and explain why the debt track and the interest costs do not start even declining until 2021. If we look in the Budget, we see that those are important numbers.

But National members will not do that; they will not explain and they will not justify. They hide in their various patches and constituencies, and they will not explain to anyone why they broke their promises. Kate Wilkinson, a Cabinet Minister who occasionally resides in my patch, was told by the Prime Minister to go out and sell the increase in GST, but there was not a meeting, not a whimper, not a press statement, nothing. The invisible woman never ever fronts the bad news. Well, in my patch of Waimakariri 72 percent of my electors earn under $40,000 a year. Kate Wilkinson, who sits in Cabinet, who voted for every last measure in this legislation, who never opposed it, and who wants my job and everybody else’s, has sold out that quadrant of the electorate. Seventy two percent of people in my patch are worse off as we sit tonight. They did not expect 5.9 percent inflation. I invite Ms Wilkinson, Ms Wagner, Mr Gilmore, and the other tumbleweeds over there to get off their backsides, get up in the House, and tell us tonight why they broke their promises to the people of New Zealand and to their constituents.

I ask why the member for Tauranga—the Perry Mason in his own lifetime; I forget his name—does not get up. He loves going on the Breakfast TV show and waxing eloquent about his golf handicap and how he got gold membership of his local golf club. Well, he will be able to afford a membership with his tax cuts, but a pensioner in Tauranga will not, and a person earning under $30,000 will not. I invite the next speaker to show some intestinal fortitude and tell us why National members broke their promises.

MICHAEL WOODHOUSE (National): I begin by congratulating the member Mr Boscawen on the aplomb with which he is able to build matters relating to the emissions trading scheme into every single call he takes in the House. Tonight was a bit easy, because there was a little bit of that topic on the inflation figures. I think we need to make it a little bit harder for him. I propose a bit of Order Paper bingo, and I hope that when the following bills come up, he is able to mention the emissions trading scheme with the same aplomb: the Cultural Property (Protection in Armed Conflict) Bill, the Gambling Amendment Bill, and the Oaths Modernisation Bill. I look forward to those bills coming to the top of the Order Paper and hearing how he will handle mentioning the emissions trading scheme in debate on those bills.

I look forward very much to talking about the many, many good things in this Budget, but I cannot resist addressing some of the nonsense that has been spoken by our friends on the other side of the House. Their response to this outstanding Budget has been, frankly, anaemic, weak, half-hearted, and quite misleading. I will start with Mr Nash and his Rolling Stones tie. He said: “(I Can’t Get No) Satisfaction”. Well, that is not what we have heard. I take the issue of the inflation rate. It has been mentioned, and it is true—

Hon Clayton Cosgrove: What goes around comes around.

MICHAEL WOODHOUSE: That is right. I think that has been proven. Yes, inflation is higher this year, for reasons that are well understood by everybody but the Opposition. But the Opposition will not tell people that this is a one-off adjustment. Next year it will be 2.4 percent, the year after it will be 2.4 percent, and the year after that it will be 2.4 percent. What happens to the tax cuts? They stay and endure for a very, very long time.

Hon Clayton Cosgrove: Bad mistake tonight, sonny boy.

MICHAEL WOODHOUSE: That is not the mistake. We know that there is absolutely no doubt that the inflation figure would have been much, much higher had this been a Labour Budget. It would have been materially higher. Labour’s spokesperson on finance, Mr Cunliffe, said as much in the New Zealand Herald this morning: “If Labour were writing today’s Budget, it would spend more than National to ensure the recovery from recession remained on track.” So there it is: Labour would spend its way out of recession, and continue to tax the heck out of hard-working New Zealanders. Well, that worked for Greece! It worked for Portugal! It worked for Italy and Spain! The UK is in a similar mire. Mr Cunliffe would take New Zealand down exactly the same tax-and-spend track that got those countries into trouble into the first place, and it would not stop there.

I will mention the emissions trading scheme. Labour’s emissions trading scheme would have imposed double the cost, and it would have been introduced sooner than this Government’s scheme. That would have added to inflation. More consumption leads to higher borrowing, and higher borrowing drives up interest rates. That is an unacceptable burden on hard-working New Zealanders. Electricity prices went up 72 percent under the 9 years of the previous Labour Government and I have no doubt that that would continue were Labour back in Government.

Where is Labour’s alternative budget? It does not have one. Labour does not know what it would do. Labour members crusaded around the country in a bus that said “Axe the Tax”. They did not need a bus; they could have saved on gas and travelled in a two-door Morris Minor. That is about as much interest as they got. They would have had enough room for a suitcase and a six-pack. But the slogan did not ring true. Would they axe the tax? We do not know, the public do not know, and the commentators do not know. The reason is that even Labour members do not know. Labour members cannot even make up their minds on whether to axe the tax they said that they would axe. That confusion was still evident in Mr Cunliffe’s first call about loss attributing qualifying companies. He saw them as terrible things. I think he said that, yes, Labour put the system in place, but it saw it used for purposes that were never intended. God forbid that loss attributing qualifying companies were used to attribute losses! That is consistent with the sort of confusion around the tax arbitrage that Labour created over 9 years. These arbitrage measures are being put down.

I really want to focus on the last thing that, unfortunately, Labour members still do not get. Three-quarters of income earners will now have a top tax rate of 17.5 percent, which is nearly half what they had when the previous Government came into office. For that reason alone, this Budget will be applauded right around the country by all but the 20 percent of people who still support Labour.

Hon LIANNE DALZIEL (Labour—Christchurch East): I am very disappointed in this Taxation (Budget Measures) Bill, because it is not ambitious for New Zealand. Nothing in this Budget is ambitious for New Zealand. The only step change that I could see in this Budget and in this bill is a step back, not a step up. I would have thought that a step up was what the Government was talking about when it talked about a step change, but, no, we find it is a step back. I found in the regulatory impact statement on this bill that the Government was looking to achieve a step up in economic growth by improving the incentives to work, save, and invest. Well, that is not a very clear message to the people to whom I have been talking about the implications of this Budget in the lead-up to it today.

This bill is not about providing a brighter future for the vast majority of New Zealanders who—I really would like the Prime Minister to hear this—contribute to the economic, social, cultural, and environmental aspects of what defines us as a nation. The Prime Minister dismissed the entire significance of their contribution to our nation when he told them not to be envious of the huge decreases in tax that the wealthy were to face. He told them that those who earned the most would get major increases to their income, increases beyond even the weekly earning capacity of some of the people who will receive the smallest additional amount. But he told people not to be envious of the wealthy, and the reason that he told them not to be envious was that we had to do something to assist those people because we needed to keep them in New Zealand.

Well, the front page of the Dominion Post this morning had a very interesting article about who these valuable people were: lawyers and accountants. This is the first time that I have ever heard anyone describe lawyers and accountants as being major contributors to the productive economy.

Hon Trevor Mallard: That’s you and me!

Hon LIANNE DALZIEL: That is Trevor Mallard and Lianne Dalziel. We are among these major contributors to New Zealand’s economic capacity. How extraordinary! It is absolutely extraordinary.

Hon Steve Chadwick: I’d be jealous.

Hon LIANNE DALZIEL: Are you jealous of me? I think members should be jealous. They should be envious of me because I am a lawyer, so I am one of the people who the Prime Minister thinks are so valuable that he wants to encourage us to stay in New Zealand. Well, I am determined to stay in New Zealand, and I am determined to make sure that we reclaim the Treasury benches in this country at the next general election.

Scientists were also included in the list. Now I buy that. I agree with John Key that scientists are a valuable contributing factor with regard to our productive economy. The real economy needs more scientists to work in it.

Moana Mackey: But they don’t earn over $70,000.

Hon LIANNE DALZIEL: No, they do not earn over $70,000, but I will come to wage rates in a minute. We actually get to the nub of the problem—and scientists are included in this—when we get to nurses. Nurses do not earn enough to put them into the extremely wealthy category. What is absolutely extraordinary is that—[Interruption] I am listening to all of the National MPs, because I want it to be recorded in Hansard that the deputy chair of the Commerce Committee, Aaron Gilmore, the Dunedin list MP Nicky Wagner, and Simon Bridges are saying, when we are talking about nurses, that yes, they are in the extremely wealthy category. I said nurses had not been put into the extremely wealthy category, and “Yes, they are.” is what we heard back in a barrage of interjections from the National Party members.

I make the point and put it on the record that nurses earn as much as they do because of the pay jolt that the previous Labour Government gave them because of the problems created by National. National opposed the pay jolt. In fact, National criticised the previous Labour Government for spending what we did in the public health system and for giving the pay jolt to nurses. Anyway, let us look at what National said. That pay jolt only works in the public health sector. How many nurses do members think are paid over $70,000 a year to work in rest homes? How many do members think? I think it would not be many. So let us look at what the Nurses Organisation said on the front page of the Dominion Post this morning, which was that nurses with 5 years’ experience earn on average $60,000 per annum. So they do not even reach that category.

Why have those professionals be singled out by National? It is to stop them leaving the country. But Statistics New Zealand tells us that workers across all sectors leave the country. Housekeepers, restaurant workers, drivers, and labourers are also among the top 10 percent of occupations of people who leave New Zealand, alongside nurses, teachers, and finance and sales professionals. I tell this House that these changes are not about reducing the tax paid by housekeepers. I am sure that Bill English has worked out exactly how much more he will receive in this pay packet each week, but I bet he has not worked out how much his housekeeper will receive, because that person will not receive very much, at all.

The issue is actually not just about low-paid wage earners, as well. I know that we have talked about them tonight. But I have been talking to taxi drivers, other self-employed people, and small-business owners, and they say they are gutted by the increase in GST. It will put their precarious businesses under a real threat of failure. I know that National does not give a toss about small to medium sized enterprises, and certainly not about the self-employed. But when those businesses have to put 15 percent on their GST accounts, they will know that their precarious businesses are really under threat of failure. I have had conversations leading up to this Budget day with many taxi drivers. We use taxis a lot these days, and taxi drivers said they were very worried leading up to this Budget.

I had my first post-Budget conversation with a taxi driver in the dinner break, before I came back to the House. He said to me that when he had heard John Key say people should not be envious of the wealthy for receiving much bigger tax cuts then he was, he was reminded of the expression “Let them eat cake.” He was a very, very intelligent and capable taxi driver. Tonight he said that if there was a Bastille he would storm it; that is what he said to me tonight. That was absolutely extraordinary, and I said to him that I would quote him in the House tonight. He said that was great, and he would down tools and storm the Bastille—he would switch the key off in his taxi, and he would storm the Bastille—if we had a Bastille to storm. That taxi driver gets something that John Key simply does not get: it is not tax that is holding back incomes in this country; it is wages, and it is the income-earning potential of our small to medium sized enterprises sector. That is what holds New Zealand back, yet this Budget does nothing to increase wages, and it has nothing to do with improving the productive capacity and the earning ability of our small to medium sized enterprises sector.

My taxi driver tonight knew the figures; he knew that Paul Reynolds was to receive over $6,000 more in his pay packet every week. He knew that the Prime Minister and Cabinet Ministers were to receive hundreds of dollars extra a week in their pay packet. He did not know what the minimum wage earner would receive. He did not know that, because the minimum wage earner—

Hon Clayton Cosgrove: I raise a point of order, Mr Speaker. I know this debate is robust; this is a tax debate. But inane, endless barracking as the speaker is trying to speak, even though the member tried to take advantage of the microphone to combat it, is beyond the pale. Robustness is fair enough, but inane barracking is for the street.

The ASSISTANT SPEAKER (Hon Rick Barker): I thank the member, but I did call for order in the House. I say to people that this place can become a bit excitable on occasions, but members have a right to free speech. Free speech should be able to be heard. Of course we invite interjections, and I am sure the Lianne Dalziel responds to them and likes the cut and thrust of the debate, but it should not drown her out.

Hon LIANNE DALZIEL: What my taxi driver did not know was how much someone on the minimum wage would receive, which is that such a person will receive an extra $4 a week. Someone who earns five times the minimum wage will receive over $50 a week. Five times $4 is $20, so why is someone in that position to receive over $50? My taxi driver has worked it out—this is a terribly unfair Budget, and the bill that is before the House today is very unfair.

The last thing that I ask is why this is being done under urgency. This legislation is to take effect from 1 October, and today is only 20 May. We should have time for the bill to have a short period at the Finance and Expenditure Committee, and for public feedback to be given on it. Why are we not to have any public feedback? The Government does not want it. It does not want to hear from the public on this issue; it does not want to hear a single word. This is a tax swindle, not a tax switch.

NICKY WAGNER (National): I am enormously pleased to be supporting the Taxation (Budget Measures) Bill in the second reading debate. Today’s Budget is a cracker. It promotes growth and competitiveness, and provides the right incentives for Kiwis to work, to save, and to invest. This bill cements these gains. It is good for New Zealand and it is good for future generations of New Zealanders. There has been a whole heap of wide-eyed histrionics from the Opposition: overzealous shouting, red-hot rhetoric, and numerous claims that are totally without basis or fiscal common sense.

I will inject into the debate some independent factual analysis from financial specialists. My comments will be based on the regulatory impact statement prepared by Treasury and the Inland Revenue Department. Treasury and the Inland Revenue Department understand our economy. Their job is to give independent financial advice to the Government. This is what they say in their regulatory report: “officials from Inland Revenue and Treasury both agree that … the … tax reform package as a whole, will …”—contrary to Lianne Dalziel’s statement—“achieve a step up in economic growth by improving incentives to work, save and invest”. New Zealand needs this. They said it will “improve the fairness, coherence and integrity of the tax system by reducing opportunities to avoid tax”. New Zealand needs this. They say it will “result in a tax system that supports New Zealand’s competitiveness globally in a sustainable manner.” New Zealand certainly needs this. This is what Bill English and the National-led Government set out to achieve, and we have been successful.

It was great to see that 80 percent of New Zealanders in the Close Up poll tonight supported this Budget. It was also very interesting to hear from Colin Espiner, who said that this Budget was better than last year’s effort and probably trumped anything Labour came up with in the past 9 years.

Let us have a look at this regulatory report. This report provides an index that analyses each taxation measure as to how it affects taxpayers and how it supports increased efficiency of the system, improves equity within the system, and strengthens the integrity of the system. All measures were rated as increasing efficiency and some, such as removing the depreciation loading, were rated as having significant improvements in efficiency. All measures were rated for equity. Again, removing the depreciation loading gave a significant improvement in equity, as did addressing the GST base maintenance that closes the loopholes for largely fraudulent taxpayers. All measures were rated for integrity. In this case, the 60 percent thin capitalisation threshold, the management of loss attributing qualifying companies, and the GST base maintenance have significantly improved the integrity of the tax system.

I repeat: today’s Budget—and this bill, which implements it—is a cracker. It promotes growth and competitiveness and provides the right incentives for Kiwis to work, to save, and to invest. It is good for New Zealand and it is good for future generations of New Zealanders. I congratulate Bill English on a job well done.

A party vote was called for on the question, That the Taxation (Budget Measures) Bill be now read a second time.

Ayes 67

New Zealand National 58; ACT New Zealand 5; Māori Party 3; United Future 1.

Noes 52

New Zealand Labour 43; Green Party 9.

Bill read a second time.

Result corrected after originally being announced as Ayes 67, Noes 53.

In Committee

Part 1 Personal tax cuts, company tax cuts, and GST rate increase: 1 October 2010 start

Hon TREVOR MALLARD (Labour—Hutt South): We are at the technical stages of this bill, the Taxation (Budget Measures) Bill, where there is an opportunity to go through part by part and within the parts. Part 1 is the most substantial, although I think that it is fair to say that Part 2 reflects a lot of what is in Part 1 and some additional things. Part 3 may be described as a bit more technical and not quite as substantive, in the way that these things work. There will be, within Part 1, areas that the Opposition are supportive of and there will be areas within it that we are opposed to. I think, probably, in my first call that it is worth going through the areas that we are supportive of and asking the Minister in the chair, the Hon Peter Dunne, a couple of questions, because there is room for some explanation.

Starting off with that, I ask the Minister whether he can give some explanation as to the reasons for the CPI treatment of tobacco price increases. I think these are being excluded from CPI adjustments for the purposes of the benefit, of national superannuation, and, I understand, of war pensions. That is something that I can vaguely remember the background to and quite a lot of discussion on. But I think that it would be good if members who had not focused on that issue had an explanation of it.

On the question of depreciation, again, this, at first glance, is pretty technical and might not mean much. As far as depreciation on buildings for rental purposes is concerned, it is fair to say that the Opposition is broadly supportive of this part, although later, when we focus more on short-life depreciation of assets, there will be more debate on that area, because the Government is yet to convince the Opposition that its plans in that area are appropriate.

As far as thin capitalisation is concerned, the changes in the rules are logical. I think that giving the ability to shift the “safe harbour” regime from 75 to 60 percent and the ability for the Inland Revenue Department to look more carefully at transactions under or over that threshold are matters that I do not think there will be much argument on from this side of the Chamber.

If we look at two areas, at personal tax cuts and the GST increase, there will be substantial opposition from the Labour Party and, I expect, from the Greens as well. As far as company tax is concerned, it is an area where we would like to have more discussion with the Minister to work the issue through. Members on this side want some reassurance that we are not just moving to further subsidies for Australian banks. I think the Minister is pretty aware of the views of some members on this side—that is, for New Zealanders the company tax rate is essentially withholding tax. In the end, the people to whom the dividends are paid or who sell the company effectively end up paying the tax. For overseas owners, it is effectively the final tax—certainly for the New Zealand taxation system—that they pay. The likely major beneficiaries of this will be the Australian banks.

As I move through, I say that the Inland Revenue Department has done a good job with major litigation over recent years. I think the banks thought they would be able to see the department off, and I am pleased they did not and are paying. That is not exactly part of this, but the point I make is that the very people and institutions that have been forced by the courts to pay their tax appear to be being forgiven some of that tax in the future through the changes we are making here. Of course, I am not asking the Minister of Revenue to identify individual taxpayers, but I would like him to give an indication as to groups of taxpayers that are most likely to benefit from this change, and where it is a withholding tax rather than washing out as part of a final taxation rate.

I want to focus the major part of my speech on GST and personal income taxes. The more and more we look at the detail in this particular area, the more uncomfortable the Opposition is getting. We see a change to the rates of income tax from 38 cents to 33 cents for people who earn above $70,000. Frankly, I would find it pretty hard to argue if there was a threshold increase to $100,000 or even $120,000. I would not find it that hard to argue with if the vast majority of people who voted for the National Party at the last election had their tax effectively cut from 38 cents to 33 cents at the margin. It is not something I would support or promote—

Chris Tremain: The vast majority of people who voted for National were under that threshold.

Hon TREVOR MALLARD: I tell that member, because he may not understand this, that at the margins we now have, working families are paying the top marginal tax rate. That is what the Prime Minister told us. I know the Prime Minister gets a bit loose; he is a bit Abbott-like with the truth every now and again. He gets a bit enthusiastic and he is not always right on the facts, but I believe—

Chris Tremain: Three-quarters of New Zealand workers’ tax is capped at 17.5 percent.

Hon TREVOR MALLARD: That member can tell me if I am wrong. Chris Tremain can tell me that the Prime Minister is a liar if he wants to.

The CHAIRPERSON (Lindsay Tisch): The member cannot use the word “liar”—[Interruption] I am on my feet. The member said “the Prime Minister is a liar”. Under Speaker’s ruling 43/6, members cannot use the word “liar”. I ask the member to continue.

Hon TREVOR MALLARD: I do not think the Prime Minister is a liar, but Chris Tremain might be contradicting me—

Chris Tremain: I raise a point of order, Mr Chairperson. If you alleged that the member called the Prime Minister a liar—

The CHAIRPERSON (Lindsay Tisch): I have ruled, and the member knows exactly what I said. Members cannot refer to anyone as being a liar, nor to say that they are not a liar. I know that the member knows what I am saying. I do not need any help in this matter. I invite the member to continue. I know it will be a robust debate over the next few hours, and I ask him to continue in that vein.

Hon Clayton Cosgrove: I raise a point of order, Mr Chairperson. It may be that we do not waste the time of the Committee with this, but I invite you to very carefully consider your last ruling, and I think I might be joined by some colleagues across the aisle. If it is the case that we are defending somebody by not calling them a liar or saying they are not a liar, we are in difficulty.

The CHAIRPERSON (Lindsay Tisch): I am on my feet. Let me say this: the slate is clean.

Hon TREVOR MALLARD: I thank the Chair; I am glad we got there. I want to really thank Chris Tremain for his intervention as it was particularly helpful to get the truth on to the table, whichever way it went—whether he was right or the Prime Minister was right, or whichever side of the National Party was accurate. We know that no one voted for the Prime Minister to get a $1,000-a-week tax cut. That is what he has come to this House to promote and vote for. Some of his mates will get tax cuts that are seven times that size. Some of his mates—

Paul Quinn: That’s exactly what they voted for.

Hon TREVOR MALLARD: No one voted for that. I am saying that most decent Tories would have accepted a lifting of the threshold to $100,000 or $120,000. They would have thought that that was fair—[Interruption]

Hon Clayton Cosgrove: I raise a point of order, Mr Chairperson. It is an absolute rule in the House that a member cannot move his or her seat to take advantage. “Mr What’s-his-name” sits right at the back in the cheap seats, and he has moved his seat to interrupt my colleague.

The CHAIRPERSON (Lindsay Tisch): I thank the member for that; the member is correct. I say to Mr Quinn, the member on my right, that interjections are fine, but he also brought me into the debate by saying “you” and he mentioned the member by his first name, not his full name, which one cannot do. I know that the member’s seat is usually at the back and he has moved forward. I am happy to accept interjections and I am happy to acknowledge that this is a robust debate, but I ask the member to tone it down.

Simon Bridges: Mr Speaker—

The CHAIRPERSON (Lindsay Tisch): I have ruled on this matter, and I am inviting the member to continue.

Hon TREVOR MALLARD: Thank you—

Simon Bridges: I raise a point of order, Mr Chairperson. Mr Cosgrove referred to “Mr What’s-his-name”. I thought we had to use correct names in this House.

The CHAIRPERSON (Lindsay Tisch): This is getting silly. I thank the member for that intervention. The member knows exactly what needs to be done. I am inviting Trevor Mallard to continue. He has 1 minute 34 seconds to do so.

Hon TREVOR MALLARD: The point I am making is that these tax cuts are inherently unfair. They are absolutely unfair because in the end, although some loopholes are being closed to give lower and middle-income people a little bit of relief, a massive GST impost is being put on those people to give the Prime Minister and people on similar incomes $1,000-a-week tax cuts. No one from the National Party, and certainly no one who ran against me in Wainuiōmata, told the public that they would be voting for the Prime Minister to get a $1,000-a-week tax cut. We know that if National members had said that the Prime Minister would get a $1,000-a-week tax cut, they would never have been elected. If they had told the truth, if they had had integrity going into the election campaign, they would not have been elected.

I finish the way I started an earlier speech, which is to congratulate Peter Dunne on the minor change he made to this legislation to make it slightly more palatable than it might have been.

CRAIG FOSS (National—Tukituki): Part 1 of the Taxation (Budget Measures) Bill deals with some of the technical issues, as the previous speaker, Trevor Mallard, said. They were probably the only couple of words he got right. From there he departed a bit, but he was right in saying that Part 1 is the technical part that addresses the schedules, the changes in the income tax rate, the changes in the portfolio investment entity rates, the changes in company rates, and, of course, changes in GST rates. It also provides the mechanism for amendments to the Income Tax Act 2007, and their wording, so that we can have transitional rates, because much of these proposals move in halfway through the financial year.

Part 1 is quite substantial, and I look forward to the Greens speaking on it, because it proposes an increase in GST. As members opposite have said, GST is a tax on consumption. I note that in many speeches in this House the Greens say that they are opposed to consumption, so presumably they will be speaking for this part of the bill putting a tax on consumption and perhaps even slowing down consumption.

Other clauses in this part point to an encouragement in relation to financial assets, where portfolio investment entity rates go down from 30 percent to 28 percent. So, for once, I am looking forward to the contribution of Green members, to see whether they would encourage an increased tax on consumption a movement to more financial assets.

This is a technical part and I have been reading some of the provisions to do with GST. I was trying to figure out how on earth one would write this bill if the GST clauses included exemptions for fresh fruit and veges. In the whole bill there are 50-odd pages dealing with GST. Apparently that absurd suggestion in relation to fresh fruit and veges was an opinion from the Labour caucus, but not from the leader, I understand—and I am sure other members may correct me on that. We have a world-renowned tax on consumption in New Zealand. In fact, this very clean and crisp tax was brought in by the party now in Opposition—some of its current members were either near or in Cabinet at that time; they were definitely in Cabinet when the rate was increased from 10 percent to 12.5 percent without any compensation—so I will be interested to hear their comments about that. There are no exceptions to GST; it is an across-the-board goods and services tax.

One point seemed to be missed in some of the earlier speeches related to tilting New Zealand’s economy away from consumption towards saving or reducing debt. Of course, if people want to go out and spend their entire after-tax income, that is fine, and 15 percent of that, as proposed in this bill, would attract GST. But, if people pay off their mortgage with their higher after-tax income, which would increase their home affordability, they will get a better bang for their bucks, so their net debt position would improve because of this Budget. If people have positive savings, they will attract tax at 28c in the dollar on their portfolio entity investment regime, as Part 1 changes those rates.

To be fair, I acknowledge that it was the previous administration that brought in the portfolio investment entity regime in recognition of the imbalances in the New Zealand economy. So I find it curious that members opposite seem to be attacking some of the moves in the bill before us, and I will be interested to hear their justifications for that.

To go back to the GST side of things, can you imagine what would have to be in this bill if it included the proposals from the other side? Essentially a cabbage that is dug out of the ground and an apple that is picked off the tree would not attract GST, but an apple that has gone through the pack-house and been washed and bagged, or a cabbage that has been chopped up, would attract GST. Can you imagine the legislation, the regulation, the holes, and the arbitrage you would have under that regime? The administration of it would far outweigh any gain to the Crown, or any perceived gain to the consumer, because they would have—

The CHAIRPERSON (Lindsay Tisch): I remind the member that he is continually bringing me into the debate.

CRAIG FOSS: I apologise, Mr Chairperson. Someone somewhere would have to pay the impost on that. It would fall on the taxpayer or on small businesses, which a previous speaker was so concerned about earlier. The previous speaker contradicted another speaker on his side when he talked about some court cases today, totally forgetting the outcome of some cases that are now no longer before the court. The other Opposition speaker, who was the Minister of Commerce at the time when all that mischief happened, started to justify them, so again we have contradictions.

Clause 36 is one of the highlights of this part because it contains the changes to schedule 2, which includes the basic tax rates of PAYE income payments. Subsections (a), (b), (c), (d), and (e) are identified in that clause and I would like to read them for members opposite because they contain some highlights. In fact they highlight the changes, not the transitional rates.

Clause 36(a) states: “in clause 4, ‘0.21’ is replaced by ‘0.175’;”, being the PAYE rate. That is interesting because three-quarters of New Zealand taxpayers will be attracting that rate or less. Three-quarters of New Zealand taxpayers will be facing a rate of only 0.175, or 17.5 percent, as they make their PAYE payments. At the next levels, “0.33” goes to “0.300”, and “0.38” goes down to “0.330”, which seems to be causing so much concern to Labour members opposite. There does not seem to be any acknowledgment whatsoever that it was that particular party that took the rate from 33 percent to 38 or 39 percent. It was the first thing Labour members did in regard to tax when they became the Government in 1999. I will be interested to hear their comments on that. If they are opposed to this, it implies that with the $7 billion of extra spending announcements they have already made, they would have to increase personal tax rates, corporate tax rates, savings PAYE tax rates, or GST rates. I thought they were going to axe the tax, but I do not know what they are doing now. I look forward to those members, as we talk about the clauses in Part 1 in particular, telling us what they would do if this Taxation (Budget Measures) Bill were their bill.

Hon Clayton Cosgrove: No, no, you’re in Government, you’re responsible, you explain.

CRAIG FOSS: No, I say to the gentleman from the South Island that the Chairperson is not responsible. I look forward to the comments from the Greens in relation to the increase in the consumption tax, which I believe aligns with their core philosophy. At least the Greens are consistent in their advocacy of a capital gains tax. If I look at the material from Labour when in Opposition and when in Government, there are huge inconsistencies, and we heard that in earlier speeches on the Budget itself. I look forward to those speeches and to this bill being robustly debated, but, overall, Part 1 is the real detail and the real thrust of the bill, and it is that which is getting the nod from New Zealand as we speak. I will be particularly proud to go on the hustings next year and debate and discuss these points.

Hon DAVID CUNLIFFE (Labour—New Lynn): Sometimes people watching Parliament wonder why we appear to disagree all the time. It is certainly true that there are some things in the Tax (Budget Measures) Bill that we agree on. For example, I think both sides of the Committee agree on the need to improve New Zealand’s parlous savings rate. The debate on the savings and tax interface is about whether the measures in the bill will get us there, or whether some alternative measures would be better. Likewise, both sides of the Committee agree very strongly on the need to rebalance our economy away from the tax privileges of the property sector towards a more neutral tax playing field. Again, the question is whether the measures in the bill get us to that objective.

Hon David Parker: They say they want that.

Hon DAVID CUNLIFFE: They say they want that, but in fact the measures do not get us very far, and we will come to that.

The previous speaker, the member for Tukituki, said that three-quarters of taxpayers will be on the 17.5c tax rate. I wonder whether the taxpayers who go to the Government’s online calculator to see whether they will be better off or worse off have factored in what that calculator rather sneakily leaves out: that next year they will face 6 percent inflation. That means that everybody has to take 6 percent off his or her gross income before working out whether he or she is better off or worse off. For example, by the time a family earning as much as $78,000 with two kids in preschool gets their great tax benefit, they face higher GST, paying more for childcare, and inflation, and they will be 55 bucks a week worse off. So Labour members will be working with the public—the listeners and the viewers—over the next week or so during this debate to uncover some of the hidden traps, the fine print, and the places where the gloss is not as good as people were led to believe it would be.

There has been some discussion of whether GST should be on or off fruit and vegetables. Labour has not taken a position on it but we think it is worth having the debate. The reason it is worth having the debate is that it is easier to have a comprehensive GST programme when GST is at a low rate, but the higher we raise the rate, the stronger we make the case for a possible—note, “possible”—exemption. At the moment, prior to the increase in GST, New Zealand has—wait for it—the fifth-highest level of indirect tax in the developed world. And that is before the increase in GST. The arguments against taking GST off fruit and vegetables are partly based on compliance and partly on definition. But I do not believe that New Zealanders in their hearts would actually find it very difficult to say what a vegetable was. They might look at the members opposite. They might look at, say, the member for Maungakiekie and ask what he has done since he got to Parliament, and whether he would qualify. But that is not very nice, so I will back right off it.

Mr Foss made another point about how fair this measure is. The word “fair” keeps coming up almost as often as Craig Foss saying “Mr Chairman”. What does he say? He says: “Mr Chair, Mr Chair.” The word “fair” keeps coming up, but here is something that is not fair in this bill: 14 percent of the tax refund goes to the top 1 percent of the population. Trevor Mallard is absolutely right: if you are earning a million bucks you will get $1,000 a week extra in your hand. If you are earning a million bucks, do you need anything extra in your hand? I am not asking you, Mr Chair; I am sure you earn much more than that—I am sure you do. But if a person in the real world, the member Mr Foss for example, earned $1 million, he would get $1,000 in his hand. That is not a matter of need. If the Government is to be believed that the country needs to move forward and to address the structural challenges, then the country’s needs should be put ahead of the need of millionaires to get another $1,000 a week in the hand, especially when a family with two kids on $78,000 is $55 a week in the red. That is not fair.

On the question of rebalancing, both sides of the Committee—I think all sides of the Committee—agree with the need to rebalance. What we are wondering is why the Government has lost its nerve. It has taken away only a part of the building depreciation tax allowance. The Tax Working Group said that $1.1 billion a year was sitting there; the Government has taken about $600 million. But it did not touch ring-fencing, which is worth $2.5 billion—it did not touch that. What it did do, rather stupidly, is take $200 million off the depreciation of short-lived assets, which is technology, which is needed for innovation and growth. It is running against the growth objective in order to raise funds, because it did not have the bottle to really take some parts of the property industry to task. So the Government has not achieved the goal. It has not achieved the goal of comprehensive reform to achieve rebalancing.

Let us sum up. In this Committee stage, Labour members will be going through the detail of the “how”—not so much the “why”, which we will get back to in the third reading debate, but the “how”. Are the measures in the bill going to deliver on the stated objectives of the bill? Will they encourage savings? Frankly, the Government has got a nerve to ask the question.

Hon Clayton Cosgrove: Gutted KiwiSaver.

Hon DAVID CUNLIFFE: It is the same Government that gutted KiwiSaver, as Mr Cosgrove said. Its members said they will return to pre-funding New Zealand superannuation when the country is back in surplus, except they have changed their mind, done a Tūhoe, call it what one likes—

Hon Clayton Cosgrove: Broken their promise.

Hon DAVID CUNLIFFE: They have broken another promise. The country will be back in surplus in 2016, but pre-funding does not resume until 2019. When will the Government have the courage to say to senior citizens that it is sorry but superannuation as they know it is for a limited time? Do they have the bottle to do that? I do not know. And if they do not, why not resume pre-funding?

Hon Gerry Brownlee: I raise a point of order, Mr Chairperson. I am surprised that you did not pick up on the unparliamentary comment from the Hon David Cunliffe. Perhaps it is because his rhetoric is normally so filled with unparliamentary comments—

The CHAIRPERSON (Lindsay Tisch): I want the member to state exactly what the point of order is, and not make a speech.

Hon Gerry Brownlee: To refer to another member or to any number of members as lacking courage is completely unparliamentary.

The CHAIRPERSON (Lindsay Tisch): I say sorry to the member. I did not hear that comment. If David Cunliffe did say that, I say to him that in future he must not say that someone lacks courage.

Hon DAVID CUNLIFFE: Thank you, Mr Chairperson. It is certainly good to have Gerry Brownlee back early from his dinner break, at a quarter to 10. We are summing up this part of the debate by showing that there is some common ground between the parties. We agree on the need to encourage savings; we are rather surprised that National has come late to that, but it is good that it has. We agree on the need to rebalance the economy, but we have serious doubts that this bill will get us there. What we disagree with is the “Robin Hood in reverse” of this Budget, which takes from the poor, takes from the forgotten middle class, and gives $1,000 a week to millionaires who do not need it and probably did not ask for it—and it is being done at the expense of the country.

To make matters worse, this Government is borrowing extra to give millionaires a handout. Next year it will borrow $450 million extra for the millionaire handouts, and that is $1.1 billion extra borrowing over 4 years for the millionaire handouts. Gross debt goes up, and interest payments double and do not come down till 2021. This is not a Government that has got its priorities right. This Budget neither is fair nor fixes the problems.

As this debate continues, Labour members will be showing, for each of the portfolios represented by members of our team, where the sneaky cuts have come, where the loopholes are, where the rules are wrong, and the better way that we could have achieved those objectives that are sensible and that are agreed across the House. We challenge the Government to be open-minded. It is not too late for it to accept sensible amendments. There is a very sensible Minister in the chair. The Hon Peter Dunne looks great on TV without his tie on. We hope that he will accept the odd amendment as the Committee stage goes on. Thank you.

Hon PETER DUNNE (Minister of Revenue): I was not going to intervene in the discussion as early as this, but given that some measures have been put on the Table that there seems to be a measure of agreement about, I thought I would address those now so we could then move on to the more substantive debate about the areas where we disagree on.

Hon David Cunliffe: We were just warming up.

Hon PETER DUNNE: I appreciate that the member may be just warming up, and we have a long way to go yet and it can get very hot before it is all over. Mr Mallard raised a question earlier on about the reasons why the tobacco excise increase had been excluded from the CPI calculations in respect of changes to veterans pensions and New Zealand superannuation. The reason is quite simple: it is not a taxation argument; it is simply because compensation would be made available in due course in the normal course of events for that increase. That increase was made to encourage people to desist from smoking; it seems somewhat perverse to then factor in what would effectively be compensation for that decision that had been made.

Hon David Cunliffe: What about the broader 5.9 percent?

Hon PETER DUNNE: That is a question we will come to separately. I am answering questions that have been raised by other speakers. I will come to that point in a moment. But let me just say that when GST was introduced in 1986 the rate of inflation, post-introduction, rose to about 18 percent. The effect of that was comparatively short term. It is exactly the same here; if we look at the underlying track for inflation over next year, the year beyond, and the year after, it is around 2.5 percent flat. That, in fact, will mean that the tax changes will not have the negative effect that the member claimed in his address; they will be very beneficial by comparison. One cannot make an omelette without breaking some eggs. The change here gives that short-term boost but, in the long term, as I say, it will even out.

Let me come to the question of depreciation, and the issue Mr Cunliffe raised, which I want to pick up on because it is quite critical. The Tax Working Group costed depreciation changes at around $1.3 billion. In fact, when officials retested that calculation, the figure came out at around half that. So when the member says that we picked up on only half the recommendation, in fact we picked up the actual cost, if he follows what I am saying. [Interruption] Let me just work my way through it. The issue there was not so much of saying we would go with only half the figure; when we looked at the size of a figure it was only half of what the Tax Working Group had set it as being.

The issue then came down to the introduction of the 50-year limit. That is a very practical exercise, given the nature of the buildings that will be categorised as being under 50 years. One may say that that is very easy to get around; I know that one or two colleagues had discussions earlier on about fit-outs and renovations, and I think we had given a pretty clear signal that that is on our agenda. There will be a discussion paper issued by the Inland Revenue Department in due course about how those issues will be handled.

I wanted to talk about the depreciation loading, particularly the 20 percent excess. The reason for the change is a twofold one: it is picking up on a recommendation from the Tax Working Group and it is also aligning the rate of depreciation to the actual economic rate of depreciation, not the accelerated 20 percent that was there previously. So this is really a streamlining, given the recommendation from the Tax Working Group.

Mr Mallard also raised a question relating to company tax, and I am tempted to remind him of his arguments, which he knows in reverse very well because they were rehearsed at the time of the 2007 company tax changes. But the reality is this: we live in, as members know—I am not going to lecture on this point—a competitive international environment. Our company tax rate was, even at 30c, out of line with a number of jurisdictions. The international average is around 26.3 percent. We were cognisant of the fact that the Henry review in Australia was likely to recommend a company tax change. In fact, it did. The time frame has been a slightly more elongated one. We felt that, given the scope of this package, it was prudent to make this change now. It certainly gives New Zealand a short-term competitive advantage. It preserves, if you like, the gain that we had when we cut the tax rate to 30 percent a couple of years ago.

On the point about who benefits, Mr Mallard is correct when he talks about the banks, to some extent. But I think the point needs to be made that a lot of New Zealand businesses pitch themselves against that company tax rate. In fact, many of those smaller businesses will be more advantaged by the change in the marginal tax rates than they will be by the change in the company tax rate. Some of the very small sole traders, I think, will do quite well out of that 17.5 percent rate.

I simply wanted to take a call at this point to cover those points. I appreciate that issues relating to the imposition of the GST and the changes in personal tax rates will excite more debate, and I will come back in due course and take part in that.

Dr RUSSEL NORMAN (Co-Leader—Green): I take a call to speak on Part 1 of the Taxation (Budget Measures) Bill, and in particular some of the rationale for the tax cuts that are outlined in this part. We have heard some arguments from the Government as to why it is so important that it makes these tax cuts, so I think it is important to examine its reasoning.

One of the reasons given, and probably the predominant one, concerns growth. The Government argues that as a result of these changes we will get increased growth, so it is important to look at some of the historical record and what we know in New Zealand about the relationship between tax rates and growth. We can draw on some case studies. For example, we know that in 1986 we cut the top rate from 66 to 33 percent. If the argument for this tax cut was correct—that it results in increased GDP growth—then one would expect that, if there is some relationship, there would have been an increase in GDP per capita growth after that tax cut in 1986. In fact, from the period 1984 to 1992 the average GDP per capita growth was 0.4 percent. After the tax cuts of 1986 the New Zealand economy flat-lined. So in spite of the rhetoric of the Government, the evidence, in fact, is extremely hard to find. Many, many studies from numerous countries will repeat that evidence: there is a very poor relationship between the top rate of income tax and GDP per capita growth.

We can compare that case to the year 2000, when we increased the top rate back up from 33 to 39 percent. In the 5 years after the increase in the tax rate compared to the 5 years before, GDP growth per capita doubled. So we see that the evidence for the central argument being made by the Government regarding growth is extremely thin. That evidence is not just from New Zealand; it is from the United States and many other countries. If the Government is to rely on that piece of evidence for its argument, then the Government does not really seem to have a leg to stand on.

The other argument that has been promoted by the Government is labour mobility. One of the key arguments relates in particular to Australia. The Government argues that our tax rates in relation to Australia’s result in people moving to Australia. They also argue that that is the case in relation to wages. I will get to wages in a second. If we look again at the two examples of changes in the top tax rate, we see that we actually get the complete opposite result of what the Government would argue. In 1986 we cut the top rate from 66 to 33 percent. In the 5 years after we cut that top tax rate, we had a net migration of 65,900 people. So in the 5 years after we cut the top tax rate, on a net basis we lost about 66,000 people through their moving overseas. In 2000 we increased the tax rate from 33 to 39 percent. We actually had, in the 5 years that followed that, a net migration gain of about 84,000. So if the argument is that we have to cut the top tax rate in order to keep more people in New Zealand and to attract more people to New Zealand—the labour mobility argument, which is obviously an interesting argument to have—the problem is that the evidence goes in completely the opposite direction.

Whether we look at GDP per capita or whether we look at labour mobility, the evidence for the arguments that the Government is putting on the table for the cut in the top tax rate is actually in the opposite direction. That is odd. We would think that the Government, with all its resources and the entire monolith of Treasury behind it, in looking at tax rates and legitimising a cut in the top tax rate would make two arguments in relation to GDP per capita growth and labour mobility, but the evidence in New Zealand is the opposite. The evidence is as plain as day. Anybody can go and look at that evidence; it is freely available.

Part of the reason for all of this argument is that there is actually not a strong relationship, at all. I am not arguing that if we increase tax rates we increase GDP per capita, or that if we increase tax rates we increase net migration into New Zealand. In fact, the relationship is not very strong. That is the fundamental truth. None of us here would be able to prove that the relationship is very strong. The relationship is not very strong, so in making this argument there is not very strong evidence for the Government to rely on.

I think that one of the arguments that ties into both of these relationships is about relative tax rates. The Minister spoke, for example, about the international environment, and that is a legitimate argument. We have seen a race to the bottom with tax rates, and particularly with company tax rates around the world but also with personal income tax rates, labour has, theoretically, been competing and playing countries off one against the other. Supposedly we have been seeing that race to the bottom and New Zealand has had to lead that race to the bottom. We are leading that race to the bottom. That reality is unfortunate for the Government’s argument.

PricewaterhouseCoopers and the World Bank, in their Paying Taxes 2010 report, compared the total tax take. When we look at the headline “Income tax rates”, we know that it does not take into account everything else that goes with it. We do not know whether it takes into account a Medicare levy, as in Australia; state taxes; or all the different taxes that are allocated. When we look at Australia, we find that the total tax rate that PricewaterhouseCoopers and the World Bank came up with was 48 percent. When we look at New Zealand, and at all of its taxes together, we find that the total tax rate is 32.8 percent. So the New Zealand total tax rate is already dramatically lower than that of Australia. The problem with the Government’s rhetoric—rhetoric we hear constantly telling us that we have to do all of this to compete with Australia—is that it does not stand up against the evidence. The evidence is that Australia is much more highly taxed than New Zealand, and if we look at the World Bank’s Ease of Doing Business report, which is linked into tax rates, we find that New Zealand is rated right at the top of that report.

In relation to both of the key levers that the Government wants to use to promote economic growth—tax rates and regulation—Australia is both much more highly regulated, and much more highly taxed. One could make an argument, if one wished to, that there seems to be a correlation—if we compare Australia with New Zealand—between higher rates of GDP growth, more regulation, and higher tax rates.

This part of the bill is justified on the basis that lower tax rates will result in higher GDP growth, but we see very poor evidence for it. To the extent that there is evidence, if we compare ourselves with Australia, we know that New Zealand has much lower tax rates than Australia does. Some of the members opposite disagree with that, but I ask them to go and read the PricewaterhouseCoopers and World Bank report Paying Taxes 2010, which compares the numbers. It may be that the Government does not believe the World Bank and PricewaterhouseCoopers, but although I do not agree with them on everything I think they do have a point: compared with Australia, New Zealand is a much lower taxed environment. So the arguments for this part—the arguments based on GDP growth, labour mobility, and international comparisons—do not have strong evidence.

We have to wonder why this bill is being brought into the House with justifications for which there is not strong evidence. Surely we should have an evidence-based approach to legislating. Just as we should have an evidence-based approach to medicine or to any other field, we should have an evidence-based approach to making decisions about taxation. But the truth, sadly, is that the evidence does not support the Government’s position.

The CHAIRPERSON (Lindsay Tisch): I am sorry to interrupt the member. There is a lot of noise over on the Government benches. It is difficult for me to concentrate on hearing what is being said. If members want to talk, that is what the lobbies are for.

Dr RUSSEL NORMAN: Those arguments go on top of the other arguments in respect of this part, which, of course, are about equity and avoidance. I have already addressed those issues. The issue of equity particularly has been done to death in this debate; clearly these are regressive tax changes. The issue of avoidance is basically about rewarding avoidance behaviour rather than closing loopholes. Thank you.

SIMON BRIDGES (National—Tauranga): This Budget and this bill are about tax cuts for the many. This is the people’s Budget, and I think that is why Labour members do not like it. That is why they are angry. Actually, I think they were a bit embarrassed when their leader was speaking this afternoon. Labour members had come to the Chamber prepared for a Budget that was about tax cuts for the rich; that is what they thought they were getting. They had done all their sums, and Phil Goff had a pre-prepared speech that he was to give on all of that. But what we have found is that this Budget has tax cuts for the many. Whether one is an employee at any level, he or she is getting a tax cut. In fact, the bulk of the tax cuts are going to those on lower incomes.

Let me give a few, I think remarkable, facts that show very clearly why this is tax cuts for the many. This is not about doctors, lawyers, and people in those kinds of professions. It is also about cleaners, and the people whom the Labour Party says it thinks it is about. Two-thirds of the tax cuts apply to people on incomes below $48,000, and 73 percent of income earners will now face a statutory income tax rate of 17.5 percent or less. The tax changes that we are seeing in Part 1 are not about the rich. The effect will be felt by those people on low and middle incomes.

It is remarkable as well, when we look at these tax changes and tax cuts. Of course we know that, and I will not go through the various rates. The tax rate of 12.5 percent for people in the bottom income bracket, zero to $14,000, has gone down to 10.5 percent. We know all that. But what is also very interesting is that when we go through the various average tax rates, we find that the rates are even lower than that. The average tax rate—I suppose we could say, the actual tax rate—on an income of $48,000 is 15.46 percent. It is not 17.5 percent, but 15.46 percent. For someone on an income of $40,000, the tax rate is 15.05 percent. People earning $35,000 have a 14.7 percent tax rate, people earning $30,000 have a 14.23 percent tax rate, and those on twenty-five grand have a 13.58 percent tax rate. We have not brought a bill to this Parliament—Bill English has not given a Budget today—that is about the rich. The Budget has been about the many. It has been the people’s Budget. We have the people’s princess over there, the people’s daffodil, but this is the people’s Budget. It has not been about just doctors, lawyers, engineers, and consultants. It has been about ordinary Kiwi jokers, such as cleaners and house workers.

I can understand why Labour members are quite angry tonight. They thought they were getting something else. They had a caricature of the Budget ready to present and to hoe into. But they have had the rug pulled out from underneath them. We are giving these people—the cleaners, the street workers—an incentive to get ahead. But we are giving them more than incentive to get ahead; we are not doing just that. We are giving them future options, and a desire to get ahead, to make more money, and yes, to get into the top tax bracket. I am not one of those members who think that earning $100,000 is evil.

Debate interrupted.

Sitting suspended from 10 p.m. to 9 a.m. (Friday)

Thursday, 20 May 2010

(continued on Friday, 21 May 2010)

Bills

Taxation (Budget Measures) Bill

In Committee

Debate resumed.

Part 1 Personal tax cuts, company tax cuts, and GST rate increase: 1 October 2010 start (continued)

STUART NASH (Labour): We heard some interesting speeches in the Chamber last night. One of the most interesting speeches was the one from Simon Bridges, who stood up and said this Budget was not about the wealthy lawyers—and obviously he is one—but about the street sweepers and the cleaners. Mr Bridges said this Budget allowed the street sweepers to actually get ahead and advance themselves. He thought that an extra $5 a week would allow that to occur. Well, I would argue, of course, that the street sweepers had a chance to get ahead because they had adult and community education. But I can tell members that in Hawke’s Bay there are no more courses going on at the moment. Of course, cutting the education budget in real terms, cutting community education even further, and cutting tertiary education means that this Budget is not about getting ahead at all; this Budget is about going backwards. But I digress.

I will talk about the GST increases. I will give members a real-world example that Mr Quinn could well learn something from; I think that his mother, who lives in Napier, will be very interested in this. We are talking about the elderly sector. In Napier about 10,000 people rely on superannuation, and that number will increase by another 12,000 in 15 years’ time. That does not mean we will get 10,000 plus another 12,000, because obviously some will fall out of that group. But I am saying a significant number of New Zealanders—

Paul Quinn: They’ll be well looked after, and they’ll do better than most.

STUART NASH: —and again I think Mr Quinn would agree with this, and he must be nearly there, because I think he is going a little senile—rely on national superannuation to get through.

These New Zealanders have worked hard for their whole lives. They have worked, they have strived, and by and large they have paid their taxes, no matter what the amount was. We heard that they used to pay 66 percent tax, then they paid 33 percent, and then it went to 38 percent. They have paid tax all their lives, and they do not ask for much. We must admit that our elderly do not actually ask for much, but they know when they are being had.

Lynne Pillay: Just dignity.

STUART NASH: That is right, Lynne; they just ask for dignity—they want to retire with dignity. When people have worked all their lives and reach 65, they want to be able to enjoy life. It does not cost much. These people do not receive much income from their superannuation, but they do not complain. They want to go out with their mates and enjoy their bowls.

Of course, when adult and community education was cut the elderly were concerned, because that actually took away a lot of the support networks and friendships and clubs that they belonged to. But that was OK—they grumbled, but they lived with that. With this increase in GST, though, they are really concerned, because the increase in GST erodes their spending power. What is worse than that is that we have inflation coming in, in 2011, of 5.9 percent. That is not a Labour figure. Someone said to me last night that that is just scaremongering. Well, I can tell members that that figure of 5.9 percent is not a Labour figure; it is a Government figure. If members look at page 3 of the Minister’s Executive Summary, which is in volume B.2 and B.3 of the Budget documents, they will see that it refers to the figure of 5.9 percent inflation.

A lot of the elderly in our community rely on interest earned from their savings and investments to top up their national superannuation in order to live a life of dignity and have a decent standard of living. That inflation rate will erode the real spending power and the real value of these investments. We all know examples of this. We all know people who live in big homes and who say that they bought them in 1950 for only £20,000, and we think: “Goodness me, that was cheap.” But, of course, those people would have earned only £2,000 a year then. That is what inflation does: it erodes real value; it erodes the value of investments. An elderly person on superannuation who put away $100,000 and is living off the interest—and the resident withholding tax will have already gone up on that—will find that high inflation erodes those savings. I did a radio interview this morning, and I mentioned this. The guy said: “Yeah, but inflation is coming down after that. It’s a one-off hit.” It is a one-off hit; we admit that. But that does not mean that prices will drop; it just means that prices will increase by 5.9 percent, then increase by 2.4 percent again. It does not mean that prices will drop again. So the reduced value of investments created by the one-off hit of the GST increase will hit superannuitants a lot harder than I think the vast majority of people think. That is why I have a major concern about this increase.

PAUL QUINN (National): It is important to realise that the genesis of yesterday’s tax announcements lies in the changes made by that chappie called Cullen in 1999, when, driven by his fantasy of what he called “rich pricks”, he introduced an envy tax. All this bill does is remove the envy tax that Cullen brought in in 1999. That enables people, the true professional people in this country, such as doctors and hard-working New Zealanders—

Chris Tremain: Teachers.

PAUL QUINN: Exactly. It enables those people to get on. They are the people whom that shameful former Minister of Finance hit when he was trying to get at what he called ‘rich pricks”. The fact of the matter, as we know now, is that none of the real rich people—

Stuart Nash: I raise a point of order, Mr Chairperson. I take personal offence at the member calling Dr Cullen shameful. I think that is a slur on his character, and I take offence at it.

The CHAIRPERSON (Eric Roy): There are two measures here. The first is that members can take offence and register that to the Chair. The second test whether the offence is in fact one that should be accorded some response from the Chair. The kind of test of that—and I think the member should look at Speaker’s ruling 45/1—is whether the House itself is offended. Otherwise members would be jumping up and down the whole time. But having said that to that member, I say to the other member that when we start getting into what we might call “on the verge debate”, the House itself descends to a level that is not productive. This is early in the day, so can we just have a bit of generosity.

PAUL QUINN: You mean I should go soft on the Opposition, Mr Chairman. I am happy to go very soft on the Opposition. One has only to look at the straw polls that have flowed across the country to see that 80 percent of the populace, 80 percent of the people whom Labour alleges it represents, are actually in favour of this Budget. It is about time the Opposition benches conceded they are out of touch not only with ordinary New Zealanders across the board, across every career group including professionals, but with ordinary working people whom Labour alleges it represents in the House.

The polls on this Budget demonstrate that people support this Government. That is why they voted us in—to undertake measures like this. I know that that will be hard for Labour members to accept, but my advice during the course of this debate is that they concede the Budget is an outstanding one, and quickly move on through this debate. They will then be able to go home early this afternoon and actually get re-engaged with their constituents—and find that those constituents support this Budget. That is my advice to the Opposition.

MOANA MACKEY (Labour): It is always an honour to follow on from Paul Quinn, who, apparently, overnight has spoken to every person in New Zealand and is testament to the old adage that ignorance never sleeps. Mr Quinn talked about Labour’s “envy tax” in 1999 when we raised the top tax threshold. At least we went out on the election campaign trail and were honest about what we were going to do. Mr Quinn’s party, the National Party, went out on the election campaign and promised that it would not increase GST. In 1999 Labour did exactly what it promised. We did not hide anything during the election campaign, and I think that is an important distinction. Mr Quinn might not think so; he might think it is OK to say one thing to the voters of New Zealand before the election and do the exact opposite afterwards, as National said before the election that it would not increase GST, but has increased it afterwards. The people of New Zealand will see that for what it is, which is a tax swindle.

Mr Quinn referred to the Close Up poll last night where he said 80 percent of people are for this Budget. I tell Mr Quinn that that is because the people who are opposed to it could not afford 75c a text to phone in like his rich mates can. The National research unit would have been sending emails around telling people to text in and make sure they say that they are for the Budget.

Paul Quinn: What about the Dominion Post?

MOANA MACKEY: I tell Mr Quinn that thanks to the Budget of the National Party that was put up yesterday, most people cannot afford 75c to text in and say what they think about the National Government’s Budget. I suggest he stops listening to unscientific polls and goes out and talks to people. I think he stood in Hutt South; I cannot remember how well he did. But he should go out and talk to people in that electorate.

Paul Quinn: Read the Dominion Post; the Dominion Post rang them.

MOANA MACKEY: I ask Mr Quinn why he does not go out and talk to people, rather than read the Dominion Post. He should ask those families who will have their early childhood education subsidies cut whether they think it was a good Budget. He should go and talk to those people who are having their home help services cut about whether they think this is a good Budget. He should go and talk to those schools that are having their budgets cut and ask them whether they think this is a good Budget. This bill is a tax swindle, and Part 1 is one of the worst parts of this swindle. It locks into place the broken promises of the National-led Government.

National promised there would not be an increase in GST, as I said. Mr Tremain might think this is boring, but the fact is that he went out on the campaign trail and promised that he would not increase GST. He promised that. Is this a broken promise?

Chris Tremain: No way.

MOANA MACKEY: Apparently looking down the barrel of a TV camera and saying: “I will not increase GST.”, then increasing GST, is not a broken promise according to the National Government. That explains a lot about this Budget.

How is this being paid for? It is being paid for by borrowing for tax cuts. That was the other thing that National, when in Opposition, promised it would not do. The National Government has to now borrow half a billion dollars a year to pay for these unaffordable tax cuts for the people who funded them during the election campaign. The people who funded them during the election campaign are the people who get the biggest benefit from Part 1 of this legislation.

I want to talk about the removal of the 20 percent depreciation loading on new plant and equipment for assets purchased after Budget day. This Government has been terrible for innovation. This Government took away everything Labour did when we were in Government, then brought back less than half what we did and proclaimed it to be a great day for science, for research and development, and for innovation. Lo and behold, in the Budget we have another whack on innovation. It is something else that will stop our most innovative companies from being able to get ahead and compete in this crucial area. This shows how hollow National’s words are when it comes to supporting innovative businesses. The fact that National put Wayne Mapp in charge of the portfolio is another thing. He is the man who went out after the election and kept saying to people that he never wanted the portfolio.

Chris Hipkins: The political correctness eradicator.

MOANA MACKEY: Wayne Mapp, the political correctness eradicator, has also become the innovation eradicator in this Government. I ask how someone can stand up with a straight face and say that this is a Government that supports research and development, when the measures that have been lauded and brought back in Part 1 of this Budget are less than half of what Labour put in place when we were in Government.

Hon MARYAN STREET (Labour): I wish to speak to Part 1 of the Taxation (Budget Measures) Bill. There is only one part I wish to speak to, which is the increase in GST. I would like to unpack that a little bit in so far as the way it will impact on students. It seems to me that in this Budget, tertiary education is the big loser—tertiary education across the board is the big loser.

It does not matter how the Government chooses to spin this. Let us have a look at some of the facts and the details. There will be a GST increase, which all students will feel on their rent, their food, and their books. We have not heard anything about any compensation; we have not heard any specifics but let us assume that it is the same compensation that the Government says it intends for superannuitants and beneficiaries—for example, a 2 percent increase on student allowances. First of all, it will not compensate adequately for the GST increase, and, secondly, the 4 percent annual maximum fee movement that the Budget provides for tertiary institutions is GST exclusive. So now students will have to pay not only the increase in GST in everything they purchase in order to live—so that will cut their spending power even further in the supermarket as they search for the cheapest items they can find and for things that are on special—but it will also mean that they will face a 4 percent increase in fees across their institutions and their courses. They will then have to pay GST on top of that.

But let us look more closely, because the 4 percent annual maximum fee movement is effectively a cut for most tertiary institutions. I do not know whether the members opposite grasp this point. Previously there was a spectrum up to 5 percent for institutions under the fee maxima policy—they could raise their fees on courses by up to 5 percent. Now Auckland University is probably the only institution that is sitting at its fee maxima on its courses. Other institutions—universities and polytechs—are sitting somewhat beneath their fee maxima. Auckland University may do quite well because it is allowed to increase things by 4 percent, although it might have wished to be able to increase things by 5 percent. The 4 percent that it is getting now means that that was rather unexpected and will be useful, given that it is sitting at its fee maxima. However, other institutions whose courses are not sitting at their fee maxima may have wanted to go to their 5 percent in order to recover the costs that this Government is not putting into tertiary education. So they are getting a 1 percent cut. That is a cut to the institutions, and I want to know how the members opposite justify that.

It is clear that this Government is shifting the cost of tertiary education away from the Government and into the institutions, on to the institutions themselves and, further than that, on to students. So not only do students have to wear the 2.5 percent increase—the 15 percent GST, which is in Part 1—on everything they buy, but also they have to wear that on top of a 4 percent course fee increase.

I am not sure that members opposite have grasped this, but further to that there are cuts in this Budget to adult and community education, which indicate that this Government has learnt nothing from the intense protests last year about cuts to adult and community education. It has taken $3.4 million out of schools and community groups. I think that was about all that was left last year in the adult and community education budget, which went to schools and the community groups that they fund. I need the Minister to clarify what is left for night classes. These are the night classes that Mr English so praised previously because he said his mother was able to take advantage of night classes in secondary schools.

CHRIS HIPKINS (Labour—Rimutaka): This Budget demonstrates very clearly what a cruel hoax the National Party played on New Zealanders at the last election. National members went up and down the country and said that New Zealanders could have significant tax cuts, with no cuts to public services and no increase in borrowing. They could still have big tax cuts. Did they get that yesterday? No, they did not. They got both of those things: they got cuts to public services, and they got an increase in borrowing to pay for tax cuts. That is exactly what the National Party said it would not do. This is a Budget of broken promises—be very clear about that. National broke so many of the promises made in its manifesto, it is almost impossible to count them all.

John Key stared down the barrel of a TV camera and said that if he did a halfway decent job of managing the economy, National would not need to increase GST. Here we are, only 18 months into National’s management of the economy, and what has it done? National has increased GST in order to pay for tax cuts that will disproportionately go to those on the highest incomes.

A full third of the money that was dished out in tax cuts yesterday goes to the top 5 percent of income earners. People like Mr Key, and me even, who are in the top 5 percent of income earners will get the lion’s share of the tax cuts that are being dished out, while those on the lowest incomes will continue to scrape by in order to meet the increased cost of living that this Budget will impose through increased GST and increased inflation. Every time hard-working Kiwis go to the supermarket, they will pay more. Every time they fill up their cars at the petrol station, they will pay more. Every time they pay their rates bill, they will pay more. For every bill they pay that has GST on it, they will pay more. New Zealanders will pay more. People on average and lower incomes will be given only modest, very small tax cuts that will not compensate for the extra money that average, hard-working New Zealanders will be paying in order to fund the tax cuts that disproportionately go to those on the highest incomes. Broken promises are what this Budget is all about.

There were going to be no cuts to early childhood education under National, but that is exactly what it has done. Not only has National made cuts to early childhood education but it has made cuts to the highest-quality early childhood education. Those parents who send their kids to early childhood centres that made the effort to get 100 percent of their staff qualified are having their funding cut. They are going to pay more; if they have 2 kids they will have to, potentially, pay 50 bucks extra a week—50 bucks extra a week—for their early childhood education. It will not be compensated for by the tax cuts that the Government has offered. Those families will get clobbered. That is a broken promise.

National said that it would keep student loans interest-free. Well, the Government has not introduced a market interest rate: it has introduced a new annual fee instead. That is another broken promise. It said that it would not introduce interest-free student loans and instead it has introduced a new annual fee.

National said it would focus resources on the front line, and would deliver tax cuts. National has not focused on the front line in respect of accident compensation. In fact, it has doubled the policy advice budget for the Accident Compensation Corporation. Why has National done that? Because Nick Smith wants more advice on how to privatise accident compensation. National says that in the Budget document. National has another $2 million going into policy advice on how it can privatise the accident compensation scheme. This is another broken promise from the National Government.

The biggest hoax of all, though, was that National would not increase borrowing to pay for its tax cuts, because that is exactly what it is doing in this Budget. I say to all of the baby boomers in particular who will retire in the next 10 years that there will be a significant increase in the cost to the Crown of their retirement. Where will the money to pay for their superannuation come from? Where will the money to pay for their health care come from? The Government has not been contributing to the Superannuation Fund, and it is still not contributing to the fund. Instead, it is giving out tax cuts to those on the highest incomes. What does that mean for the baby boomers who will be retiring in the next 10 to 15 years? John Key said that he will resign if their superannuation is cut. He will not be here in 10 to 15 years’ time when the baby boomers retire, but he will have left a strategic deficit, a massive deficit. Borrowing to pay for tax cuts will be his legacy. In 10 years’ time we will have increased debt and a baby-boomer population wanting to retire and wanting their superannuation, and the cupboard will be bare. There will be no money left to pay for it, because John Key and Bill English dished it all out in unaffordable tax cuts in this year’s Budget.

Hon CLAYTON COSGROVE (Labour—Waimakariri): People have called this Budget a “borrow and hope Budget”. In fact, Ganesh Nana on Morning Report this morning when asked—[Interruption] Shirley Temple in the corner over there laughs, as she is wont to do. She laughs at everything. She laughs when a rapist is on the run, laughs when a corrections officer gets his bones broken, laughs, laughs, and continues to laugh. But here is the thing that Ganesh Nana said—

Hon Judith Collins: I raise a point of order, Mr Chairperson. The member is now becoming extremely unparliamentary in his language. If he wants to call me by my correct name, Judith Collins, he can, but to refer to me as Shirley Temple is frankly just ridiculous and is just another example of his behaviour in this Chamber.

The CHAIRPERSON (Eric Roy): There is a longstanding convention that members are addressed by their correct names and titles. The member should contain his remarks just to the bill and I advise him to do that.

Hon CLAYTON COSGROVE: Absolutely. I note for the record that my friend Charles Chauvel, who is a bit of a movie historian, I am told, noted that the actress Shirley Temple was a far better diplomat than some around here.

But Ganesh Nana the economist said that this is a Budget where the Government has borrowed for tax cuts. He is a learned economist and said it has borrowed. It is very interesting because Judith Collins could be described as a bit of a cappuccino politician: if one gets rid of the froth there ain’t a lot of coffee left in the cup. It is interesting. I did not call her that, Mr Chairman; I was making an analogy. This is a “borrow and hope Budget”. It is “borrow” for tax cuts for millionaires and “hope” that the inflation rate does not hit Treasury’s forecast of 5.9 percent. That is what it is, so let the old cappuccino politician over there suck that one up.

Indeed, I invite Judith Collins to go to the people of her electorate, which I believe is Papakura. She is not keen on having public meetings in her electorate but I challenge her to have a public meeting and invite the 67 percent of her constituents—she does not like this, of course—who are earning under $40,000 per year. She is the great, tough Minister. She is going to get tough on everybody, right? I invite her to have a public meeting and get tough with those 67 percent of her constituents who are earning under $40,000 a year, and get a tax cut that is negated absolutely by GST, which is then negated absolutely by the 5.9 percent inflation increase—and we have not even started on accident compensation levy increases, car registration increases, and the list goes on. So I invite that gutsy Minister of Police, that gutsy Minister of Corrections who is so tough, who wears a grin bigger than a Cheshire cat around this Chamber, who is tough with everybody, to continue to show her enormous intestinal fortitude and have a public meeting in her electorate with the 67 percent of her constituents who have missed out—or worse—and who are worse off, thanks to her.

I do not hear the cappuccino machine bubbling away. No, Judith Collins is not so tough now, of course, because she will not do that. I invite Judith Collins at her next police executive meeting to say to Howard Broad: “Look, commissioner, I know that everything your department purchases will go up by 2.5 percent. I know that I have not compensated your department for the Budget cut that I have effectively put in place. But don’t worry, commissioner, because I, as Minister of Police, will swagger around and be tough, and that will compensate you.” Every Government department, every school, every church, every organisation, and non-governmental organisation that purchases goods and services gets a 2.5 percent cut to their budget as of this legislation going through and commencing. But no, we do not hear anything from the corner stall over there, do we? No, she is not so tough now. There are not so many grins coming from over there.

I say to Mr Sharples that in his electorate, 64 percent of his constituents earn under $40,000 per year, and our “weekend warriors” from the Māori Party stood up one after each other last night to say how proud they were of this Budget, and how they had delivered for their constituents.

Hon Judith Collins: Yep!

Hon CLAYTON COSGROVE: The tough Minister says “Yep!”. I tell members that that will be a great quote for Labour members who are, or soon will be, clustered around her electorate, to take to the 67-odd percent of her electorate whom she has sold out, and the 64 percent of Mr Sharples’ electorate whom he has sold out. Those people are worse off, and the froth is starting to come off. But those members will not get up and justify that. I will make a bet with anyone in this Chamber that Judith Collins and Pita Sharples and all the old relics over there will not have a public meeting in their electorates.

BRENDON BURNS (Labour—Christchurch Central): This Budget is a payback Budget. It delivers to people who have supported this Government in the past. It is a business-class Budget. It is moving people in business class up to first class, while those down in cattle class start paying for their lunch. This Government sometimes attempts to portray Labour as a party that wants to spend money. Well, the Government is borrowing to cut the top tax rate for those at the top end. We have seen that in the past. It is the sort of policy that Ronald Reagan introduced in the United States. It was called a strategic deficit, and all it did was rob the poor to pay the rich. It is voodoo economics.

Supposedly, the economy will recover to pay for this, but let us look at the Budget tables. The balance of payments has not been in surplus in this country since 1973, since we were last, as a nation, in the black. This Government says it wants to see export-led growth. Well, the balance of payments deficit goes from $4.9 billion this year to $8.9 billion next year, to $13.1 billion the following year, to $15.7 billion the year after that, and to $17.2 billion the year after that, according to Treasury projections. So where is the export-led growth that will reduce our balance of payments deficit? The balance of payments is the measure of what we, as a nation, export as opposed to what we import.

List MP Nicky Wagner said last night that this Budget was a cracker. Well, she should explain that comment to the 76 percent of people in my electorate of Christchurch Central who earn less than $40,000 a year. They will not be calling this Budget a cracker. She should explain that comment to the Manufacturers and Exporters Association based in my electorate of Christchurch Central, who issued a press release about the Budget. It was headed: “Rhetoric does not match the reality.” Chief executive John Walley said: “The changes to property taxation, the corporate tax rate and GST go some way … but they fall a long way short” of what the Tax Working Group recommended. He said: “The removal of accelerated depreciation loading for plant and equipment will be detrimental to business investment.” That is why we are seeing that balance of payments gap deteriorate hugely under this Budget.

We were told that there was a need to cut the top tax rate from 38 percent to 33 percent, because that kind of gap encouraged people to move their tax into company structures to avoid the top tax rate. So what does this Budget do? It cuts the company tax rate back to 28 percent, so the differential between the top tax rate and the business tax rate is still the same—5 percent. Obviously there is still every incentive for people to move their tax into a company where that is possible.

We are told that this Budget is supposedly about driving down the issues of tax shelters. The real impact of this Budget relates to GST and what is yet to come. As Treasury forecasts note, we will see inflation nudging 6 percent in the year ahead, which will simply erode the benefits of the tax cuts being introduced at the middle and lower end of the income scale.

I noted that a housing commentator on Campbell Live last night asked where the stimulus was in this Budget for building new homes. Of course, GST will apply to new homes, so they will cost an extra 2.5 percent. Already, the housing market is less than buoyant; in fact, it is dead flat. The projections are that this Budget will see an 8 to 10 percent depreciation of the existing housing market, which will fall most heavily on the new housing market. This Budget has done nothing to stimulate the building sector—in fact, it is taking it backwards—and we will see much fewer new houses built.

Nothing in this Budget encourages younger New Zealanders, who are first-time home buyers, into their first home. In fact, it does absolutely the opposite. Before members opposite attempt to suggest that tax cuts will stimulate this, I ask them what $1,000 or $2,000 of tax cuts will do for a young couple trying to buy their first home. It will be absolutely eroded by the GST increase, but if there is anything left, what will that contribute to their ability to service a mortgage or to put down a first-home deposit? It will contribute absolutely nothing. Meanwhile, the Budget supposedly trumpets the increases in health and GST, but those are worth nothing with inflation of 6 percent.

CAROL BEAUMONT (Labour): I rise, too, to speak about the great tax swindle. This Budget is meant to be delivering a taxation system that will better reward work and savings and that will make the system fairer. That is what is explicitly stated in the Government’s rhetoric about this tax swindle. It goes on to say that the Government is delivering a package that not only is fair but is seen to be fair. The Taxation (Budget Measures) Bill has a number of aspects. I will talk about two of them, and those are the lifting of GST and the reducing of personal income tax.

Last night I thought that I would look at the word “fair”, given that much has been made of fairness. We on this side of the House are certainly very committed to the concept of fairness. The Government has used the word “fair” in its Budget statement and all its Budget documentation, so let us look at what it means. According to the Oxford Dictionary the word “fair” is about concepts like justice, equity, and reasonableness. I want to know whether, in all honesty, those people across the other side of the Chamber can consider their actions to date to be fair. The Salvation Army, earlier this year, when it reviewed the first year of this Government in its document A Road to Recovery, noted very strongly that in the last 12 months: “ … gains that have been made over the past 5 years in reducing child poverty have probably been lost, and there are signs of a widening income gap between the well paid and poorly paid.” One could ask whether that is fair.

One could also ask whether the actions in this Budget will address issues like child poverty and widening inequality in New Zealand. I thought that I would look at some of the figures that were given out as part of the Budget package. What will people actually get? Well, if someone earns $16,000 per year, the tax cut will give that person a certain amount extra, but then of course he or she will be paying extra GST, so the person will supposedly be $1.36 better off a week. That is before the implications of inflation and other cost rises, like the increases to accident compensation levies and other costs, that have not been factored into that table are taken into account. So people who earn $16,000 a year will be better off by $1.36 per week. I went on to a supermarket website last night to look at what that would get them. I found that they could buy—probably appropriately—a four-pack of Home Brand toilet paper with what they will receive. The $1.36 will buy a four-pack of toilet paper—that is great!

People on $22,000 per year will also have a tax cut and pay extra GST. As I said, I am not counting in all the other costs associated with rising inflation, accident compensation levy lifts, petrol lifts, and all of those things; I am counting only the straight figures. Those people will receive an extra $3.56 per week. What can they buy with it? Well, on the supermarket website, I saw that they could buy themselves 2 litres of milk. That is pretty good! If people are on $30,000 per year, they will receive an extra $6.28 per week, and that would get them 2 kilos of apples. The supermarket website shows that people on $38,000 per year could buy a bit more than that. They will receive an extra $9.21, so they will be able to buy a loaf of Vogel’s bread and 2 dozen eggs. They will be able to have poached eggs on toast—fantastic!

If people are on $100,000 per year—let us jump to the other end of the income scale—they will be $41.66 better off a week, without including all the other costs that I have parked. At $120,000 per year, they will be $56 better off a week. On an income of $300,000 a year, which is the average salary of the chief executive officer of a large company, people will receive $178 more a week. Of course, the chief executive officer of Telecom will receive an extra $4,845.44 a week. I did not work out what that would get him at the supermarket, but obviously it would get him quite a lot.

How can that be just—being able to buy toilet paper, versus receiving an extra $4,000-odd a week? How can that be just for those on the lowest incomes, who cannot make ends meet, and who really are struggling? I do not know whether members opposite are talking to their local budgeting advice services, but I have been doing so all around New Zealand in relation to my member’s bill, which deals with the issue of loan sharks. I can tell members that those services know how hard families are struggling. They know that most of the people whom they see have to resort to things like high - interest rate loans. I do not think that this Budget delivers for those New Zealanders, yet they are the New Zealanders who need to be given a helping hand. They need to receive something from the Government.

Hon DARREN HUGHES (Labour): Part 1 of the Taxation (Budget Measures) Bill is the “robbing Peter to pay Paul” part. This is the part of the bill where tax rates are changed on the one hand, and on the other hand Government fees, the cost of Government services, and the goods and services tax go up to wipe out all of the gains that most people in New Zealand will receive by way of the first change that the Government is making. The National Government is robbing Peter to pay Paul, and when people work out in a few months’ time that their financial situation has not changed enormously, I think it will rebound on National in quite a big way.

Here is the point. My colleagues have already pointed out that the Budget documents show that inflation will be 6 percent in the coming year. That is hardly a model of economic stability and orthodox management on the part of the National Government. A 6 percent inflation rate will immediately flow through to the cost of living, because higher inflation will erode people’s purchasing power. When people pick goods off the supermarket shelves they will find that prices are higher. When they go through the checkout and get their bill they will find that the taxes on the products they have bought are also higher. So not only will inflation erode the cost of living of people but the GST changes will put a 15 percent fee on the final price of the product.

That is hardly what people thought they were getting when they voted for the National Party at the last election. I do not remember the National Party campaigning at the last election on a policy of increasing GST. John Key, in that complicated way he has of explaining himself, said: “Oh well, I said we wouldn’t put up GST to fund a deficit.” I looked at the Budget documents and in the next financial year we as a country will be in deficit, so GST will be put up at a time when we are in deficit, even though National said first of all that there would be no rise in GST, and we then had the complicated explanation from John Key that in his head he was trying to say that if there was a deficit he would not put up GST. National has failed on that test, as well.

This measure affects hard-working New Zealanders, and that is people who work hard, full stop. Of course, in the eyes of National members one is a hard worker only if one earns a lot of money. We hear all the time from members opposite about hard-working New Zealanders who earn over $100,000 a year. Sure, there are probably some hard-working people who earn over $100,000, but lots of people who earn over $100,000 do not work very hard, and I can see quite a few of them this morning as I look across the Chamber. As I look across the Chamber I see plenty of people who earn over $100,000 whom I would never describe as hard-working New Zealanders.

Paul Quinn: Look in the mirror, Darren!

Hon DARREN HUGHES: I would describe Mr Quinn as a loud New Zealander, but from the exchequer’s point of view I would describe him as a rip-off, because we pay $100,000 a year for him, yet for 600 bucks one can get a better sound out of a flat-screen TV. So I do not think we need to waste any time on him.

Let us look at those people who earn over $100,000 a year. The people in New Zealand who earn over $100,000 have had tax cuts for 3 years in a row. In October 2008, people earning over $100,000 a year received a tax cut from the Labour Government. In April 2009, people earning over 100 grand a year got a tax cut from the National Government. Now, in October this year the National Government will give those same people a third tax cut. That is tax cuts for 3 years in a row for the highest-paid New Zealanders. Given that I think most members of the House agree that we have a wages problem rather than a tax problem in New Zealand, it seems to me that giving that 5 percent of people tax cuts for 3 years in a row has hardly resulted in economic nirvana when we look at what the opportunity cost for our country means.

I live in the Horowhenua district, where just over 1 percent of people earn over $100,000. So 99 percent of the people in the community in which I live do not get—

Paul Quinn: You’re one of them, paid by the taxpayer as you have been all your life!

Hon DARREN HUGHES: Paul Quinn, that great civic contributor in our country, has made an interjection. Paul Quinn is the man whom I think should be the quietest person. He should get the least amount of money for his contribution in Parliament. If we were paid by value of contribution, that man would be returning money to the taxpayer every week. So let us not hear anything from that rip-off artist in that sense, at all.

In our community we have a problem with the number of hospital beds, because the Government wants to downgrade the number of hospital beds at the Horowhenua Health Centre. The Government says there is not enough money from taxes to fund our health services, yet there is money to give people who earn over $100,000 their third tax cut in 3 years.

The tax system today is radically different from what it was 3 or 4 years ago, because we already have had a reduction in revenue. Now the Government has to try to convince the country why we should have fewer services, higher inflation, and higher interest rates because of that higher inflation, as the Reserve Bank will inevitably have to make changes to compensate for the fact that this Government is putting $15 billion in tax cuts out into the economy over the next period. Then, of course, we have the changes to accident compensation levies and the increase in GST. All these things mean that we are robbing Peter to pay Paul, and from a long-term point of view—looking at the future of our country—the biggest concern is that we are borrowing to give away those tax cuts. This is hardly bold; we are borrowing for it.

MICHAEL WOODHOUSE (National): I want to pick up on Ms Beaumont’s analogy of the four-pack of toilet paper and perhaps remind her, in case her memory is a little bit short, about what we saw under 9 years of a Labour Government. Does the member recall Dr Cullen’s “chewing gum Budget”? What happened to the chewing gum? He took it back. In those 9 years he said: “I’m going to give you a pack of chewing gum and then I’m going to take it back.” But we then we had the pièce de résistance: after several days the top tax rate was raised by 9 percent. We waited 9 years, and what did we get? We got a block of cheese.

I want to go through some inconvenient truths for our friends on the other side. Under this Budget 73 percent of income earners will have a top tax rate of just 17.5 percent. That is nearly half what it was under the previous Labour Government. That is not the top income earners but the middle and lower income earners. These people will be far, far better off under this Government than they ever were under the Labour Government. People who earn the average income of $48,000 a year will pay a total tax rate of just 15.3 percent. A family with two children does not start paying income tax until its income exceeds $50,000. [Interruption] The member mentioned GST. I find it astounding that the members Hipkins and Street—the latter has been a Crown Minister and sat around the table considering revenue bills—did not know that GST is not payable on rents. It simply is not. There is no GST on residential rents. Those members both mentioned it in their calls. I think those comments continue the ignorance around the sorts of effects that the tax arbitrage frameworks that Labour put in place, after 9 years, had on hard-working New Zealanders.

Mr Burns talks about continuing the gap between the top personal income tax rate and the company tax rate. That was not the problem. The main problem was the large gap between the top personal income tax rate and the trust rate, because that was the vehicle that top income earners were using to protect their income. The company tax rate is ultimately paid by individuals and they get imputation credits attached to them. Whatever that company tax rate is, their personal income tax rate will be what it is. So the really important gap is the one between the trust rate and the top personal tax rate. I am very pleased to see that that has been lined up.

Mr Cunliffe was very confused about loss attributing qualifying companies, and in an astounding comment he made in his call in the first reading, he said that Labour had put in place loss attributing qualifying companies but Labour had no idea they would be used for the purpose to which they were eventually used. God forbid, loss attribution would be used to attribute losses! That just does not make sense. But it became worse with Dr Norman’s analogy of shoplifting, I think it was. Does any member recall that comment in the first reading? He said that instead of controlling the shoplifting, what National has done is lowered the price of goods and applied a fixed charge across all the goods. But here is the thing: using legitimate tax vehicles to manage one’s income tax liability is not shoplifting; it was perfectly legal, and it was legal because it was put in place by the Labour Government with the full support of the Greens.

But here is what the Greens really want to do: to have equity, what they really want, but do not say, is to put all of the rates up to the top personal tax rate of 38 percent. If we want equity, they say we should raise the trust rate, raise the company rate—raise, raise, raise. Well, that is what will drive our best and brightest New Zealanders across the ditch. That is what has been done over the last few years. It is the one thing we are No. 1 in the OECD on—the export of our best and brightest. I am very impressed to see that, whereas a person needed to earn $228,000 in New Zealand to pay less tax than in Australia, that has just gone down to as low as $55,000. My prediction is that those best and brightest will start coming back across the Ditch. I am absolutely delighted to see that the rot is stopping in respect of those very talented New Zealanders.

I will go on and touch on the tilt, because this Budget has support for what New Zealanders were already doing. The consumption and debt-fuelled growth that we saw after the last 10 years has stopped. People are not borrowing any more.

CARMEL SEPULONI (Labour): I go back to something that the Hon Lianne Dalziel brought up last night. A taxi driver had pointed out something to her. It was the fact that John Key, with regard to this Budget, was basically saying to New Zealanders: “Let them eat cake. They can’t afford bread, but let them eat cake.” We have heard from Mr Key that he does not value people who are on low incomes. He does not value those who earn the least amount of money, even though they are hard-working New Zealanders. We have heard him say in the House that those people do not contribute because they do not pay tax. Because they get Working for Families, they are not contributing members of our society. He does not value them. Whom does he value? He values those who are just like him, those who are earning high incomes in this country.

Carol Beaumont: Money traders.

CARMEL SEPULONI: Money traders. When we look at what these tax cuts mean for New Zealand, we see that we new backbench MPs will get an extra $120 a fortnight. Quite frankly, when I watched TV last night and saw the struggling family on Tagata Pasifika trying to raise four kids and feed them on $80 a week—to feed a family of six on $80 a week—I felt embarrassed by the fact that our New Zealand Government has just given us a tax cut of $120 a fortnight.

David Bennett: Well, give him your money, then. Give him your money. Let’s see you give your money away, eh? Give your money to them.

CARMEL SEPULONI: Mr David Bennett over there is screaming out because he thinks he deserves an extra $120 a fortnight. His attitude to people who feed a family of six on $80 a week is who cares about them; it is all about him, and making sure that he has an extra $120 a fortnight in his pocket. We on this side of the House are about fairness, and we do not agree with what this Government has done with regard to tax. We do not agree with the fact that the only people who will profit from those tax cuts are the people on high incomes. We have had to sit here and listen to Mr Key and the others on that side of the House say that it is all about rebalancing the economy. Well, actually, there is no balance in these tax cuts, because they are all in favour of the people who already have money, and all they do is make a bigger divide between people in New Zealand—between the haves and the have-nots.

Paul Quinn: Get past the rhetoric.

CARMEL SEPULONI: There goes Mr Quinn again, shooting off and yelling out very loudly. He does not care about poor people. He does not care about the people who are struggling to feed their family of six on $80 a week. Mr Quinn does not care. He just wants to make sure that his wallet is better lined.

We have been told by Mr Key—and it has been repeated in the media over and over again—that we should not be envious of those who receive high tax cuts from this Budget. Quite frankly, from all of the things that I have seen in the papers and online, most New Zealanders think that is quite offensive. One person said: “John Key the Overlord says: ‘Don’t be jealous, you poor peasants.’ ” That is basically the impression that the Government is giving. It still relies on the trickle-down effect. National members still think that if they give all the money to the rich people, it will somehow trickle down. But what will it mean? It will not necessarily mean the creation of new jobs. All it will mean is that a millionaire, who is already getting a lot of money, can go on an even more expensive holiday than he or she would have done otherwise. It will not mean that the people he or she employs will get better wages—it will not mean that, at all. All it will mean is that the millionaire will be able to afford to buy another property.

So, quite frankly, this country has a right to be angry at the Government. New Zealanders will realise, as the detail comes out, how this Budget will hurt their families and how it will hurt our country. In the meantime, the Government will have probably a 2 to 3-day honeymoon period over this Budget. But it will not last, because, alongside the tax cuts, New Zealanders will realise that the cuts to early childhood education will affect them, they will realise that the increase in GST will affect them, they will realise that the increase in inflation will affect them, and very quickly they will realise that, actually, these tax cuts mean nothing and they will get nothing extra in their pockets—and, in fact, they will be paying more.

JOHN BOSCAWEN (ACT): I congratulate Carmel Sepuloni on her speech, because I think she is absolutely right. She said that we may have a honeymoon period for this Budget. Certainly, the commentators are saying that it is a good Budget, and I think that most New Zealanders perceive it to be a good Budget. But she said that people will eventually wake up to the increases in GST, and they will eventually wake up to the increases in accident compensation levies. I have heard the words GST and accident compensation mentioned time and time again over the last 12 hours—time and time again. The tragedy for the Labour Party is that it could actually make that criticism stick if it told the truth. There is another elephant in the room, and it is the emissions trading scheme.

Hon Members: Oh!

JOHN BOSCAWEN: Yes. Let me direct my comments particularly to National. I heard Darren Hughes having a crack at the Minister of Police, Judith Collins, about the proportion of people in her electorate who earn under $40,000. I ask Judith Collins, and the other National members, to look at the 550,000 people in their electorates who earn between $40,000 and $85,000 a year. Page 9 of the Budget 2010 Minister’s Executive Summary, presented by Mr English yesterday, shows that people earning between $40,000 and $85,000 can expect an average increase in income of 0.4 percent—0.4 percent. The Reserve Bank tells us that the emissions trading scheme will increase the cost of living by 0.4 percent from 1 July. So the people earning between $40,000 and $85,000 get absolutely nothing—absolutely nothing.

People listening to this debate on the radio and people watching it on television right now will hear a constant reference to the emissions trading scheme from the ACT Party, and the reason for that is that no other party in this Parliament wants to raise it. So, yes, there has been positive coverage of the Budget, but in my view some of the most interesting coverage came this morning from Paul Henry on television’s Breakfast programme. Paul Henry seems to be the only commentator who picked up on the fact that the emissions trading scheme will add 0.4 percent to the cost of living from 1 July. That will actually reduce the net benefits to people who earn between $40,000 to $85,000 to zero—absolutely zero. I say to members of the National Government that they need to start challenging their Ministers and start challenging their Prime Minister. If those members look at the appropriations, they will see that the allocation of New Zealand units has gone from $139 million worth of units in the last year to over $1 billion—an increase of $900 million.

Carmel Sepuloni can talk about millionaires buying properties—and she may try to create some envy—but I say to her that her criticisms would be far more effective if she acknowledged that the money is going not to the millionaires but to the foresters, not so that they can buy more buildings but so that they can buy more forests. That is it: we have $1 billion—$1 billion—going to people who plant forests. People who planted forests are in two categories. The first category consists of people who planted trees before 1990. If they chop those trees down, harvest them, and do not replant them, they will incur a significant loss of value, but, only, I suspect, if the Kyoto Protocol is extended beyond 2012. The second category consists of those who planted forests from 1990 onwards. They will not harvest those forests until some time in the 2020s. They will be given an allocation of units—officials tell me that it will be something like $700 million worth of units—for trees planted in the early 1990s when there was no expectation of taxpayer subsidies.

I say to Labour members that if they really want to make an impact on this Budget, they should go out there and acknowledge that Labour would have had its own emissions trading scheme from 1 January, and that it would have increased electricity prices by 10 percent. But the world environment has changed, and National can respond to this, because it can suspend the emissions trading scheme. It can leave in place the incentives to ensure that trees planted from 1982-85 are not harvested, so that we can meet our Kyoto Protocol obligations.

Hon DAVID PARKER (Labour): I want to comment on what I think is the greatest misrepresentation of this Budget, and that is the myth that it rebalances the New Zealand economy. I will not deal with the issue as to whether the tax switch, as the Government has called it, is the right tax switch or whether it is weighted unfairly to the higher-income earners. I think other speakers have dealt with that well. But I will deal with the myth being pushed by the Minister of Finance that this is the greatest change in tax policy for 20 or 30 years. Plainly, it is not. Plainly, it does not rebalance the economy away from speculative investment in property towards the tradable sector and exports. That is plain from the forecasts that are included in the Budget.

If we look at this Budget we see that it does not redistribute investment between property and the tradable sector; it redistributes the amount of income and consumption tax that is paid by different people in society. It states that, overall, less of those taxes, as a proportion, is paid by high-income earners, and more of them is paid by low and middle income earners. It does very little to change the balance between taxing capital and labour, because it does not do much to tax capital.

Indeed, it is interesting that, in terms of picking up the recommendations of the Tax Working Group, it goes a little way in respect of investment in property. It does not catch the kernel of the problem, which is over-investment in residential property. This Budget could have done that through ring-fencing losses, but instead it has done away with the ability to claim depreciation on buildings, which has as much effect in the commercial property sector as it does in the residential property sector. The Budget does not curb the largest of the problems, which is over-investment in the residential property sector, with people incurring large losses in respect of their mortgages on residential borrowing, which they offset against their other income.

Why can I say with absolute confidence that this Budget has not rebalanced the economy? Because we see it in what happens with the current account deficit. If this Budget was going to improve the current account deficit, we would see the current account deficit going down, but we do not. We actually see the current account deficit going up year on year to 7 percent of GDP. I think that the best commentary on this so far from the commentators has come from Business and Economic Research. Business and Economic Research is not overcome by the somewhat surprising amounts of the Government’s tax switch; it looks at the effects on the fundamentals of the New Zealand economy. Business and Economic Research says—and I think it is right—that at least it is good to see the Minister of Finance acknowledge that New Zealand’s largest single vulnerability is now its large and growing net external liabilities. New Zealand now owes $168 billion, which is about 90 percent of GDP. So, overall, New Zealand’s net asset position in the world is that we owe more than we own. We owe so much that if we total it up and compare it to the size of our economy, we already owe the equivalent of 90 percent of GDP. Under this Budget that situation gets worse, at the equivalent of 7 percent of GDP per annum. So by 2014, New Zealand’s net asset position in the world is that our debt will be 100 percent of GDP.

So if our growth is not coming from export growth, and if we have an increasing current account deficit, as is shown by the projections in this Budget, where is the growth in this economy to pay for the borrowings and to overcome the increase in borrowings that is needed to fund the tax cuts? It is actually coming from internal growth in the property sector. It is not coming from export growth; it is coming from exactly the problems that the Prime Minister and the Deputy Prime Minister said they were trying to overcome in this Budget. It is actually coming from those imbalances in the economy getting worse again. I think the Business and Economic Research analysis of this Budget is very interesting. This is a quote; it states: “If the net external sector is not the lead driver of Treasury’s growth forecast, what is? Our reading indicates the growth forecast relies heavily on a noticeable rebound’’—

Dr CAM CALDER (National): I compliment the previous speaker, David Parker, on his sartorial elegance. This Budget is the Budget of a Government that is committed to creating a strong economy that is built on and led by sustainable growth and value-added exports, which will underpin jobs and create opportunities for all New Zealanders to realise their hopes, dreams, and aspirations. This is a Budget of a strong and courageous Government that believes in acknowledging and rewarding the pursuit of hard work and excellence. This Government is a perceptive Government. It understands that the positive, can-do attitudes of every New Zealander are our edge in competing and ensuring our country’s future success on the highly competitive global stage.

This Government is a standard-bearer for unlocking the potential that lies within the heart of every New Zealander. We are working relentlessly for every New Zealander to share a sense of purpose and a feeling of belonging. We have no time for the politics of envy. We will not rob Peter to pay Paul. What good is there for any of us if Peter or Petra is a neurosurgeon, a skilled sparky, a committed, effective teacher, a nurturing nurse, or a competent carpenter who decamps to Australia or further afield in pursuit of greener pastures? John Key’s National-led Government is principled and pragmatic, and it believes in creating a brighter future with all New Zealanders, for all New Zealanders, and of all New Zealanders, right here in our homeland of Aotearoa New Zealand.

This Budget, with its across-the-board tax cuts to help families get ahead and more money for education and health, will lift long-term economic growth, responsibly reign in past fiscal profligacy and massive public debt, and encourage better front-line public services. This Government’s resolute decisiveness is a stark contrast to the looseness of the last late, unlamented Labour administration. It was an administration that has turned into a group of loquacious lobbyists whose only concern is legislative languor, listlessness, lassitude, and lethargy. This Government is a stark contrast to that cavilling caucus, where the words “hope”, “enterprise”, and “ambition” are heard as rarely as “Mine’s a Laphroaig” at a temperance conference. However, one must give Labour members their due. In some respects, they were virtual prestidigitators of fiscal policy and conjurors of economic underperformance.

The maladministration of the previous administration managed to parlay the best economic conditions since World War II into year after year of decline in the performance of our tradable sectors—our exports, which are the drivers of our economy. They managed to turn the longest spell of global economic golden weather in modern memory into years of localised thunderstorms, hail, rain, and sleet over the whole of New Zealand. They hamstrung our economy. It is our economy that underpins the quality of life for all New Zealanders. It allows us to educate our young people, to provide world-class medical care for our sick and injured, and to protect the most vulnerable. That dance of the desperate and dateless dispensed fiscal doom and despondency because of blind adherence to a borrow-and-spend dogma. There was a remarkable record of failure by the last Government. I ask how effective Labour’s illiterate economic policies were. They were as effective as a papier mâché demolition ball, a one-legged man dancing the cha-cha, or an empty can of air freshener in an abattoir.

The global economic framework is still fragile and there may be some bumps ahead, but here in New Zealand this Government’s effort over the short time we have held the levers of power has seen the right sort of recovery. It is one that is export led, rather than based on the previous model.

GRANT ROBERTSON (Labour—Wellington Central): It is always a pleasure to follow on from the president of the North Shore Toastmasters. Members know that they are in trouble when Paul Quinn is nodding and saying: “That’s right.” beside them—it is terrible. Part 1 of the Taxation (Budget Measures) Bill is about choices and priorities. National made it very, very clear to the country yesterday where its priority lies. Its priority does not lie in looking to the future and having a plan or a strategy. This Budget was given two out of 10 for its strategy yesterday, because no long-term plan is present in it.

Yesterday’s Budget speech by Bill English was remarkable in a number of ways. One of them was the complete absence of any plan for how to grow this economy. There is an obsession with tax cuts delivered to the rich and of avoiding talking about the Government’s plan or strategy. Apparently we have to cut the top tax rate in order to keep people in New Zealand and stop them going to Australia. The message for the National Government is that it is not the tax rates that will send people to Australia; it is the wages and the jobs that need to be created as part of a long-term plan to grow a sustainable economy. Taxes in Australia, and the headline rate of tax there, are only one thing. Under the Kevin Rudd Government, Australia has been planning and investing in skills and training to try to get people into work. This Budget is devoid of a strategy or a plan for the future. It is a short-term-thinking Budget that will not deliver to New Zealanders the increased well-being and the standard of living that we all want.

An obsession with tax and with tax cuts for the wealthy is not a path that will deliver a sustainable economy. The priorities that the Government is putting out here show that, yes, we have to borrow money. What should we use that borrowed money for? Should we use it for tax cuts for the wealthy few, or should we use it to invest in something that will be good for our long-term future, like early childhood education? Why would a Government cut $400 million from early childhood education? Is that not a priority for this Government? That is the message that the public of New Zealand is getting, as 25 percent of the money that is being cut—the so-called low-value spending—is from early childhood education. The message that this Government is sending is that early childhood education is low-priority spending. That message will not be good for the future of New Zealand.

The National Government is doing a “hit and hope” Budget. National is lining up to take its shot—and Mr Woodhouse plays a bit of golf—on the first tee, but it has no idea where the hole is. National is just hitting the ball up in the air to see whether the tax cuts work and deliver growth. There is no real plan or idea of where exactly National wants the ball to go—it is just hitting and hoping. From the international experience we know that tax cuts do not deliver a sustainable economy. Tax cuts will not—

Paul Quinn: When you go down the middle, it doesn’t matter.

GRANT ROBERTSON: There is Paul Quinn, John Key’s chief policy adviser, out there, telling us what to do. Tax cuts do not deliver sustainable growth internationally. Sustainable growth comes from investing in people and starting in the earliest years to invest in people. But apparently that is not a priority. Apparently it is OK for early childhood educators to have to run cake stalls in order to buy crayons, but for Paul Reynolds to receive over $1,000 a week in a tax cut. Early childhood education cuts will mean that parents will pay more, or that early childhood education centres will have to fund-raise just to be able to keep going, and at the same time the richest 1 percent of people in our country will receive 15 percent of the value of the tax cuts. That is not fair.

We heard yesterday a whole lot of rhetoric about fairness. There is nothing fair in a Budget that takes away hundreds of millions of dollars from early childhood education and millions of dollars from health and delivers that money to the richest people in New Zealand. That is not a recipe for a fair and equitable New Zealand. That is not a recipe for a country with a long-term plan. This is a short-term Budget that is designed to deliver a bit of money in the pocket that will make people feel good, but the value of that becomes eroded over time with the increased rate of GST. This Budget breaks promises. It breaks the promises around GST increases; it breaks the promises about not cutting public services. This Budget will not deliver a future for New Zealanders that will make people decide to stay here. Where is the work in this Budget around ensuring that we have an economy that brings together the environment and the economy? Where is that? The environment was not actually mentioned in the Budget speech yesterday.

DARIEN FENTON (Labour): Mr Chairperson—

Paul Quinn: It’s a very nice blue jacket.

DARIEN FENTON: I thank Mr Quinn for the compliment; I know he will keep it up all the way through my speech.

I am pleased to take a call on Part 1 of the Taxation (Budget Measures) Bill. I will talk also, as my colleague Grant Robertson just did, about the priorities that this Budget has demonstrated. I think that one of the saddest things we saw yesterday—and we will see it as time goes on and we start to examine the Budget in more detail—is that this Government thinks that spending $70 million on building a prison is more of a priority than early childhood education. There is $400 million gone from the funding for early childhood education. Early childhood education gets our children off to the best possible start and invests in our future.

I look at the other priorities, too, and I see that this is a tax cut, a tax swindle, where the richest are getting most of the money. I will talk about Paul Reynolds. He may be feeling a little bit picked on, but he is the “Seven Million Dollar Man”. He is the chief executive of Telecom. What has he done as the chief executive of Telecom? Well, during his tenure he has sacked 12,000 Kiwi workers—that is what he contributed to the New Zealand economy. What is more, they did not get redundancy. But National thinks it needs to keep Paul Reynolds in New Zealand with this huge tax bribe using the money of ordinary working Kiwis. National has given him another $290,000 a year, which is coming from higher GST, higher rent bills, and the hard work of ordinary New Zealanders.

If Paul Reynolds was not getting this tax cut, with that money we could hire six more nurses or six more teachers. We could pay for 400 hours of early childhood education, or 400 workers would not have to pay the added GST bill. When I compare that amount to what someone on minimum wage will be getting, I think it is a disgrace. It is so unfair for $290,000 a week in a tax cut to be going to one of the richest people in New Zealand, when someone on minimum wage on $26,000 will end up with $4.82 a week. That is before accident compensation levies—it is after GST but it is before accident compensation levies—and with petrol going up and 5.9 percent inflation —

Carmel Sepuloni: And childcare.

DARIEN FENTON: —and childcare, of course. They will end up worse off. In fact, they are already worse off, with the lowest pay increases we have seen in a decade.

One of the things that I spotted in the Budget document yesterday was a miserable little sentence on page 69: “The redundancy tax credit will be removed…”. What are the tax credits for redundancies? It is when people get compensation when through no fault of their own they lose their job, and they get paid a lump sum payment that pushes them into a higher tax bracket. Labour fixed that by making sure that could not happen and that they could apply for a tax rebate to not pay extra tax on their compensation. So not only is this Government kicking low-paid workers but it is also kicking in the guts those workers who lose their jobs through no fault of their own.

Chris Hipkins: Kicking them while they are down.

DARIEN FENTON: Kicking them while they are down through not supporting them getting redundancy compensation; the few who do are made to pay more tax. I think that is incredibly unfair.

The other thing in this Budget is the education cuts. There are huge cuts to education throughout this Budget, and, as my colleagues have said, there is nothing in here about skills development. Where are the skills going to come from if this economy recovers, as the Government says it will? Where will the jobs come from? Where are the job creation packages?

One other little miserable cut that I have noticed is in the Department of Labour, where it has cut the employment-related contestable fund—the education fund for workers and for employers. It has cut that. That is workers’ opportunity to learn how they can make a contribution in the workplace to growing productivity, to productive employment relationships, and to helping grow our economy. I think the problem with this Government is it does not think that people who do the work are part of the economy. It thinks that only big business is part of the economy. Actually, the economy is people doing work, and that is where the changes have to happen: in the workplace with productive employment relationships.

Hon Sir ROGER DOUGLAS (ACT): It does not matter what side of the Chamber one is on, the fact is that this Budget to date has gone down particularly well. The next point I make to the Labour Opposition is that there are sound grounds to criticise this Budget, but when members opposite are using any story at all to criticise it, then they do not do themselves any good. Let us take Grant Robinson. He suggested—

Hon Trevor Mallard: Robertson!

Hon Sir ROGER DOUGLAS: Robertson, sorry, my apologies. He made the point that this Budget was not doing enough in the area of redistribution and wanted more of the sorts of policies that the previous Labour Government followed over the last 9 years. I remind the member that during that period of time New Zealand workers probably lost, relative to Australian workers, about $100 in wages. Our wages over the last 30 or 40 years, relative to Australian wages, have dropped by $300 to $400 in relative terms. It is about time we had policy to deal with that.

The only Opposition speaker I have heard come close to criticising this Budget on a sound basis was David Parker. I thought he made some points we should take up. He pointed to the risks that relate to the high level of overseas borrowing that New Zealand has already, and the fact that it will expand, and I thought that was a criticism worth making.

I think the Minister in the chair, Peter Dunne, and the Minister of Finance, given what they have proposed, have done a pretty good job on the tax package. I personally have some problem with it. I believe that the 12.5 percent tax rate should not have gone down to 10.5 percent. I think they should have rounded the rates to 30 percent, rather than having the discrepancy that they will have with 28 percent for companies and 33 percent for the personal tax rate. I think the Minister in the chair, if he could have done that, may well have wanted to do that.

My main criticism, however, is in the area of GST. I do not believe it was necessary to raise GST. It would have meant, of course, that the Government would have had to make some tough decisions in the expenditure field. But if we look through the Budget, there is about $2.5 billion there that I would classify as corporate welfare—a lot of it unnecessary. That is about double the net benefit from GST. If we look at Government expenditure, this Budget is providing for a 9 percent increase in Government spending. It is just about as bad as Labour used to do during its time in office. Frankly, 9 percent increases in Government expenditure, year on year, are totally unsustainable. We have seen Government expenditure increase by approximately $6 billion, or 9 percent, and that is four times the rate of inflation.

I grant that the Minister would probably point out to me that 2 percent of that 9 percent is compensation for GST, and I accept that, but it is still an increase in Government expenditure at three times the rate of inflation. Had we not had to increase GST, instead of someone on $40,000 getting $10 a week, that person would have received $23 a week, and instead of a $500 benefit he or she would have received a $1,300 benefit a year. Instead of someone on $52,000 receiving $745 a year, that person would have received over $1,600 in benefit—in other words, a $31 benefit per week rather than $14. But the die has been cast. I think in future the Government will have to pay a lot more attention to Government expenditure, particularly the Government expenditure that is not returning to the nation as much as it would have returned had it been left in the private sector.

Hon TREVOR MALLARD (Labour—Hutt South): That speech was a bit rich coming from that member, Sir Roger Douglas. He talked about the gap opening up between Australia and New Zealand. When did that gap open up? It was when his policies and those of his acolytes, especially Ruth Richardson, were biting. It was at the very end of the 1980s and through the 1990s that that gap opened up, and it was when his policies and his approach were at their height. It was especially in the early 1990s, when Ruth Richardson was implementing the things that Roger Douglas wanted to do but was not allowed to. That is when the gap opened up between New Zealand and Australia, and he should take some responsibility for it, rather than trying to develop again the policies that would make it worse.

“Rip Van Winkle” went to sleep for about a decade, and when he woke up he found that unemployment was down, he found that early childhood education was working well, and he found that Working for Families meant that a number of families that had been below the poverty line were now above the poverty line. He woke up and said that he did not like it, and that there was not enough pressure on the poor. He wanted to put some more pressure on the poor. That was the approach of Sir Roger Douglas when he woke up from his decade of sleep away from the political world.

This is a disgraceful Budget. I invite people to have a very good look at the table on page A2 of today’s Dominion Post. Forget the headline; look at the numbers. I ask people to think carefully about what happens when we apply 5.9 percent instead of 2.2 percent.

Louise Upston: What about the headline? It’s a great headline.

Hon TREVOR MALLARD: The member wants someone to read her the headline. The member for Taupō would like someone to read her the headline in the paper. I will do better than that. I will tell her that people on $120,000—

Paul Quinn: That’s Trevor Mallard.

Hon TREVOR MALLARD: No, I am on significantly more than that, I say to Mr Quinn.

Louise Upston: How much more, Trevor?

Hon TREVOR MALLARD: Enough—that is the answer to that. When we apply 5.9 percent instead of 2 percent—because 5.9 percent will be the inflation rate—people who are on $120,000 a year are no better off. They are no better off at $120,000 a year when we apply the 5.9 percent inflation rate that Treasury says will happen. What does that mean? That is a cut-off point. What does that mean? Does that mean all the people below are better off? No, it does not. It means all the people below are worse off. So every family in New Zealand earning $120,000 or less is going to be poorer in 12 months than they are now.

I ask members opposite how they will feel about that in November or August next year when they go to the election and we have the chance of inflation being higher than it has been at any time since Roger Douglas was the Minister of Finance. There is no debate about it; they are Treasury figures. It has never been so close. Roger Douglas has the record for inflation in recent times in New Zealand and it will not be broken. We will not get to Sir Roger’s level, but it will be the highest level of inflation since the mid-1980s—since GST first came in—at 5.9 percent, which is slightly more than double the rate of inflation that the Government inherited, and with unemployment at about three times the level that it was. I ask members opposite what they will think about that and how they will explain to their constituents that they have done a big tax deal but their constituents will be worse off.

DAVID SHEARER (Labour—Mt Albert): I want to touch on a point that was brought up by Michael Woodhouse about the differential between Australia and New Zealand: the fact that our taxes have gone down will somehow attract back here, in floods, people from Australia. The reality is, I say to Mr Woodhouse, that in Australia GST is at 10 percent, not at 15 percent, and if he thinks that people will come running back for the 3 or 4 or 5 dollars they have got as a result of this Budget, he should think again. Inflation is at 6 percent, and the Government has not factored in accident compensation levies going up, the tobacco tax, the power price rises, and—for people unfortunate enough to live in Auckland—the funding of the debacle that is the super-city. Nobody will be killed in the rush of people coming through Auckland Airport back from Australia. They will come back for better wages when we lift our productivity, but this Budget does not do anything to lift our productivity.

The way we lift productivity is to encourage companies to invest and to be innovative. Look at what Australia has done in innovation in the past year. It has increased its research and development spend by 25 percent. It upped its tax credits for innovative companies by giving a tax credit of 40 percent. What did the Government here do for innovation in this Budget? I am really pleased the Minister of Research, Science and Technology is here in the Chamber to hear this. This part of the Budget was announced early because of its importance, according to the Prime Minister. It increased our Budget in research and development by $56 million a year. Most of that goes into grants and vouchers to business.

So what do businesses have to do? They have to get on their hands and knees and go to the Government to say: “Please give me a grant for R and D.” And a bureaucrat sits there and says yes to this person and no to that person. Who benefits? Not the small innovative companies that are out there. I happen to believe—[Interruption]—I say to Mr Mapp that those people who put their butts on the line, who mortgage their houses, and who borrow from their friends and their family in order to get a good idea out there to market deserve a break. That is what the Labour Government did in its term of office. It gave them a 15 percent tax credit. Under this Government, businesses have to go on their knees to a bureaucrat who will assess their case and then possibly give them a grant at that point. Imagine the bureaucracy, the transaction costs, and the sheer frustration of small companies having to go through that ordeal. Our business research and development is one-third of the OECD average. What does this Government do to lift that? It is zip, zero. It increases the State contribution to research and development by 3 percent but it does not do anything to our business research and development shift.

Hon Dr Wayne Mapp: Yes, it will.

DAVID SHEARER: If the tax credit is put back, I say to Mr Mapp, if the Government acknowledges that that is the best way to do things, we would have doubled the research and development in business that businesses are doing. This is the biggest scam for businesses and it really upsets me. John Walley said that this Budget’s contribution to research and development is a pale shadow of what the former Government put in place. It is not only that, it is half of what the Labour Government had in place, and it is also half of what that Government promised in 2008. So after all the “good news” around announcing this early, it is ultimately only half of what it promised in 2008 it was going to contribute. It is another broken promise, I say to Mr Mapp. He must sit there and feel dreadfully uncomfortable about the fact that he has given only half of what he promised.

METIRIA TUREI (Co-Leader—Green): This part of the bill deals with the tax cuts that will significantly benefit the rich and leave the poorest of our most vulnerable families, and particularly their children, with the least. It is considered by this Government to be fair that the children of the wealthiest families get more than the children of the most vulnerable and poor. National calls that progress and it calls that fair; the Greens call it a national disgrace. There are alternatives, of course. These tax cuts do not have to be so utterly regressive that our poorest children will suffer the most; they could be progressive tax cuts. I would like to outline a proposal that the Green Party presented on Monday in our Mind the Gap package, which is a set of solutions designed precisely to deal with the rising gap between rich and poor in terms of inequality and income disparity, which is one of the most significant social and economic problems in this country—and a growing problem in this country.

One of our proposals is that there should be a tax-free band of $10,000 whereby all people who earn income, including beneficiaries, would not pay tax on the first $10,000 of their income. That is a truly fair and truly progressive personal tax cut option. It is a choice that John Key could have made, which would make a significant difference to the children of the poorest families. We know that the children of the poorest families in New Zealand go without. It is not because their parents do not care; it is because there simply is not enough money. Children go without shoes, raincoats, breakfast, lunch, school trips, and after-school programmes. Those children go without their basic rights to good health and a good education. Some members on the National side of the Chamber who believe in the deserving poor charity model might suggest that those people go to budgeting services. In fact, that is what Paula Bennett suggests as part of her reforms in social welfare. But there is no budgeting advice in the world that can make up the difference if there is simply not enough money to care for the needs of those children. The children who are in the worst poverty require more support.

The choice, which John Key could have made but did not make, of providing a tax-free band of $10,000 would provide—we estimate, without Government resources—something like $15 or $17 a week in the back pockets of every earner. That means that every person would receive the same amount, which is fair in the context of a progressive tax. But because $15 or $17 is proportionately much more significant for those on $10,000 a year, as opposed to those on $150,000 a year, it is a fairer tax cut for the country, for earners, and for the children who are the most disadvantaged. This measure, I say again, was a choice that this Government could have made. It is a cheaper tax cut option than National’s package. It does not cost $4.5 billion; it costs around $3 billion. Any kind of tax cut that is imposed will cost the country money. There will always be a question of whom we choose to benefit the most from any tax cut. The Green Party would choose families who are on the lowest incomes. The Green Party would choose children who are living in the worst poverty. We would choose them to benefit the most from a personal tax cut. But this Government did not do that. This Government chose instead to benefit the most wealthy, some of our highest-income earners, by thousands of dollars a week, while those on the lowest incomes are arguably much worst off than they were previously.

At a best estimate, someone who earns $10,000 a year might get 85c a week. That is a very best, generous estimate. But why should the families who are on the very lowest incomes, and the children who suffer from the worst possible poverty in this country, be the ones who pay? Why should they be the ones who subsidise the wealthy? Why should they be the ones who enable the most wealthy New Zealanders to get thousands of dollars a week in their back pocket, when they got nothing? There is no justification for that. John Key’s Government is increasing inequality in this country.

Carol Beaumont: That’s right. Continuing to increase it.

METIRIA TUREI: John Key’s Government is continuing to increase inequality, widening the gap between the rich and the poor.

Hon Trevor Mallard: Deliberately.

METIRIA TUREI: He is sucking the resources—deliberately, I agree—out of our families, away from our children. The children who go to school without shoes and raincoats and proper food are the children who are paying for John Key’s tax cuts.

JOHN BOSCAWEN (ACT): We often have banter in the Chamber, and when members with the call pick up on the comments of other members, it is recorded in Hansard. One particular comment was made this morning that was not picked up in Hansard, but I think it is very important that it goes on the record. My colleague Sir Roger Douglas said that no matter what one thought of the Budget, the reality is that the media are reporting it in a good light. If I heard correctly, I heard Steve Chadwick say: “Wait and see.” I think that Steve Chadwick is absolutely right, just like I think her colleague Carmel Sepuloni is right. She said that all the hype will die down in 2 or 3 days and then people will be faced with reality. People will not have to wait until 1 October for the increase in GST, because the cost of living is going up from 1 July. That is when the emissions trading scheme is coming in, that is when Treasury has forecast that electricity will go up by 5 percent per year, and that is when Treasury has forecast that petrol will go up by 4c a litre.

We are debating Part 1 of the Taxation (Budget Measures) Bill today. This part increases the rate of GST. Trevor Mallard proudly got up and showed to the Committee the increases in GST that people will pay on various incomes. My message this morning is to National members. Steve Chadwick is absolutely right when she says: “Wait and see.” There is no reference to the impact of the emissions trading scheme in people’s average incomes.

I come back to page 9 of the Budget document. We have just heard from the co-leader of the Green Party, who said that this is actually a subsidy from the poor to the rich. Well, I say to Metiria Turei that at least those people earning less than $40,000 a year get something. The Budget talks about an increase of 0.7 percent, and they will have to give back only 0.4 percent. So although they will not get much, at least they will get something. But we should look also at the big group of people in the income bracket of $40,000 to $85,000. The Budget forecasts here in black and white that they stand to get a net 0.4 percent out of it. Treasury forecasts that that whole benefit will be wiped out by the emissions trading scheme. It is no wonder that members of the National Party’s grassroots are revolting against the emissions trading scheme. It is no wonder that a resolution was put at the central North Island conference of the National Party last week calling on the Prime Minister and the Minister of Finance to suspend the emissions trading scheme. It is no wonder that the Tāmaki electorate, where I live—Allan Peachey is my local MP—have a remit before the National Party’s Auckland conference in a fortnight’s time.

I say to Labour that Steve Chadwick is right and that Carmel Sepuloni is right. But Labour members should get out and criticise the emissions trading scheme. They talk about inflation of 5.9 percent. They should go out and tell the people that electricity is forecast to go up by 5 percent. They should go out and tell people that the price of petrol will go up. People will see those things soon. Carmel Sepuloni is right: people will not be fooled for ever. I say to members of the National Party that people will see it a lot earlier than some people think they might.

I will explain to Louise Upston—who represents the electorate of Taupō, which is an area that has huge amounts of forestry—why GST is going up. Well, the reason it is going up is that there is an allocation of an extra $1 billion to people who planted trees in the 1990s and early 2000s, and also in the 1970s and 1980s. Those people planted trees and are now retrospectively being given over $1 billion of credits for those trees. It is a tragedy because there is no guarantee that the Kyoto Protocol will be extended. There is no guarantee that New Zealand will have any commitment beyond 2012.

In this measure we have a wealth transfer. It is not necessarily to rich people; it is to people who planted trees in the 1990s and early 2000s without any expectation of this massive subsidy. Although the National MPs in this House may want to put their heads in the sand, the members of National Party are not dumb. They see it, Paul Henry on Breakfast this morning sees it, and Steve Chadwick sees it. She says that we should wait and see. Time will tell, and people will realise that there is no net gain to them. Yes, there is redistribution.

Hon CHRIS CARTER (Labour—Te Atatū): I rise in the Committee in an unusual circumstance, in that I agree with John Boscawen. It is not often that I do that, but I certainly agree with the comments he just made about this Budget.

Moana Mackey: Not on the ETS.

Hon CHRIS CARTER: Not all of it, but most of it.

Essentially, this Budget is a fraud. It is a fraud because it is about transferring wealth from the poorest New Zealanders to the richest. You know, one of the myths of this country, perpetuated by conservative politicians led by John Key, is that somehow we are an overtaxed country. It is a case of “Never let the facts stand in the way of a good story.” The reality is that in the OECD New Zealand has the third-lowest rate of personal taxation among developed countries. Where will this transfer of wealth impact? It will impact on the delivery of services in this country.

National and its coalition partners are saying that for having $90 in the pocket of a rich New Zealander, we will third-rate social services and Government services. Education is an excellent example. Four-hundred million dollars has been taken out of early childhood education. How will that cut impact? It is saying to early childhood education centres, where they have qualified teachers, that it does not matter who is working with those children and it does not matter how well educated or how lacking in skills the teachers are. The Government is saying that that does not count.

As a former teacher and as a former Minister of Education, I know that a child’s education journey—his or her success in education—begins with quality early childhood education. One of the great crocodile tears presented by the current National Government is about underachievement in our country. It is about the tail of unsuccessful students in our schools, the 18 to 20 percent. Actually, that is the standard percentage in all developed countries, but we will not explore that.

How will this Budget help them? In Manukau City 23 percent of children at the moment go to early childhood education, and that might include one afternoon at the local church, so there is very variable quality, but 23 percent of new entrants going into primary schools have been to early childhood education. The statistics from Manukau City and the failure of many students there in their educational achievement rests on that poor basis. How will a cut to early childhood education of $400 million—the $400 million being taken out of early childhood education to pay for tax cuts for the richest New Zealanders—impact on underachievement in our schools? It will make it worse, not better, and the same is true with the so-called 4 percent operations grant that has gone into schools. Actually, with the GST rise and the projected 5.9 percent inflation rate, schools are effectively getting a cut. They will get less in their operations grant than they currently have, because of the changed economic circumstances.

So the nonsense we heard yesterday from Mr Key—that there is an increase in funding for education—is just that. It is a fraud. Schools will have fewer resources to spend on lifting educational achievement in New Zealand. I wonder how the Māori Party will address that question, because it will impact particularly on those students who figure largely in our underachievement statistics—that is, Māori and Pasifika children. The very kids we want to lift up are being disadvantaged because wealthy New Zealanders are getting a tax cut.

I read in the media the other day that this tax cut and the changes in our tax system will take $16 billion out of the New Zealand economy over the next 4 years. We are currently borrowing $250 million a week to bridge the deficit. We are borrowing while at the same time we are cutting $16 billion out of our Government’s resources. What madness! Can members imagine any other developed country doing that? Why is it happening? Because National is catering to the constituency that put it into power.

The swing voters in the middle will see over the next year—and I think my colleague Steve Chadwick from Rotorua talked about this—what these cuts actually mean. The New Zealand Herald, I think, this morning referred to it as a thousand little cuts. Well, it could be a death by a thousand cuts. I ask members to go into the education system to see what cuts are being made there.

Hon DAMIEN O’CONNOR (Labour): This Budget is a disgrace. It is a very dumb Budget if one wants to run a smart economy. It is a regressive Budget if one wants to run a progressive economy. I will quote from Bill English something that most people in this Parliament would accept: “This lacklustre performance from the export sector lies at the heart of our growing vulnerability.” I ask what this Budget did for the export sector and for the primary drivers of that sector, the farmers and horticulturalists. Well, not once in the Budget statement did Bill English, whose brother is the chief executive officer of Federated Farmers, mention agriculture or horticulture—not once. In fact, he made only a brief reference to exports or exporters. So how will this Budget grow our economy?

We should look at a few reports on our economy, because we would see that there are some challenges going ahead. We accept that we need to have better performance from the export sector. New Zealand’s largest single vulnerability is now the large and growing net external liabilities. But having identified this vulnerability, what does this Budget do about it? Well, to quote Bill: “Very, very little.” If we do not grow our earnings, no amount of shuffling around of tax rates and tax benefits will get us out of the hole we are in, because we need to be driven by greater exports up and down this country.

Not once was agriculture mentioned. That is a disgrace. But worse than that, if we had a productive sector wanting to invest in higher levels of productivity, new technology, and better machinery, the Government cut the depreciation allowance right out from under its feet—right out from under its feet. I was talking with one of the largest exporters in this country less than 2 weeks ago. He said we needed a higher level of depreciation allowance for new plant and equipment to lift the level of productivity in this country. John Key has said a lot about productivity, but he thinks productivity is paying less to workers to give more to the people at the top. Well, he did that, I guess—I guess he did that in the Budget. Yes, he has given crumbs to the people at the bottom and given a bigger slice of the cake to the very wealthy of this country. That is immoral. It is absolutely immoral, and it is dumb, dumb thinking if we are trying to develop a smart economy.

People will be packing their bags and going to Australia, because no amount of tinkering with the tax rates will make up for the huge gap between what we can pay workers in this country and what Australia can pay workers, and its higher savings rate, and its better superannuation benefits. But what did this Budget do to address that? Nothing—absolutely nothing. It is a pathetic Budget from a mean Government that does not understand the terms “fair” or “equitable”. It has driven this economy further behind. There is nothing for the export sector and nothing for the farmers. In fact, if there were farmers earning over $70,000 a year, they might have benefited more. But Federated Farmers, reluctant as they may be to criticise the Government, admitted that very few farmers pay tax. So they will face higher levels of GST. I say to them that if they are bleating about the emissions trading scheme’s cost to their business, they should sit down and do a calculation about the increased cost from the rise in GST. It is about time they did that, and Connor English should get off his chuff as a chief executive, challenge his brother, and say: “You, Mr English, my brother, have imposed huge costs on the farming and export sector and offered us nothing by way of your Budget.” They do not have a vision—

Jo Goodhew: Look at what your emissions trading scheme has done to farmers.

Hon DAMIEN O’CONNOR: Neither does that member from Timaru. She will find that the people who drive her local economy will be absolutely disappointed with this pathetic Budget, except if they earn over $70,000 per year. If one earns over $70,000 per year, one has the highest level of tax cuts. That member, Jo Goodhew, will be happy, because she earns over $70,000 per year. So does the person beside her, Chris Auchinvole. This is a pathetic Budget for the export sector.

CHRIS HIPKINS (Labour—Rimutaka): I am looking forward to the contributions from the Māori Party to this debate. Driving home last night, I had to stop for petrol. The Māori woman behind the counter asked me “Is the Māori Party really going to vote to increase GST for me? Is it really going to vote to increase my GST? I have checked it out on the website and I do not get much of a tax cut. I am on a reasonably low income. I am working behind the counter at a petrol station.” She told me that she had voted for the Māori Party and that she was pretty surprised that, given all of its rhetoric before the election, its members were now coming into this House to vote in favour of increasing GST.

She had seen Hone Harawira’s comments in the paper yesterday. I told her not to worry, because I knew that Hone Harawira was a man of great courage. I do not think Hone Harawira would ever say outside Parliament something that he was not willing to come down and stand eyeball to eyeball with the National Government to say in this Chamber. I think he has a lot of courage and he will come down, he will be in the Chamber, he will take a call, he will speak against a rise in GST, and then he will cross the floor and vote against it. I do not think Hone Harawira would be a lion out in public and then be a pussycat curled up in John Key’s lap here in the House. I do not think Hone Harawira would do that. I look forward to his joining us in the Noes lobby when it comes time to vote against this increase in GST, which will hit Māori particularly hard.

The people in my electorate ask me what is in this Budget for them. I say to them that for the 69 percent of people in my electorate who earn under $40,000 a year the answer is not very much. Most of the people who earn under $40,000 a year, according to the tax table that was produced with the Budget, will get less than 25 bucks a week in their tax cut. They will pay at least another 13 bucks a week in increased GST, so that is less than 10 bucks a week in the pocket. If they have children in early childhood education, they will be looking at about another 25 bucks a week per child for early childhood education. They will be worse off. If they are superannuitants who have had their home help cut, they will be worse off. If they are tertiary students who now have to pay extra on their student loans, they will be worse off. Even worse, if they want to be tertiary students but find they cannot get into a university or a polytechnic, they will be worse off. They may get an extra 10 bucks a week—that is if they are at the highest end of that 70 percent who earn under $40,000. If they are on that $40,000 mark, they will get about $9.94 a week according to Bill English. But for those people down at the bottom end, at the minimum wage level, who earn around $28,000 a year it is about five bucks a week. That is worth about two or three packets of chewing gum to the people on the lowest incomes. The tax cuts from the National Government are certainly not enough for a block of cheese or even half a block of cheese for those people on the lowest incomes. National is interested only in those who are at the top of the heap.

I am really looking forward to hearing the contributions from the Māori Party members, who campaigned before the election about removing GST from food altogether. I am looking forward to hearing their justification for voting in favour of a 2.5 percent increase in GST—hiking up the food and grocery prices for every working family in New Zealand. And it will not be just food and grocery prices that will be going up, either; it will be rates, insurance, and all the other services that will go up as a result of the extra 2.5 percent on GST, which will go up to 15 percent. It is a tax swindle, not a tax switch, as the Government has talked about.

The hollow rhetoric from the hollow men in the National Government is simply misleading. It shows that their promises before the election were simply a hoax. They promised that everyone could have a tax cut, that they would not increase borrowing to pay for it, and that they would not cut public services. Well, they are giving tax cuts to the people on the highest incomes while those on the lowest incomes face a tax increase through higher GST. They are increasing borrowing and cutting spending on public services. They are cutting spending on health. They are not allowing health spending to keep up with the growing population or the growing demand. Health spending will not keep up with the demands of an ageing population, so people will be paying more.

I heard Ganesh Nana from Business and Economic Research Ltd on Radio New Zealand National this morning saying that in the short term this Budget is affordable but in the long term the tax cuts the Government has delivered are not affordable. The National Government is mortgaging up the nation’s children and grandchildren to pay for the tax cuts it is dishing out today.

STUART NASH (Labour): I heard the most amazing thing in the Chamber when my colleague the Hon Damien O’Connor was speaking a few moments ago. He asked what this Government had done to increase the growth of this economy, and Dr Wayne Mapp, who is the Minister of Research, Science and Technology, said it had cut taxes. That was what the Minister of Research, Science and Technology said about how to grow the economy. He said the Government had cut personal taxes. My colleague David Shearer stood up here and asked what had happened to the funding for research and development, which we need in order to drive the economy forward. The best answer that the Minister could come up with was to cut personal taxes.

I can picture National Ministers sitting around the Cabinet table and Bill English asking what the Government could do to drive the economy. Dr Wayne Mapp would have had his head down, and Bill English would have asked Dr Mapp what he thought the Government should do to drive economic growth. His reply would have been that National should cut personal taxes. Why did he not stand up and say the research and development spend needed to be increased, or that we should at least go back to what Labour did? Did he stand up and say that? Did he stand up and fight for those companies in this country that require research and development funding in order to drive this economy forward? That is what is needed. We have the smart men and women of this country saying we need to invest in research and development and develop a high-class, highly educated economy. We need companies that can take things to the global market. The Government has done nothing about that. It has cut research and development spending to half of what Labour provided. It is one of the more ridiculous things that I have heard in this House, and I think it is a crying shame. Quite frankly, it astounds me, because I really thought Dr Mapp was better than that.

I would like to talk about another thing that astounds me—

Craig Foss: Satisfaction!

STUART NASH: —because we cannot get any satisfaction from this Budget. The vast majority of Kiwis have got no satisfaction. A speaker stood in this Chamber and talked about the shameful Dr Cullen. I will not hear a bad word said about that man in this Chamber. Do members know why? It is because under his management we halved gross Crown debt, and when he left office there was no debt. Dr Cullen had to listen to John Key and Don Brash baying for tax cuts. They said New Zealanders must have tax cuts. If Dr Cullen had listened to them, then we would be in the same situation as Greece. Dr Cullen paid down debt. In fact, the Governor of the Reserve Bank, in his latest Financial Stability Report, said the reason that the New Zealand economy is doing as well as it has in this recession is the state that Dr Cullen left the books in. He did brilliantly, and his legacy is sound.

This Government is destroying Dr Cullen’s legacy. Dr Cullen refused to borrow for tax cuts. Dr Cullen knew that an economy has to be managed prudently. He knew that tax cuts are inflationary. I will tell members one thing that Dr Cullen never did: he never looked at the camera and said he would not increase tax, then increased tax. That is what John Key did. He stood in front of the camera, in front of every New Zealander, and said he would not increase GST. Well, he has done that; he has increased GST. He also said he would not borrow in order to fund tax cuts. Well, he has done that.

I turn to clause 45 of this bill, which deals with increasing the rate of GST. The GST rate is increasing from 12.5 percent to 15 percent, so one assumes that everything will increase by 2.5 percent. I have news from this side of the Chamber: that will not happen, and I will give members an example of why it will not. Retailers price things with psychological considerations in mind. That is why we pay $49.95, not $50, for goods. The GST increase on that amount means that the price should go up to $51.06, but no retailer will price anything at $51.06. The next level is actually $54.95, which is a 10 percent increase. This also comes back to the poll done in the New Zealand Herald where 33 percent of small to medium sized businesses—

METIRIA TUREI (Co-Leader—Green): It is a shame that we do not have the pleasure of John Boscawen’s company. In his earlier contribution he said that those on the very lowest incomes should be terribly grateful that they got 85c or some such in the Budget, because they could have got nothing. He is quite right. John Key’s Government had a choice about who would benefit the most from this Budget and who would benefit the most from the personal tax cuts in the Taxation (Budget Measures) Bill. His decision was that those on the lowest incomes would not benefit the most, and certainly that we should not have a progressive and fair tax system or progressive and fair tax cuts in this Budget. John Key’s choice was that the richest people in this country—the richest New Zealanders—should benefit the most. We certainly see that that is the case. Of course, John Key could have chosen differently, but he did not. He has chosen to increase the gap between rich and poor.

Earlier I talked about an alternative—and I see that John Boscawen is now here—to this tax cut regime that would be progressive and fair, which is having a zero tax rate for the first $10,000 of income earned. I mention in relation to that alternative that not only is it progressive, fair, and cheaper than the current tax cuts proposed in this Budget and in this bill, but also it is used in many other OECD countries. In Australia the zero tax threshold is $16,000, in Canada it is $10,000, in France it is $5,600, and in Germany it is $7,800. We certainly would not be leading the charge on a tax-free band of income that is progressive and benefits those on the lowest incomes. Of course, in those countries too they have much higher tax rates at the top. In Australia, for example, there is a 45 percent tax rate for those who earn over $180,000. So it is a more progressive system of tax than we have here.

One of the other provisions in this part of the bill is the increase in GST. That is an additional regressive tax on top of the regressive personal tax cuts that are being proposed. The increase in GST is not fair, because it will hurt the poor more. We know that those on the lowest percentile or 10th percentile pay 14 percent of their income in GST, and those on the very top percentile pay only 4 percent. So proportionally those on the very bottom percentile will pay more GST in proportion to their income than those at the very top. Therefore any increase in GST is grossly unfair.

That is why the Green Party continues to propose the much fairer system of a capital gains tax, excluding the family home. In the long term that system would return some $4.5 billion to the income sector. It would also broaden the tax base across the community and provide significant incentives for a shift in investment away from the property sector into more productive investments. The John Key Government says it wants to do that, but it has done nothing to make sure that it happens. It has no kind of strategy to ensure a genuine shift of productive investment away from a property boom into more productive areas.

The Government had another choice with tax cuts, whereby people on the lowest incomes could benefit. Inequality is one of the bigger issues that this country faces. The Greens released the Mind the Gap package on Monday, and in it we proposed that the in-work payment, which replaced the child tax credit and applies only to some families, should be extended to apply to families at the very bottom of the income sector. Those families are beneficiary families; 140,000 families do not qualify for the in-work payment because they are beneficiaries or they do not meet the working hours criteria. The children in those families live in the worst poverty in this country. Some 200,000 children live in the worst poverty and they are the children of these families. Why are these children suffering just because John Key wants to put thousands of dollars in the back pockets of some very, very rich people?

It would cost around $300 million a year to extend this payment, so there is a cost.

LYNNE PILLAY (Labour): First, I commend Metiria Turei for a great speech. I totally agree with all the points that were raised. We all know on this side of the Chamber—

Hon Dr Wayne Mapp: When is Labour going to start to decrease the deficit? It didn’t do it in 9 years.

LYNNE PILLAY: I hear Wayne Mapp and see that he is feeling embarrassed about this tax swindle, which is based on total self-interest. How do we know that these tax cuts are based on self-interest? We know because the big winners are the people who earn high incomes. The tax cuts are for the privileged few. They are really, really unfair.

If we look at people on low incomes, those who need tax cuts the most, we see that they are hit by the rise in GST. That is very unfair in terms of the distribution and liability on people on low incomes. The effect on them is very disproportionate. Then there are the tax cuts. If we look at people on low incomes—those on 20 grand or 40 grand a year; people with families—we see that they get next to nothing out of the tax cuts, yet this Government is borrowing big time and cutting public services in order to fund them.

When we look at people on high incomes like those that members of Parliament are privileged enough to earn, we see that is where the big gains are. If we look at even higher incomes, the tax cuts are so much higher. That action has been taken by a Government led by a Prime Minister who categorically said that National would not raise GST. I ask Mr Mapp whether that is correct, because he is not interjecting very much now. Did John Key say that National would not raise GST—yes or no? Did John Key say that? The members opposite know very, very well that John Key said that, but it has all changed. That promise was broken so that one-third of the tax cuts goes to the top 5 percent of income earners. The top 1 percent of earners will get 15 percent of the tax cuts—15 percent of the tax cuts goes to the top 1 percent of earners.

Does that sit alongside the funding that was reintroduced by the Government, such as the big funding boost for private schools? That was done at the cost of the most disabled children in New Zealand. We know there has been some increase in funding for disabilities, but when we look at it we see that the Budget has a paltry amount for people living with disabilities. If we compare that funding with the extra $1.4 billion, we see a big hole in health spending. That is what this Budget is about. This Budget is about a great big hole in health spending because a huge amount is going in tax cuts to the wealthy in New Zealand. Members on this side think that that is grossly unfair. It is actually immoral.

Where else do we see casualties?

Hon Steve Chadwick: Casualties in State housing.

LYNNE PILLAY: I ask my colleague, who has been a strong advocate for State housing for our most vulnerable families, whether it is correct that $18 million—

Hon Steve Chadwick: $80 million.

LYNNE PILLAY: How much has been cut?

Darien Fenton: Nearly $100 million has been cut from housing.

LYNNE PILLAY: Nearly $100 million has been cut from housing, and that is by a Government that says that it cares about people. We all know that one of the key things that families need is safe and affordable housing. We know that in cutting that area the real casualties will be the families most in need in New Zealand.

Let us talk about early childhood education. When Labour brought in its early childhood policies the National Opposition vehemently opposed them. In this Budget the Government did not have the guts to cut the funding, but by stealth it is cutting away all of that really good investment. Those building blocks for our children’s future are being cut. It is absolutely reprehensible that the members of this Government will take money away from families, from children, and from those who need it most in order to fund tax cuts for themselves.

CAROL BEAUMONT (Labour): One of the most annoying things I have heard in this debate so far is that every time members on this side—Green or Labour—outline the absolute unfairness of the tax changes that are being made by the Government, we have levelled at us that our comments are about the politics of envy. I can only conclude that the reason that little Crosby/Textor line, no doubt, about the politics of envy is being trotted out is that those members know that what we are saying is true. They know that the small tax cuts that people on low and middle incomes will get will be completely offset by increases in GST and other inflationary pressures.

That is unfair. How just is it that those on the lowest incomes, who cannot make ends meet at the moment, will get a paltry increase in income, while those with more than enough will get huge increases? How just is that? How just is it that they will face significantly higher costs as a result of inflation peaking at 5.9 percent, which will wipe out their tax cuts? How just is that? How just are these changes, when they follow on from the previous unfair tax cuts made by this Government? In the electorate of Maungakiekie, where I am working, 64 percent of people earn $40,000 or less, and they received no tax cut in 2009 or 2010. Now they will get a paltry tax cut, which will be offset by increased costs. How just and how fair is that? Members opposite can call my comments the politics of envy if they like, but they know that that position is not fair.

I want to talk about the economy. The rhetoric of the Budget—and we heard it leading up to the Budget, and we hear it in the Budget-speak—is all about rebalancing the economy. The Government says that we will have a smart economy, and that it values education. Actually, the only measure to appear in the Budget is the waving of the magic wand of tax cuts. Suddenly, the economy will be rebalanced! Suddenly, there will be the growth in productivity that there is a lot of rhetoric about! There is a lot of rhetoric about lifting productivity. Nobody in this House would disagree about the need to lift productivity, but talking about it is not sufficient. Where is the investment in people? What is going on in terms of tertiary education funding is social and economic vandalism.

I will talk particularly about investment in people who are already in the workplace. There are further cuts to adult and community education, which will affect those who want second-chance learning. Where is the money for industry training? Where is the money that would actually lift us in terms of the technical skills we need? We have a structural skills problem in New Zealand. Where are the initiatives in the Budget to deal with that? I ask that somebody opposite stands up and answers that question. Eighty percent of the people who will be in the workplace in 10 years’ time are already in the workplace, so to change our skills deficit we cannot just invest in people entering the workforce; the Government also has to focus on investing in those who are already in the workforce. People who, in their own time, want a second chance at education through adult and community education are out of luck in many parts of New Zealand, and I am sure that position will get worse. What about those who want to learn when they are in the workplace? Where is the extra funding for that kind of learning? There is a lot of talk about productivity, but without the skills to change how work is undertaken, without the skills to implement and utilise new strategies and new technology, we will not go forward as a country.

When we look at the reduced increase in funding for research and development, the complete absence of initiatives in terms of skills, and the absolutely minuscule funding for tertiary education, we have to ask ourselves how serious the Government is about lifting productivity. The answer, I am afraid to say, is it is not serious at all. Cutting taxes will not lift productivity. Other measures have to be taken. There have to be economic development strategies. There needs to be investment in our people. I would have really appreciated seeing some effort put in that area, but, no, there has been none.

METIRIA TUREI (Co-Leader—Green): I will briefly refer to the corporate tax rate, which is being cut in Part 1 of the Taxation (Budget Measures) Bill. We know that the corporate tax rate will go from 30 to 28 percent. We also know that this Government has an intention to continue its approach concerning alignment, and I wonder whether—we have heard nothing, as far as I am aware, from the Government at this stage—the Government, in fact, intends to eventually bring the top tax rate down to 28 percent. If it is truly committed to alignment, that is obviously what it will do next. The question is whether it would do that in an election year—which would be the next Budget—or afterwards. Will the Government tell New Zealanders that it intends to not only lower the top tax rate by 5 percent in this Budget, which is twice as much as the tax rate has been lowered for those on the lowest incomes, but that it intends to give those on the very top incomes another tax cut in the very near future to 28 percent—the corporate rate?

That discussion has not been raised yet in the debate on the corporate tax rate, as far as I am aware. It is of serious concern if it is the intention of the Government to continue to lower the top tax rate, because the burden and the cost of that will be borne by those at the very bottom. They will pay, and continue to pay, not only for the corporate tax rate, whether in GST increases or in some other form, but also for increasing cuts to the top tax rate.

I referred earlier to one of the other choices that this Government had to reduce the gap between rich and poor, income disparity, and inequality in Aotearoa. I described the alternative that we had proposed in Mind the Gap regarding the in-work tax credit. I follow that up by saying that if the in-work tax credit were extended to those who are on benefits and those who are not working and who currently do not meet the hours criteria for paid employment, we would see $60 a week in disposable income going to 130,000 of the poorest New Zealand families who have up to three children. The 10,000 poorest New Zealand families who have four or more dependent children would benefit even more. It is about benefiting and supporting our children, the children who need the most because they are the most vulnerable and the poorest.

Part of it is also about housing. There are clauses in the bill that deal with housing. What is obvious, and my colleague from Labour talked about this earlier, is that this Government has cut provision for the building of new State houses. It has cut at least $100 million from the State housing budget such that there will be no upgrades and no building of new State homes. That is a disgrace. We have 10,000 families on the State house waiting list. All that is happening is that those families are churning around through the existing State housing. Some come out and try to get into private rental housing; some go back into State housing. The waiting list has continued to churn. This Government is doing nothing to provide housing—homes—for our most vulnerable families. Those are families who are desperate just for somewhere to live. Instead, we have two or three families crowded into private rentals that are expensive, cold, and damp. That is causing $1 billion worth of health problems from cold, damp, overcrowded housing. Yet this Government will give thousands of dollars in cash to the richest people while families are desperate for just somewhere to live.

This is the Aotearoa that we have now—an unequal country where those families who need somewhere to live have nowhere, because this Government will not build houses and invest in those families. This Government will spend $10 billion on new motorways, which are holiday highways for their friends, but they will not spend money on homes for our families who need it the most and for our children who are in the worst poverty—the 200,000 children who live in the worst poverty in this country and the poorest families who are in desperate need. This Government does not even see those people. They are invisible to this Government. They do not know them, they do not see them, they do not care.

Hon PETER DUNNE (Minister of Revenue): I take a brief call to respond to some of the points just made by the member who has resumed her seat, Metiria Turei. She asked whether some dastardly plan was afoot to align the personal and corporate tax rates at 28c at some point in the future. I disillusion her by saying that there are no present plans to move in that direction. The Government’s medium-term intention remains the alignment of rates, but, frankly, that will occur as fiscal circumstances permit. If one looks at the Budget tables and the Budget figures, one sees that there will not be a rapid path in the direction that she fears and that others would welcome.

I come to the real point that lies behind the issue. As the Tax Working Group disclosed, the big issue was the discrepancy between the top personal rate and the trust rate, because over the last decade, since the Labour Government in 1999 hiked that top rate, we have seen a massive explosion in the use of trusts.

Moana Mackey: We campaigned on that and were honest about it.

Hon PETER DUNNE: I acknowledge that Labour campaigned on it, but it was the most stupid and inept tax decision made in the last decade. It has created a massive explosion in the use of trusts, not for property protection reasons, but for income sheltering reasons. That explosion has cost revenue and has cost the taxpayers of New Zealand around $300 million a year in revenue forgone. Over the period of the decade, that was about $2.7 billion. If Metiria Turei wants to talk about having a tax-free threshold, which is extremely expensive, she should just bear in mind that she would have been able to achieve that, had we not had that leakage over the last decade. The point that needs to be made is that by aligning the rates in terms of the trusts and the top personal rate, as is set out in the Taxation (Budget Measures) Bill, we will actually secure revenue for the future that can be used to give funding to some of the dreams that members might have.

I will talk about the in-work tax credit. I am in the unusual position of having been part of the previous Government when the Working for Families scheme was being developed. One of the things that was critical there, and members opposite have quite rightly campaigned on it, was that that Government wanted a difference between the level of support provided to people who were in work and to those who were not—hence the title, the in-work payment. If we were to extend the in-work payment to those who were not in work, we would actually defeat the whole purpose of what Working for Families was about. The title was deliberately chosen; it was about families who were in work and struggling to make ends meet, and about giving them a boost. Extending it across the field simply broadens the welfare net. I give credit to the previous Government for not including that idea in the original thinking. I think that point detracts from the member’s argument.

The other thing I mention was that the hoary old chestnut of the capital gains tax was wheeled out by the Greens as part of their Mind the Gap package—I thought that was a railway term from the United Kingdom, but never mind. The reality is that a capital gains tax in New Zealand would add hugely to compliance costs, would not be fair, and would not raise the revenue that is supposed to be attached to it. Over a long period of time it might, but it is a simplistic argument to say that we should have a comprehensive capital gains tax, exempt the family home, and all the revenue that will flow will allow nirvana to be created in this nation. It simply does not work that way.

I am delighted that we have rejected the notion of a capital gains tax; I think it is time to bury the idea once and for all. It has been floated over the last 20 years, and no Government has ever picked it up, because whenever a Government has looked at the reality of what it would actually mean, it has worked out that it would be worth far less than the trouble, the disruption, and the chaos it would create. It is far better to move to an alignment of rates, far better to smooth out some of the discrepancies that are there at the moment, and far better to deal with some of the abuses that we will talk about in later parts of this bill—which are distorting investment patterns and creating biases in the economy—than to impose what would be the ultimate of envy taxes. That is where that policy becomes a complete failure and a nonsense.

As I conclude, I acknowledge that this debate may have a little bit longer to run, but I say that it has been a good, constructive debate today, and I congratulate all of the members who have participated. I disagree profoundly with many of the things that have been said, but I think there has been a good airing of the issues. Let us hope that we can continue in this spirit.

MOANA MACKEY (Labour): I thank the Minister in the chair, the Minister of Revenue, for taking a call. You know, it is interesting that the Minister was responding to the Green member Metiria Turei. Well, she talked about people and about the impact of this Government on people. With the greatest of respect to Government members, I have been noticing that they are not talking about people. They like to talk about the taxation system, but they do not like to talk about how that system works for the people of New Zealand, because these changes will not work for the people of New Zealand. The Minister said the Government may be looking at making a further alignment of tax rates, as fiscal circumstances permit. Well, fiscal circumstances do not permit the changes that are happening in this Budget and in this legislation. In fact, we have a hole of half a billion dollars coming from a Government that promised not to borrow in order to fund tax cuts. Members on this side of the House would argue that fiscal circumstances do not permit these changes to be made, so why should we have any confidence that the Government will wait for fiscal circumstances to permit further changes to be made?

The Minister of Revenue also mentioned the revenue windfall that will come from the alignment of the trust rate and the personal income tax rate. Well, if there is to be such a windfall, why are we increasing GST? Why do we need to increase GST when the changes to the income tax rates, by the way, as an unintended consequence happen to deliver a $1,000 a week tax cut to someone who is on a million dollars a year? Why are we doing that if we have to raise GST? Clearly, the revenue windfall will not be as great as the Minister and the Government would have us believe, because we have to load a tax increase on to the poorest families in New Zealand, which John Key promised before the election that he would not do.

Hon Dr Wayne Mapp: We’re moving away from the decrepit, old, wretched ways of Labour.

MOANA MACKEY: Dr Wayne Mapp has been sitting here throughout this entire debate and chipping away. Instead of sitting there like a dried arrangement, why does he not get on his pins and take a call? Instead of chipping away, why does he not take a call? This is the Minister of Research, Science and Technology who has gutted the funding for research, science, and technology. He has not been a good advocate for that sector, and that has continued in this Budget. Less than half the money that was in place when Labour left office is now in place, and he expects scientists to be happy about that.

Craig Foss: I take offence at the reference to his pins.

MOANA MACKEY: Craig Foss takes offence that I called them—

Craig Foss: Can we table his pins?

MOANA MACKEY: I say to Mr Foss that he can table Dr Mapp’s pins if he would like to; I will leave that entirely up to him.

This legislation puts in place the tax swindle that is Budget 2010. It is based on three main broken promises. One is that the Government swore black and blue before the election that it would not increase GST. Less than 18 months later we are passing legislation that will raise the rate of GST by 20 percent. That is a broken promise. Secondly, National swore black and blue that it would not borrow in order to fund tax cuts. We are putting in place legislation today that borrows in order to fund tax cuts. That is broken promise No. 2. Broken promise No. 3 is that no one will be worse off. Well, by the Government and Treasury’s own figures, someone who is on the average wage will be $30 a week worse off under this regime, when we factor in the GST increase and the effects of inflation. Is it not interesting that the Government’s tax calculator, which it had up on Treasury’s website, factored in inflation at less than 2 percent, when the Budget documents said it will be 5.9 percent? What kind of swindle is it that the Government’s own tax calculator is deliberately producing misleading figures in order to make—

Hon Dr Wayne Mapp: No, you’re misleading—

MOANA MACKEY: I ask Dr Mapp not to point at me. He should stop sitting there like a dried arrangement and get up and make a speech, instead of doing it from the comfort of his chair. He has not bothered to get up to explain to scientists in this country why he has slashed their funding since coming into Government and becoming their Minister.

Do members know that a number of scientists were laid off at the Institute of Environmental Science and Research this week? Why? It is because of health cuts and cuts in the budget that that Minister oversees. Scientists in the health science area are some of the better-paid scientists in New Zealand. The Minister says that scientists are rich. I think he needs to go out and talk to them, because the Prime Minister included scientists in the list of people who are rich in this country, along with nurses—and the Nurses Organisation had something to say about that—and teachers. I suggest that he goes and talks to some of them, instead of sitting in his chair and chipping away.

I will have a lot more to say about housing in my Budget debate speech, as well. When we look at how it is being paid for, we see that the Government, which went on and on about how it would be great for State house tenants, has made a $100 million cut relating to the procurement and building—

DAVID SHEARER (Labour—Mt Albert): I want to take another call in the debate on Part 1 of the Taxation (Budget Measures) Bill. Basically, Tracy Watkins has it pretty much right: the Budget is an “Old-fashioned vote-winner”. It is not really about increasing our productive economy, and it is not really about trying to grow our economy; it is really about the Government getting back into power in 2011.

There is a lot of positive talk out there about the tax cuts and how much they will bring in. I believe that over the next few days, as we start to unpick what the Budget really means, we will get to the real core of what it means—that, in effect, the small amount of money that people on the average wage will get in their hands will be chipped away by GST, by power prices, by accident compensation, by tobacco tax, and by increased rates, if one happens to live in Auckland, to pay for the super-city structure. On top of that, there have been the lowest wage increases in a decade. When the combination of those facts sinks in, people will start to understand that the Budget, as we have been saying today, is an enormous swindle, and it will leave a bitter taste in people’s mouths.

What I want to talk about is what the tax cuts mean in terms of our productive economy. Let us take a look across the Tasman, as this Government always wants to do, and see what the Australians are doing. They will decrease their company tax rate down to 28 percent, like New Zealand is doing. We have got the jump on them, as the Government says. But companies in Australia pay superannuation contributions of 9 percent to 12 percent. Let us think about how much money in that economy—how much savings—is available for the productive sector to reinvest in the economy. What has been done here in New Zealand? The Government has dropped the employer superannuation contribution from 4 percent down to 2 percent. Our savings are woeful. In Australia people understand that increasing their savings, increasing their capital to be able to invest into their productive economy, is the way forward.

Australia has given a 40 percent tax credit to its innovative companies—a 40 percent tax credit. So a company in Australia that invests in innovation gets 40 percent of its tax back for its efforts. We used to have a tax credit, and it would have doubled our business research and development. Instead, we have the State subsidising our companies. The State, which cannot afford to do so at the moment, is subsidising our companies. On top of that, we have a farcical scheme called Primary Growth Partnership. Thirty million dollars was supposed to go into the Primary Growth Partnership in 2009-10. How much has gone out of the scheme? About $3 million went to greenhouse gas research. The rest of it has delivered nothing. So 18 months after the Government axed the Fast Forward Fund, which transferred $700 million into productive research, what do we have? We have nothing—zip, zero—going out of the Primary Growth Partnership. For 18 months, during which our scientists, in combination with business, could have been investing in our productive economy, they have not received a thing. What has happened as a result? I will tell members. Thirty-six staff from AgResearch’s wool and meat sector have been laid off. That used to be a productive enterprise. Under this Government, it will no longer be a productive enterprise. We have lost 12 to 15 people from the Institute of Environmental Science and Research. We have seen today that the Budget’s reprioritisations, as the Government is calling them, will move money out of environmental research and out of heath research, and a bunch of good policies will be cut as a result.

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

A party vote was called for on the question, That the question be now put.

Ayes 66

New Zealand National 58; ACT New Zealand 4; Māori Party 3; United Future 1.

Noes 50

New Zealand Labour 43; Green Party 7.

Motion agreed to.

The CHAIRPERSON (Lindsay Tisch): Before I put the question on Part 1, there are four amendments to Part 1 in the name of the Hon David Cunliffe. The three amendments to clause 45 are not in order, as the Minister has issued a financial veto certificate in respect of each of them. These certificates are on the Table.

The question was put that the following amendment in the name of the Hon David Cunliffe to the cross-heading above clause 44 be agreed to:

to omit “to Goods and Services Tax Act 1985” and substitute “designed to Increase Goods and Services Tax”.

A party vote was called for on the question, That the amendment be agreed to.

Ayes 50

New Zealand Labour 43; Green Party 7.

Noes 66

New Zealand National 58; ACT New Zealand 4; Māori Party 3; United Future 1.

Amendment not agreed to.

A party vote was called for on the question, That Part 1 be agreed to.

Ayes 66

New Zealand National 58; ACT New Zealand 4; Māori Party 3; United Future 1.

Noes 50

New Zealand Labour 43; Green Party 7.

Part 1 agreed to.

Part 2 Personal tax cuts: 2010-11 start

STUART NASH (Labour): Sorry, Mr Chairman; I did not hear you at first. I was dreaming a little bit about what I would do if I were Paul Reynolds and I was about to receive $1,700 a week extra in the hand. That is about $7,300 a month. I could go first-class home once a month I suppose—or I could buy a rental property. Here was a classic opportunity to change the structure, and balance the economy around rental property investment, but that opportunity was not taken. But with about $88,000 in the hand every year, thanks to these tax cuts, I think Paul Reynolds will be smiling.

The thing is, as my colleague Trevor Mallard pointed out, inflation will really eat into the majority of New Zealanders’ tax cuts. The Minister will know better than I do but I think that about 0.89 percent of people earn over $150,000. Those people who earn over $150,000 will do very, very well out of this Budget. They can do exceptionally well. But, then again, if I were on the median income, I would be getting about $5 a week in the hand. I would be getting about $250 a year. What can a person do with $5 a week in the hand? Simon Bridges said this Budget was about all New Zealanders. He said the Government was providing opportunities for street sweepers—those were his words. Well, the Government has taken away community education, but, anyway, that is another story.

One thing that has not been factored into this, which I think really has to be, is the inflation rate of 5.9 percent. I do not think that that inflation figure is right. I think it is too low, and the reason I point that out is that there is an overlying assumption that prices will increase by about 2.5 percent, because that is the rate of the increase of GST. What will happen—and I started to talk about this before but I ran out of time—is that businesses will price strategically. Let us consider an item priced at $49.95. We do not pay $50; we pay $49.95. The reason is that it sounds lower than $50. We know there is only a 5c difference but it sounds lower. It is a feel-good factor. So if we take off GST of 12.5 percent and put on GST of 15 percent the price comes up to $51.06. No retailer will price something at $51.06c. It does not sound good; it does not sound like a bargain. The next strategic price point on that item is actually $54.95, which represents about a 10 percent increase. We will see this practice on a lot of goods.

Now, there is an argument that the market will not allow that—it will allow only $49.95 and therefore the increase will not happen. The problem with that is that the retailer’s margins will be really squeezed, and he or she will look for other ways to claw back that margin. So we will get a completely uneven distortion of prices. Here is my real concern for a lot of New Zealanders, and I include superannuitants in this. They believe or have been told it is only 2.5 percent, which will raise $2 billion a year, but it will be a lot more than that.

The other thing is I did a radio interview this morning and I talked about inflation at 5.9 percent. That is not a Labour figure; we are not scaremongering. That figure is in the official Budget documents. I said inflation was going up to 5.9 percent, but the guy said it was dropping down to about 2.4 percent again. I said it would, but that does not mean that prices drop down. I think there is a perception out there that if inflation increases, then prices go up, and if inflation drops from 5.9 percent to 2.4 percent, then prices drop. That is not the case. It means that, everything being equal, prices increase by 5.9 percent, then increase by only 2.4 percent. The real value of savings, tax cuts, and all that money people put away is eroded right down to the point where it is worth nothing. Anyone on the median income or anything below $70,000—and people on that income are not wealthy—is worse off than before the Budget.

I want to talk about something that the Minister of Revenue, Peter Dunne, talked about, on which I am in total agreement with him; that is, aligning the trust and the top marginal tax rates. I do not agree with dropping the top marginal tax rate down to 33 percent; I think we could get away with increasing the trust rate. As the Minister alluded to, people were channelling profit through trusts. When people get dividends from a company, they pay tax on that at their marginal tax rate. Before this Budget, people were paying tax on their dividends, their profits, from a company at 38 percent if that was their correct marginal tax rate.

METIRIA TUREI (Co-Leader—Green): Before I discuss the issue of energy poverty in terms of the tax cuts in Part 2 of the Taxation (Budget Measures) Bill, I will refer to a couple of statements made by the Minister of Revenue, Peter Dunne. One was his criticism of a capital gains tax, excluding the family home. He mentioned the compliance costs and how difficult it would be. There is a capital gains tax in practically every OECD country on the planet. It is an area of tax reform that is progressive and broad, and New Zealand is seriously lagging behind. Not only do most of the other OECD countries have a capital gains tax of some form but also they include—

The CHAIRPERSON (Lindsay Tisch): I bring the member back to Part 2. Part 2 is not about capital gains tax, so I ask the member to concentrate on Part 2.

METIRIA TUREI: Part 2 is about the rates, but it is also about personal tax cuts and decision by this Government that the best way to fund those personal tax cuts is by giving to the richest a tax cut that is funded by an increase in GST, which affects the poorest. The alternative is a capital gains tax, as the Minister was describing just a few moments ago. I remind Minister Dunne that the UK, the US, and Australia have a capital gains tax, but New Zealand does not. On that basis alone, we are obviously lagging behind.

The other issue the Minister raised, again in terms of the justification for cutting taxes for the richest in this country, concerned the corporate tax rate. The fact is that those who are the richest and who were using dodgy means to avoid paying the top tax rate will now have to pay only 33 percent if they are being straight up. But now they can use business as a means to funnel their income to the tune of a 28 percent tax rate as opposed to a 38 percent tax rate.

New Zealand is one of the easiest places in the world in which to do business and to establish a business. It is very common for New Zealanders to set up businesses for a variety of purposes. I am very concerned that the corporate tax rate dropping to 28 percent opens up another loophole for those who are very wealthy to avoid paying their fair share. There are other choices too.

One of the issues with the personal tax cuts is that prices are increasing. We have seen energy prices increase by 40 percent in the last 9 years. People are having to pay more in all sorts of areas, but they are not being compensated in these personal tax cuts. One of the areas where they are not being compensated is that of energy and electricity. We know that a pensioner who lives on his or her own in an old house has a 97 percent chance of living in energy poverty. There is nothing in this legislation, or in the personal tax cuts this legislation deals with, that will address the needs of that pensioner, or of a solo parent in the same situation, who is living in energy poverty.

We need to have reform—and this is a choice John Key could have made—of the electricity system to provide for progressive pricing so that all families have access to a fixed cheaper rate of electricity to help alleviate energy poverty. Seventy thousand of our poorest families are suffering the most, but 350,000 would benefit from that change. These were the choices this Government could have made, but it did not make them. Instead, in this legislation it has chosen to give the biggest tax cuts to the wealthiest and to make the poorest people pay.

It begs the question of why this Government would make those choices. Why would it place the burden on those who have the least? Why did it not look at alternatives—alternatives that would not cost the Government money except for set-up costs? Certainly that would be the case if we looked at progressive pricing. National did look at progressive pricing in the 1990s and considered it as a potential option as a means to reduce the costs on families. These are costs they cannot avoid and that they have to bear in order to keep their families safe and warm.

We know that families in this country are not safe and warm in their homes. We have a terrible problem with cold, damp housing, and it is causing a billion dollars of costs to our economy in lost productivity, in truancy and education costs, and in health costs. There is no plan in this legislation, which is so urgent we have to deal with it on a Friday, to deal with any of the expected costs that our poorest families must deal with. The personal tax cuts will do nothing for those families who are living in energy poverty. We are coming up to winter. It is May and we need it now.

BRENDON BURNS (Labour—Christchurch Central): I am very pleased to speak on Part 2 of the Taxation (Budget Measures) Bill. My colleague Stuart Nash chose a Rolling Stones analogy for this Budget and this bill, in terms of saying it did not give people satisfaction. There are other Rolling Stones songs that are equally appropriate. One is “Paint it Black”, because this is a “black” Budget and bill for many New Zealanders at the lower end of town. Another song is “Gimme Shelter” from the top tax rates—and, in the words of another song, “Gimme my money back”. If members recall, there is a Rolling Stones album called “Voodoo Lounge”, and this bill is about voodoo economics. President Reagan believed that if he cut the top tax rate, suddenly there would be a new surge of economic growth that would pay those funds back. We will see the borrowing of half a billion dollars in order to pay for tax cuts at the top end of town. “Jumping Jack Flash” is another Rolling Stones song. Jack Flash is very happy. He is jumping because he is receiving the benefits of this Budget.

Let us turn to Part 2 of the bill, which has two changes. The one that I want to speak in support of is the integrity of the Working for Families package and the efforts of the Government to remedy the problem arising from some people offsetting investment losses, such as losses from rental properties, against their taxable income, for the purpose of increasing their Working for Families entitlements. There are no problems from this side of the House with that change in the bill.

But the other change relates to the indexation of the Working for Families abatement rate. The party opposite used to rail about the impact of fiscal drag on working people and say we needed to adjust the rates so that people would not have their incomes eroded by inflation. Yet here were are heading into an inflationary period that Treasury estimates will hit darn near 6 percent, and we see this bill de-index the abatement rate for Working for Families.

Those working New Zealanders who—

Hon Dr Wayne Mapp: There is a tax reduction instead.

BRENDON BURNS: They will get tax reductions instead? Oh, wonderful! I ask Mr Mapp whether those reductions will not be affected by 6 percent inflation or by the July increases in power and petrol prices as a result of his subsidies in the emissions trading scheme.

In this part of the bill we see a move to stop indexing for the impact of inflation on the abatement rate. There is no surprise about that, coming as it does from the party opposite. Was it not the Prime Minister who described Working for Families as communism? “Communism by stealth” was the phrase that he used. Well, excuse me if I am a mite suspicious of Part 2 when we are seeing very stealthily the de-indexation of the abatement rate at a time of high inflation, and at a time when it is most important that Working for Families continues to rise with inflation. Yet this bill does absolutely the opposite of that. It will stop the inflation indexation of the abatement rate, and that, of course, will mostly come at the expense of lower to middle income families, who are the major beneficiaries of Working for Families.

Yes, as the bill acknowledges, there are people who are perpetrating rorts and maximising their exposure to Working for Families, and this part attempts to close off that. We have no difficulty regarding that. But de-indexing from inflation, at a time when we are expecting, by Treasury estimates, to see inflation go to 6 percent in the year ahead, is being done at absolutely the wrong time. It is being done because this Government really has no commitment to Working for Families; it regarded it as a terribly, awfully socialist policy. The fact is that Working for Families has lifted many thousands, tens of thousands, of New Zealand families out of poverty, and it sees many families not pay tax because they are on low to middle incomes and have a number of children. Those families deserve to be supported. We are supposedly a Parliament, a Government, and a nation that wants to protect and preserve families and their integrity.

The changes in Part 2 are around the integrity of the Working for Families package. I applaud the changes that will mean that people cannot rort Working for Families. But at the same time, this part clobbers ordinary working families, because at a time of such high inflation we will see an end to indexation. This will simply be one of those exercises that this Budget repeats time and time again: it gives with the one hand, and it takes back viciously with the other. It takes back viciously with the other because we will see an end to the indexation of Working for Families, at a time when inflation will go through the roof. That is wholly inappropriate. Members opposite should be screaming against that change.

STUART NASH (Labour): My colleagues have let me speak because I wanted to continue on this theme that I talked about before, because I think it is quite an important piece of legislation. As I mentioned, I agree with the Minister of Finance on this, and I was explaining what used to happen. If people paid their marginal tax rate at 38 percent, they could channel money through a trust, and the final rate on a trust was 33 percent. But the dividends, or the disbursements, from the trust were not counted as income, and as someone said, there are trusts sprouting up like rabbits in Southland; I think John Shewan said that. People were setting up trading trusts that owned the companies, so they were paying a company tax rate. They were paying themselves about $70,000 or $69,995, just below the top marginal tax rate, and then that dividend from the company went into a trust, and they were paying money from the trust, disbursing it at 33 percent—that is how they were avoiding tax. That is why it is very important to align the top marginal tax rate with the trust rate.

I do not agree personally with dropping the top marginal rate down to meet the trust rate; one could have increased the trust rate to meet the top marginal rate. The difference with a company, for example, is that one does not need to have a trust to run a company. People were setting up trusts to avoid tax. There are a whole lot of reasons why people have trusts, and I know that the vast majority of members on this side of the Chamber have trusts, but the reason a lot of Kiwis have trusts is to protect their assets, not to run income through them. But the difference with a company is that dividends that were paid from a company were paid at its marginal tax rate, so it was harder to avoid. This will still create an avoidance industry, as Metiria Turei has pointed out, because if there is a differential, it will still create an avoidance industry. But it will not be nearly as high as it was under the trust rate. This is something we would have changed, there is no doubt about that. So I support the Minister on this change.

The Inland Revenue Department also estimated that about 9,800 Kiwis were channelling their income through a trust, and therefore saying it was not a part of their income and claiming Working for Families. The cost of this was about $57 million. Here is a story. I have a very good friend, whom I talked about yesterday, who is one of New Zealand’s top entrepreneurs. He went to his accountant, who said to him that he was paying too much money in tax and the accountant would channel his income through his trust and he would claim Working for Families for him. This guy is worth about $80 million or $100 million, and he threw up his hands and said that Working for Families was not for him and that it was put there for the 335,000 Kiwis who actually need that extra money. He said that he was not prepared to do that at all.

Unfortunately I showed my indignation too early so I could not get the name of this accountant. But although the Inland Revenue Department estimates the number is 9,800 people, this accountant had told my friend that most of his clients do this, so I suspect the figure was a lot higher. I suspect we did not know the half of it. This is why I support this clause in terms of allowing the Inland Revenue Department to get rid of the avoidance industry around restructuring things through trusts.

Let me talk to Part 2. Am I right in saying that the Minister in the chair, the Hon Peter Dunne, was the person who set up the Families Commission?

Hon Ruth Dyson: Say that again.

STUART NASH: Did Peter Dunne set up the Families Commission? He did. We have an ex - Families Commissioner in our caucus, Rajen Prasad, and the thing that astounds me is that Part 2 also takes away the automatic indexing of Working for Families to inflation. That is astounding. I ask the Minister to stand up and tell us his logic behind that. I ask him to stand up and take a call, because he set up the Families Commission and Part 2 means it is not now automatically indexed to inflation. It is at the will of the Government. So if inflation, which is running at 5.9 percent—that is the Government figure—does not get indexed, that means there are a whole lot of Kiwi families who could really miss out. Working for Families was set up because the previous Labour Government understood how hard it was for families to re-engage in the workforce. Kids cost money; we absolutely love them dearly, but they cost money.

JOHN BOSCAWEN (ACT): We are debating Part 2 of the Taxation (Budget Measures) Bill, which makes changes to the Working for Families allowances, and also adjustments to the personal rates of taxation. It sets up much lower rates of taxation. In particular, it drops the rate of taxation for those earning less than $14,000 from 12.5c in the dollar to 10.5c in the dollar; for those earning in that big bracket from $14,000 to $48,000, the rate goes down to 17.5c in the dollar, and for those earning from $48,000 to $70,000, the rate is reduced to 30c in the dollar. One of the reasons the Government has given for these reductions in personal income tax rates is the need to compensate for the increase in GST. Of course, the first part of this bill gives effect to that increase in the GST rate from 12.5 percent to 15 percent.

But I challenge these decreases in personal tax rates. I was very pleased to hear Brendon Burns say just a short time ago that one of the things these tax reductions will not do is compensate for the increases in power and petrol that we can expect from 1 July as a consequence of the emissions trading scheme. Mr Burns has been the first MP I have heard from the Labour side to acknowledge that the emissions trading scheme will have an effect on inflation. I am very pleased that Mr Burns has done that, because his colleagues have talked in very general terms about the inflation rate of 5.9 percent, and how a rate of 5.9 percent will eat into these tax reductions. There are two components to that 5.9 percent: there is the general effect of inflation, and there is the one-off effect of the increase in GST and in the price of power and electricity, which will flow throughout the economy as a consequence of the emissions trading scheme.

I find it also interesting that Labour is constantly referring to Paul Reynolds, the chief executive of Telecom, and the impact that these tax reductions will have on his take-home pay. I suggest that another group of people we should be looking at is not individual persons but farmers. I ask what impact these personal tax reductions will have on the incomes of farmers, who are the actual backbone of our economy. We have heard a lot from the Government in recent times about the fact that the costs of the emissions trading scheme will not affect agriculture until 2015. But farmers, like all New Zealanders, will be affected by increases in electricity, petrol, and diesel prices from 1 July. Meat and Wool New Zealand, the lobby group that represents sheep and beef farmers, has said that the impact on farmers, as a consequence of the electricity and petrol cost increases, will be about $1,300 a year, and will be a further $1,300 at the beginning of 2013 when the emissions trading scheme is effected. Essentially, that is $2,600 for electricity and petrol costs. Will these tax reductions fully compensate farmers for that? No, they will not.

There is another cost that the emissions trading scheme will impose on dairy farmers’ incomes from 1 July. Fonterra has announced publicly that the cost on its company from 1 July will be about $38 million, which is firstly a consequence of electricity price increases, but also because the emissions dairy herds give off will have to be accounted for in the processing of milk. That cost of $38 million on Fonterra will be passed directly back to farmers. Dairy farmers will be paying, on account of the emissions trading scheme and the processing of milk, about $2,600 a year from 1 July and a further $2,500 from 1 January 2013. All up, those two costs—on the one hand the cost of electricity and petrol, and on the other hand the cost of Fonterra processing dairy farmers’ milk—will affect dairy farmers’ incomes by $3,900 on 1 July 2011 and a further $3,900 on 1 January 2013. I acknowledge that the Government has said that it may well review the emissions trading scheme and that that secondary increase may not come in, but certainly Meat and Wool New Zealand are quoting $3,900 as the first one-up impact on dairy farmers’ incomes. Thank you.

DAVID SHEARER (Labour—Mt Albert): I want to lead on for a second from where Mr Boscawen ended just now in terms of what this Budget is doing to the productive economy. I think that buried in amongst the detail is a significant cost to farmers and other productive industries that want to be able to invest—for example, to invest in capital. If they invest in the leading edge technology that will be able to drive and increase their businesses, they no longer have the ability to claim depreciation. So they will not be able to invest in that way. That will be another impact on the productive economy.

I have spoken earlier about the need to look at investments, our savings rate, and our ability to increase our exports, and the complete absence of real incentives in this Budget for that to occur. I particularly touched on innovation and research and development. Frankly, if we look at the history of our economy, we see that it was innovation and research and development applied to our natural resources that made us wealthy. It is as simple as that. When we see the paltry amount of money that this Budget invests in research and development and innovation, we know that this Government is not serious about moving New Zealand’s economy up the value chain and increasing its productivity.

Stuart Nash: What’s the Labour budget on this?

DAVID SHEARER: I can tell members right now that if Labour’s 15 percent tax credits for innovation and research and development had been continued, business research and development would have doubled. The productive end of the economy is not being looked after in this Budget.

The other part that is not being looked after is the people at the bottom of the pile. The previous Labour Government, through the Working for Families scheme, was able to lift 130,000 people out of poverty and put them into productive enterprise. That was the legacy of the Labour Government. It was really touching last night to look at the Tagata Pasifika TV programme and see the impact that this Budget will have on families at the bottom of the pile. I refer to the family of a husband, wife, and four kids on that programme. By the time they take off their rent, their electricity costs, the cost of running their car, etc. they have $80 a week left to feed six people. According to the budgeting service, the family need more than $200 for food; they are trying to get by on $80 a week.

The family rely on Working for Families to give them the incentive—and I emphasise the word “incentive”—to move forward, to get into productive work, to do the best for themselves, and, obviously, to benefit our economy. What will the family get from this Budget? They will get a kick in the teeth, because, as a number of speakers have said, the Government has removed the indexing to inflation. That is what it has done with this Budget. So the Working for Families incentive that people receive will be slowly eroded over time. It is not only that poor family in Manurewa that will not benefit from the Budget; the many poor families in my electorate—which make up most of my electorate—will not benefit from the Budget, at all. Most of them will find that the paltry tax breaks that the Budget gives them will be eroded by the GST increase, by power prices, by fuel prices, by the tobacco price increase, and by the accident compensation levy hikes. That is what will happen to the people in my electorate, and that is what will happen to that particular family. Inflation, as Mr Nash pointed out before—

Craig Foss: 0.9 of the 5.9 percent.

DAVID SHEARER: I get a bit tired of members on the other side quoting percentages at me. These people cannot eat percentages, I say to Mr Foss; they cannot eat percentages.

DAVID CLENDON (Green): The Budget release is one of the big political events of the year. It is a time when the public pay a bit of attention to what goes on in this place, and, of course, the media get excited. I think one of the best media commentaries, one of the most astute, and also one of the most succinct, is on the front page of today’s Dominion Post. The headline reads simply: “Lollies for all”. I think that brief phrase captures the essence of this Budget. After all, what are lollies? They give us a momentary sense of sweetness and they give us a bit of a sugar rush, but there is not a lot of long-term value in them. There is not much nutrition in lollies. There is nothing to build strength or, over time, to add value. I think that sums up this Budget quite nicely. We all get a nice wee sugar rush; we get a tax cut. The difference between the gross income figure and the net income figure is reduced momentarily, or it will be in a few months’ time, but the apparent benefit, that sugar rush, will not last for very long. Inevitably, people will get over it, and what will be left is quite a sour taste.

Already people have lost some of the benefits of the tax cut, through such things as accident compensation levy increases. When families need to re-register their cars, they will discover it will cost them a great deal more than it did last year. The accident compensation employers’ levy has also gone up. Electricity prices have been mentioned; they are on the up. That is because the Government is not adopting a progressive system, such as the one the Greens are proposing in our Mind the Gap package, which is a system whereby people would get affordable electricity and would pay extra for excess use only. No, the Government chooses to stay with a much less progressive policy. People will be paying more for their public transport, because of the insistence on dumping massive amounts of cash into roads, which is a subsidy for road transport, albeit that is denied. People using public transport are being forced to pay more, because, apparently, some ideological purity demands that public transport must pay its way. So in many ways people are being cheated by this Budget. The little sugar rush is all they are getting. There is no long-term value in it for the average family.

GST, clearly, is where the rubber hits the road immediately. In a few months’ time, every time people purchase an item they will be paying more. GST is a highly regressive form of taxation, because those who earn the least will pay the most in terms of their overall expenditure. People will pay more for food, petrol, and accommodation—all of those things that people must have. The people who have the least choice will have even fewer choices than they had before.

What has been missing from some of this debate is the effect on retailers when people spend their money. The retailers will be the ones in the front line, bearing—literally, in many ways—the cost of the increase in GST. We know that when the Government proposed to raise the level of GST it did not talk to small-business owners and it did not talk to small to medium sized enterprises. We know this because some weeks ago we asked the Minister of Finance what consultation there had been with small to medium sized enterprises over the probable impact, the cost to that sector, of raising the level of GST. The answer from the Minister was that there had been no consultation. Despite the fact that 85 percent of New Zealanders earn their living in the small to medium sized enterprise sector, that sector was not consulted about the cost to it and to the wider community of GST being put up in this way.

That is a remarkable reflection, and it says something about the priorities of this Government and its blindness to what happens in the real economy in the real world. We know that there will be a cost to retailers in particular, and that cost inevitably will be passed on to consumers. There will be the one-off cost of rejigging the way in which they charge—the technology change, effectively—and repricing everything on their shelves. There will be an inbuilt cost. What do retailers do when they are running near a sensitive price point on a given product? Do they simply add the GST, which puts the product into another pricing point, which creates consumer resistance? They then have to either cut their margin or face consumer resistance to purchasing the product.

Four months is a very short time for small-business people without the resources of large companies and large organisations to try to get their heads round how they will actually manage the transition. They have not been consulted by this Government. I fail to see anywhere any measure with which this Government will assist them with that transition, and that cost will come back to hit consumers, to hit the families who are already struggling. Suddenly their tax cut will be seen for the illusion it really is. Again, the Dominion Post headline showed that very well. Kia ora.

Hon PETER DUNNE (Minister of Revenue): I am very happy to follow the member who has just resumed his seat, David Clendon, because today I am announcing the establishment of a special GST advisory panel precisely to deal with the interests of retailers and the small business sector in terms of the technical adjustments that they will need to make through to the introduction of the changed rate on 1 October. That panel will be in place until the end of this year. It has a 6-month lifespan and it will be out there consulting with those who are most affected to make sure that the very things that the member was talking about are able to be addressed in time for 1 October. I simply say to him that the reason that we did not make that announcement earlier was that, quite obviously, until yesterday there was no announcement of a decision to increase the rate of GST. So we are getting the cart behind the horse rather than in front of it.

I come back to the comments that Mr Nash made regarding the abatement rate for Working for Families. I point out to him that he has the wrong part of the bill; the clause that gives effect to that change is actually clause 94, which is in Part 3 of the bill, which we are yet to debate. But since he has jumped the gun, I am happy to address at this stage some of the points that he raised. Clause 94, in Part 3—which we will debate when we get to it—holds the abatement at the current threshold of $36,827. The reason for this is quite simple. A person earning $36,827—or above, but we will stick just with the bottom rate at the moment—as a result of the tax changes we passed in Part 1 of the bill, will be $1,078 a year better off. So the issue about whether the automatic indexation that was provided for previously needs to continue is somewhat overtaken by events.

I ask members to bear in mind that people earning that rate of income and below will now be paying a marginal rate of 17.5 percent. That is a big drop on the current 21 percent rate, and it is a virtual halving of the rate that only a couple of years ago was as high as 33 percent for that bracket of taxpayers. In fact, around 73 percent of taxpayers will be paying no more than 17.5 percent as a marginal rate. So against that background the notion of a periodic indexation for the Working for Families abatement rate becomes somewhat irrelevant. The provision will be there, as set out in clause 94, for it to be adjusted by Order in Council from time to time as circumstances dictate. But the real point of the change, and why we felt it was unnecessary to continue with the automatic indexation—which was, in effect, a form of compensation for a lack of movement in tax rates—was the fact that we are making not only a change in that marginal rate but, proportionately, the biggest change in any of the measures in the bill. The drop-down from 21c, as it currently stands, to 17.5c is being made for the very group affected by that provision.

Dr Cam Calder: Eminently sensible.

Hon PETER DUNNE: I take the member’s point; it was eminently sensible. It delivers a far bigger benefit to those households than would have been possible under the regime that was in place. As I said, even for someone at that threshold level, their tax gain is over $1,000 a year—around $20.75 per week. That is a good advantage and far better than anything an adjustment in the abatement rate would have delivered. So although the member jumped the gun, I am happy to respond to him at this point and indicate the reasons why that change was made.

IAIN LEES-GALLOWAY (Labour—Palmerston North): I am very pleased that the Minister in the chair, the Minister of Revenue, traversed the subject that he did, because I would also like to discuss the same material. The Minister talked about percentages and things that are somewhat intangible to real families. I would like to talk about the real example of a real family who actually happen to live not far from where I live in Palmerston North, and the effects that the changes set out in Part 2 of the Taxation (Budget Measures) Bill will have on them.

This family has four children. Dad works—he is a scientist, funnily enough, and he earns a reasonable income. Mum is at home with the kids. One of the great things about Working for Families is that it allows many families to have one parent at home, and I am sure the Minister in the chair thinks that that is a good idea. Using the Government’s tax calculator, that family figured out that even with the dodgy inflation calculations in that calculator, the tax cuts would get them between $16 and $20 a week extra. That sounded quite nice, on the surface of it. But then we have the changes to Working for Families and the lack of indexation, as set out here in this bill. So the inflation rate is to hit 5 percent to 6 percent, yet we have no indexation of Working for Families. That family, a hard-working family that this Government reckons that it is targeting, will see the benefit that they are receiving from Working for Families become slowly eroded over time. They will become steadily worse off.

But that is not actually the worst thing that will happen to this family. The worst thing concerns the fact that they have kids who still need to go through early childhood education—in fact, my youngest will be going to kindy with their youngest. The cost to them of early childhood education will be far greater than the amount that they receive from tax cuts. So the Government gives with one hand but it takes an awful lot away with the other hand.

That is the truth about this bill, that is the truth about this Budget, and that is one of the biggest swindles in this Budget. The Government goes on and on about what it is doing for hard-working, battling Kiwi families, but in truth, what it is doing is giving a tiny amount with one hand and taking away a whole lot more with the other hand. Let us look at the regulatory impact statement for the bill. Why is the Government looking at taking these measures around Working for Families? We see that it is to save money. The Government hopes that it will spend a lot less money on Working for Families.

Let us look at the impact of the equity measures, which Treasury has looked at. It says the impact is mixed. When Treasury says the equity measures will have a mixed impact, that is hardly a ringing endorsement of this bill for the middle-income families of New Zealand. Basically that means that even Treasury knows that the changes happening as a result of this bill will be unfair on middle-income families—at best. At the very best, if we are very charitable to the Government, we could say that hard-working families are no better off than they have been. But the truth is that when we talk about real families, when we step away from percentages and the theory and get down to the practical impact of this taxation bill on real families in New Zealand, we find the truth is that they will become worse off. They will become worse off because this Government wants to appear to be supportive. It gives with one hand with the tax cuts, but when we look at what is happening with Working for Families, we see the truth is that with the inflation that we will no doubt see through the increase to GST, through higher power bills and higher rent, those inflationary increases will be passed on to families through the changes that this Government is bringing into place.

Working families will become worse off. Let us make no bones about it; that is the fact. That is what is happening as a result of the changes to Working for Families that are made in Part 2 of this bill.

COLIN KING (National—Kaikōura): I move, That the question be now put.

A party vote was called for on the question, That the question be now put.

Ayes 67

New Zealand National 58; ACT New Zealand 5; Māori Party 3; United Future 1.

Noes 50

New Zealand Labour 43; Green Party 7.

Motion agreed to.

A party vote was called for on the question, That Part 2 be agreed to.

Ayes 67

New Zealand National 58; ACT New Zealand 5; Māori Party 3; United Future 1.

Noes 50

New Zealand Labour 43; Green Party 7.

Part 2 agreed to.

Part 3 Other measures

STUART NASH (Labour): It is interesting to see Rahui Katene in the Chamber; I welcome her to the Committee. I am interested to see how she votes on the Taxation (Budget Measures) Bill, because she had a member’s bill pulled out of the ballot that seeks to remove GST from healthy food.

Hon Trevor Mallard: And Kentucky Fried Chicken and chips.

STUART NASH: Yes. At the moment we are debating a tax bill to increase GST from 12.5 percent to 15 percent on all items: healthy food, petrol, electricity—everything. Am I right in hearing that that member voted for this bill?

Hon Ruth Dyson: The Māori Party did.

STUART NASH: The Māori Party voted for this bill.

Hon Trevor Mallard: Only three of them did.

STUART NASH: Where are the other two? Where is Hone Harawira? Hone Harawira puffs out his chest—

The CHAIRPERSON (Eric Roy): Members cannot refer to the absence of members from the Chamber.

Hon Trevor Mallard: Ask why they didn’t vote.

STUART NASH: I ask why they did not vote. Are ructions going on in the Māori Party? Is this the split of the marriage between the Māori Party and National? Members should watch this space, and the public should watch this space. The press will have picked up on the fact that only three Māori Party members are voting for this bill. I thought they had more than three members. Two Māori Party members are not voting for this tax legislation. That says something about what is happening here. It says something about the dynamics.

I wonder why two Māori Party members are not voting for this legislation. When I look at the statistics, I see that 71 percent of people in Māori electorates earn $40,000 or less. The median income of all those in the Māori electorates is $21,900. What do we think that an increase in GST will do to the people who have an income of $21,900? I will tell members what it will do. It will increase the price of petrol. It will increase the price of apples. It will increase the price of fruit, vegetables, Kentucky Fried Chicken, rates—everything. It will increase the price of everything for everyone in those Māori electorates, yet three people in the Māori Party are voting for this legislation. That is astounding.

It is quite amazing that Rahui Katene is the one down here providing the votes for this bill. As mentioned, that member has a bill that has been drawn out of the ballot to remove GST on healthy food. That is quite astounding.

I move to Part 3. We have already had a good debate on Part 3. I have some concerns with the Minister’s argument, because the huge rate of inflation will erode the real value of wages and, therefore, their spending power. This Government increased the minimum wage last year. What did it increase it by?

Metiria Turei: 25c.

STUART NASH: The Government increased the minimum wage by 25c. How will that help people cope with 5.9 percent inflation?

Craig Foss: Look at page 63: nominal wages are up 14 percent over the next 4 years.

STUART NASH: I say to Mr Foss that we are talking about people on the minimum wage. If we look at that member’s electorate, we see that 76 percent of people in the Tukituki electorate earn under $40,000. They got absolutely nothing in tax cuts last year, and they will be hurting this year. I challenge that member to hold a public meeting with all his constituents, with the 76 percent of constituents who earn under $40,000, to see whether he can sell this Budget to those constituents. Will he tell them that inflation will eat it away, that they will not get much at all, and that GST will eat it away? What are those 76 percent of constituents—and let us not forget that the median income is only $22,500—going to get out of this Budget? They will get nothing but pain and heartache.

It will be a winter of discontent. Mr Boscawen has mentioned increasing power prices. Those increases will not come from the emissions trading scheme; they will come from the fact that Mr English said to Mr Brownlee that he wants a greater dividend out of State-owned enterprises. What does that mean? It means an increase in power prices. This will be a winter of discontent for many, many Kiwis, and I tell members that leading up to this election, many people will say that they voted for a change, but this is not the change that they voted for. I would like Mr Foss to organise that public meeting. I will come along and see how he sells this package.

CHRIS HIPKINS (Labour—Rimutaka): I am going to talk about superannuitants and the old diggers, the people who receive war pensions. Part 3 of the bill will supposedly compensate our superannuitants, our pensioners, for the cost of living as a result of the increase in GST. But that is another cruel hoax, as is much of the Budget, because it does not say that the compensation has an expiry date. The cost of living will increase. In fact, the compensation being offered does not compensate for the true increase in the cost of living, because for superannuitants who live at least a little on the interest from their savings, the increase in GST will lower the actual value of their savings. They may still have $20,000 or $30,000 in the bank, but the value of that will be less in real terms after GST is increased; there is no compensation for that. Although they may receive some short-term compensation in superannuation, in the longer term their savings will not be compensated for. Of course, in the longer term if the Government commits to retaining superannuation at 66 percent of the average wage, in fact the value of that compensation will disappear and erode over time. It has an expiry date on it. If the Government were saying that it was going to permanently increase the level of superannuation in order to compensate for the GST increase, then that would be an entirely different thing. But it is not doing that. The Government will not compensate superannuitants on a permanent basis for the increase in GST. Our senior citizens are being swindled by this Government. It promised that it would not increase costs for superannuitants, but that is exactly what it is doing. Superannuitants will have to face 5.9 percent inflation, which means that the value of their savings in the bank will be worth 5.9 percent less, but the Government is not doing anything to offset that or to help them. Senior citizens are being diddled out of the value of their savings.

The other thing that is directly relevant to this, which I get asked about by superannuitants in my electorate, is the kind of country we are leaving for future generations. That is something that superannuitants think about. They think about their grandchildren; they will be thinking about how this Budget loads up a mortgage on their grandchildren to pay for tax cuts that are disproportionably targeted to those on the highest incomes. Superannuitants are concerned about that, because they want to think they will be leaving the country for their grandchildren in a better state than it was when they found it. But in fact they will not be. This Government is spending that inheritance and loading up debt on future generations. This Government is interested in only the next 18 months. It is interested only in being re-elected.

It is not interested in 10 years from now, when half a million New Zealanders will be retiring. It is making no provision and no saving for that. It has not recommenced contributions to the New Zealand Superannuation Fund. It has not done that. In fact it will not do that even when it gets back into surplus, which was another of its promises. So now that is another broken promise. I ask members how many there have been. I have lost count. I cannot remember how many broken promises we have had out of this Budget. It is full of broken promises. There are broken promises on interest-free student loans, broken promises on early childhood education, broken promises on GST—it is all just broken promises. This is a Government that cannot be taken at its word before an election.

Hon Trevor Mallard: Or after.

CHRIS HIPKINS: People cannot rely on the Government delivering on what it says it will, before an election. As Trevor Mallard has pointed out, we cannot rely on the Government’s word after an election either, because it is a Government that simply shifts around.

John Key is very relaxed about it all. I ask members how prime ministerial his speech was in the Budget debate yesterday; he spent the first 10 minutes laughing and cracking jokes. That was very dignified and prime ministerial! People have rung me to ask whether I think it was undignified; I think that it was very undignified of him. It would have been good to hear the Prime Minister in the first 10 minutes of his speech actually mention the Budget. He can focus on the Labour Party if he likes, but maybe he should have talked about the Budget that his Minister of Finance had just delivered.

Perhaps the Prime Minister is just embarrassed by the Budget; perhaps he is embarrassed about the number of promises he has broken. He was the one who stared down the barrel of a camera and said that his Government would not increase GST. In fact, he said “If we do a half decent job growing the economy then that won’t be happening.” That is a broken promise. By the Prime Minister’s own admission, the Government has not done a good job of managing the economy, because 18 months’ into its term of government it has already broken that promise, and it has already increased GST. This is a Budget of broken promises.

METIRIA TUREI (Co-Leader—Green): Part 3 of the Taxation (Budget Measures) Bill deals with the property tax changes that are being proposed by the Government around depreciation and capitalisation. Those are two areas where the Greens agree that changes need to be made. We are pleased that there has been a small step in the right direction, but there is nothing like the kind of serious reform that was necessary and could have been provided through a capital gains tax, excluding the family home. We see that the Government has made some small steps while making more significant changes, of course, to the top tax rate. But it has made some small steps in the property area. It has not, however, done anything to deal with the inevitable rise in rents that will result from the changes—any changes—it makes to property tax, a capital gains tax included.

A truly responsible Government that talked and thought about a smart economy that was good for our people and our environment would have a joint approach whereby one not only shares the tax obligation more fairly through property taxes but ensures that there is provision of more affordable rental housing for those families who need it because of the inevitable rent rises. Treasury has, I understand, estimated an increase in rents of some 1.4 percent as a result of these small steps in property tax changes. I think that is a very conservative estimate, and I think it is quite possible that we will see an increase of more than 1.4 percent, because we also have the impact of inflation on rents and a growing need for rental accommodation. We have families who are desperate for somewhere to live.

The Green Party’s Mind the Gap package, which we released on Monday and which provides an alternative set of solutions to deal with inequality and our economic and environmental issues, had not only a capital gains tax to provide the sharing of the tax obligation but a programme to build another 6,000 State houses over 3 years. That would cost $2 billion, and we would need to make sure that we could find that money—$2 billion dollars over 3 years. It would also provide 28,000 new jobs. So not only does it have our package of capital gains tax and building State homes, and not only would it provide an income for the Government and spread the tax obligation more fairly, but it would provide housing for those families who are desperately in need. We would have not just housing but good-quality, warm, dry housing.

One in four households spend more than 10 percent of their income on energy just to keep warm—just to keep warm. Three out of four New Zealand homes are too cold to be healthy. That causes costs to our economy. There is a cost to the economy in excess of $500 million in terms of energy, lost production, and hospitalisation. There are 50 admissions a day for respiratory illnesses. That costs $54 million a year. One hundred and eighty thousand workdays are lost to sickness caused by cold and unhealthy housing. Over $400 million is spent unnecessarily on energy. That $400 million comes from the budgets of our families, who have to spend so much of their income on energy just to keep warm. So we must invest in housing in this country.

Housing is much more important than new motorways. Housing is a core part of New Zealand’s infrastructure. It supports our families so that our families can be productive, healthy, and well. Yet this Government has cut $100 million from the State house building budget. There will be no new State houses built under this Government, because it does not believe that New Zealanders deserve to be housed. It will give money to the road-building lobby—sure, that is fine—but it will not invest in homes for our families so that our families can take care of their children.

We have 10,000 families on the State house waiting list who are desperate for somewhere to live. We have people living in garages. Thirty to 40 percent of our most vulnerable young people in this country are living in unsafe housing, which puts them at risk. Where the investment for those families, those children, and those young people? It is nowhere from this Government.

Hon Sir ROGER DOUGLAS (ACT): I will be brief. I want to ask the Minister in the chair, Peter Dunne, a couple of questions in relation to rental property and the loss of the depreciation rights. I must say that I certainly had not contemplated the 50-year rule. It seems to me that it is a relatively neat provision. I thought that the Minister might have reduced it to about 1 percent or something of that nature. I am interested in the administrative handling of it, particularly for older houses—maybe a house that is 60 to 70 years old. One would hope that the procedures would not be too bureaucratic. But that is a minor issue.

The second issue is really the more important one, and that is what economic analysis has been done on whether the measure, which is in Part 3 of this bill, is in fact likely to change New Zealanders’ attitude towards, or love of, investing in rental property. I think one of the big reasons that people invest in rental property is not just the fact that the sharemarket is prone to go up and down but that they tend to understand rental property. From my calculations, the loss of deductions is probably equal to an interest rate rise of about 1 percent. It is equal to an interest rate rise of approximately 1 percent, and I am not sure that that is likely to deter property investors from investing in rental property.

If we take a house in a regional town worth $200,000, and we take 40 percent off that for the value of the land, that brings us down to about $120,000. We then take off $20,000 for chattels; they will still get the depreciation, as I understand it, on the chattels. That leaves $100,000. At 3 percent, property investors will lose the depreciation on that—on $100,000 that is $3,000. Those people are likely to be on the new top rate of tax—and we thank the Minister for that—so after those savings they will lose about $1,000. They will have to pay an extra $1,000 in tax. On a borrowing of $100,000 that is equivalent to 1 percent. If it is as high as 80 percent, then the equivalent borrowing cost is probably only 0.75 percent.

So I am not sure that this provision will change the approach of New Zealanders to rental property, and I wonder whether the Minister received any analysis of it from Treasury or anyone else. I think that what might deter people from moving into rental properties in the near future is the likelihood that interest rates will rise by 3 percent over the next 2 or 3 years. If we look at the prediction at the back of the Budget we can clearly see that mortgage interest rates are likely to rise by at least 3 percent and maybe hit 8.5 or 9.5 percent. I just wondered what economic analysis the Minister had received.

Hon PETER DUNNE (Minister of Revenue): I thank the member for raising the point about depreciation and the way in which the package has been constructed. I thank him for his comments, which, on the whole, I think were helpful. Essentially, what we have done is as follows. The Tax Working Group had an estimate of about $1.3 billion as being the cost of depreciation. When we recalculated the figures they came out at around half of that. What we have done by introducing the 50-year provision is allow for buildings that have a transitory lifespan—for instance, farm buildings, warehouses, and various industrial settings where the short-term use is likely to be around 50 years’ duration. Beyond that, when we looked at residential property and other commercial buildings, it was our assessment that, firstly, most of those are going to endure for more than a 50-year period, and, secondly, over their lifespan, whatever it is, they certainly will not depreciate in value. If we take the example of a turn-of-the-century villa that may have originally gone on the market for £1,000 many, many years ago, even in real dollar terms today it certainly will not have depreciated over time. So the notion that people could then claim depreciation against something that was not depreciating seemed to us to be a bit silly.

I guess the bigger question the member raises, though, is why we did the depreciation measures and did not look at some other measures that might have had a more dramatic effect. There is a question of balance here. We wanted to send a signal to people who entered into property investment for essentially speculative purposes and used the mechanisms that were available to advantage their tax circumstances, as opposed to those who wanted to enter into the property sector because they thought it was a good investment. It is the old argument that the member will be very familiar with about investments being made on the basis of the quality of the investment rather than the tax advantages that accrue.

Our estimate about the likely increase in rents, on the best advice available from Treasury, was that it would be about 1.4 percent, from memory, so we do not expect there to be a significant impact, although over time there will be a modest impact. Again, we have to offset that against the tax changes that are taking place, and look at the broader picture there.

One issue that people will immediately leap on will be to say that we will now see a big explosion in fit-outs, renovations, and other things designed to change the character of a building. The Inland Revenue Department will be issuing a discussion document in the very near future about how we might address that, and we will be working our way through that issue with the sector and other interested parties over the time ahead.

In conclusion, I simply say that any investors who have some doubts as to where they are left as a result of these changes, and about what their appropriate depreciation rate should be, should immediately contact the Inland Revenue Department. A list is being developed. Basically, it is a reformulation of the existing list that takes account of the various situations and circumstances. On the whole I think that the measures we are introducing in this part are a balanced response. They will certainly shift the emphasis to the quality of the investment. But the one thing they will not do, because the tax system is not capable of doing it, is shift what the member referred to as the emotional attachment of people to various forms of investment. There will always be the attraction to property because it does not depreciate over time. What we intend to put in place is a regime that is fair, reasonable, and, ultimately, enforceable.

A party vote was called for on the question that Part 3 be agreed to.

Hon TREVOR MALLARD (Labour—Hutt South): I raise a point of order, Mr Chairperson. I thought that the normal practice was that when there was a short vote, the question was asked as to whether there were any other votes to allow for the possibility of abstentions. I wonder whether that practice is being followed.

The CHAIRPERSON (Eric Roy): Technically that is right and I ask the Clerk to put that. Before I declare the vote, I point out that I cautioned the House yesterday about members calling out during voting, and maybe to reinforce that it may well be time that someone takes a walk, as that used to be the practice. I just affirm that no members will vote in this Chamber under duress, and we need to hear the votes.

A party vote was called for on the question, That Part 3 be agreed to.

Ayes 67

New Zealand National 58; ACT New Zealand 5; Māori Party 3; United Future 1.

Noes 50

New Zealand Labour 43; Green Party 7.

Part 3 agreed to.

Hon TREVOR MALLARD (Labour—Hutt South): I raise a point of order, Mr Chairperson. I understood that this was a confidence vote for the Government and therefore there is an obligation on the part of the coalition and confidence and supply partners to support it. Clearly, that has not been—[Interruption] Therefore, I am slightly surprised at the declaration of a short vote and ask whether that is an indication of some members having now left that confidence and supply arrangement.

Hon GERRY BROWNLEE (Leader of the House): It is somewhat rare and unusual to have to do this, but the situation is that parties, of course, cast their votes within the requirement that they can have some people away from the House but can still cast a full vote. All parties are in that position. In this case, not only is public business taking one of our colleagues away but also I understand that two tangi are also part of proceedings. There was an absolute full vote yesterday. When it comes to personal matters there is not a lot the House can do other than, in these circumstances, meet the requirements of public functions that have been committed to and, of course, take care of family business.

The CHAIRPERSON (Eric Roy): I am not sure whether that is a matter of order for the Committee, but it does possibly relate to matters that are related to the order of the Committee. However, the member has had an explanation and I think we should accept that.

Clauses 1 and 2

STUART NASH (Labour): When we talk about the commencement date, there is a slight concern. GST increases are coming in on 1 October, and cuts to personal taxes are coming in on 1 October. The systems are changing over in the middle of a financial year. Firms have the end of their financial year either at the end of April or at the end of the calendar year; I have never heard of any starting their financial year on 1 October. As we know, and as the Minister in the chair, the Hon Peter Dunne, himself pointed out, the Minister has set up a commission or a task force or something to help small to medium sized business with their questions, their concerns, and the issues of compliance costs around GST. This commencement date will only compound that further, because I suspect businesses will have to run two series of accounts and two payrolls, and the cost of that will be higher than it should have been. So I have some concerns around that clause.

Sitting suspended from 1 p.m. to 2 p.m.

STUART NASH: I was looking at the title over the break, and I do not think that the title we have at the moment is a true reflection of the bill. The bill is called the Taxation (Budget Measures) Bill; it should probably be called the “Tax Cuts for the Extremely Wealthy Bill”. If people earn really big money, they will get a really big tax cut from this bill.

The name of Paul Reynolds has been dragged out at every debate, but there is a good reason for that: he is one of our highest-earning people. He will do incredibly well out of this bill. He will get about $1,600 extra a week, or an extra $88,000 a year in the hand, so he is absolutely rapt about this bill. But for the worker on the median wage, the tax cut is about $5 a week or $262 a year. Eighty eight thousand dollars versus $260—that is not really very equitable, is it? I do not think that that is equitable, at all, in fact, and I think that the vast majority of New Zealanders out there will be looking at this—not enviously, because New Zealanders are not envious sorts of people—and thinking that it is not really fair. So we could call the bill the “Don’t Be Envious Tax Bill”—

Hon Clayton Cosgrove: Jealous.

STUART NASH: —sorry, the “Don’t Be Jealous Tax Bill”—because the Prime Minister signalled very early on, before we knew what would be in this bill, that he thought there would be Kiwis who would be jealous about this bill. What message does that send? We did not even know what the tax package would be, yet the Prime Minister told Kiwis not to be jealous. Immediately, everyone knew that this was a bill where the top players, the very wealthy, would get a substantial amount of money—like Paul Reynolds’ extra $1,600 a week—and the person on the median wage would get an extra $5 a week.

H V Ross Robertson: How much?

STUART NASH: Five dollars a week. As I said, Kiwis are not envious by nature; we are not jealous by nature. In fact, we do not ask for very much, at all. But what we do ask for—

David Shearer: We want a fair go.

STUART NASH: Mr Shearer is dead right—we want a fair deal. We kind of know when we are being ripped off or rorted, and we do not like it. We just do not like it. So when someone on the median wage, who will get an extra $5 a week, hears about someone like Paul Reynolds getting an extra $1,600 a week, or John Key getting an extra $350 a week, it does not feel right. It actually feels to them as if they have been ripped off a little. As I say, it is just not fair.

How about a title like the “Budget of Broken Promises Bill”, or the “Broken Promises Bill”? John Key looked at the camera and said that he would not raise GST. He also said that he would not borrow for tax cuts.

Hon Darren Hughes: Jonathan Coleman said that too.

STUART NASH: Yes. In fact, every member on that side of the Chamber went to the electorate and said that they would not raise GST or borrow for tax cuts. But this bill allows the Government to borrow $1.1 billion over 4 years for tax cuts—$1.1 billion over 4 years for tax cuts. In this bill there is provision for increasing GST. This bill increases GST for every single New Zealander. It increases it for Paul Reynolds, but he does not care; he has about $1,600 a week extra. But average people on the median wage will get an extra $5. This is the bill of broken promises.

How about the “Inflation Upwards and Onwards Bill”? As the Government has said in the Budget, because of this bill inflation will rise to about 5.9 percent. That rise will eradicate the real value of the savings of many, many Kiwis. There is a bit of a misconception over on that side of the Chamber, because this bill is about broken promises and inflation. This is not a great bill, at all.

Hon CLAYTON COSGROVE (Labour—Waimakariri): I probably cannot do any better than my colleague Mr Nash in his summation of the Taxation (Budget Measures) Bill as the “Broken Promises Bill”.

H V Ross Robertson: Give it a go!

Hon CLAYTON COSGROVE: I will give it a go, anyway. We could also call this bill the “Mark Bryers (I Am Getting a Thousands Bucks a Week After I Finish My 75 Hours’ Community Service) Bill”, because, as I said last night to “The Maestro” who is sitting in the back row over there, after Mark Bryers, the biggest crook in the Blue Chip scandal, has finished his 75 hours’ community service he will get a lovely little letter from John Key—because Mark Bryers earns over a million bucks a year—saying “Thanks, do not pass go and do not go to jail. You will get $1,000 a week in tax cuts from the Government.”

David Shearer: As a reward.

Hon CLAYTON COSGROVE: As a reward. So we could call the bill the “Mark Bryers (Thanks for Coming) Bill”. We could call it that. We could also reflect on the fact that as Mark Bryers gets his extra thousand dollars a week—because he earns a million dollars a year—all the people on the average wage will be worse off after taking their meagre tax cut, flicking on the increase in GST, and then being exposed to 5.9 percent inflation.

Hon Dr Jonathan Coleman: What about the “Goodbye Labour 2011 Bill”?

Hon CLAYTON COSGROVE: Oh no. You see, that member over there, the great “Maestro”—the man who did such a wonderful job in the Mt Albert by-election that his name as a tactician is mud—thinks he is so good; I wish I were half as good as he thinks he is. Even in his electorate—what is that member’s electorate; I cannot remember—

Grant Robertson: Northcote.

Hon CLAYTON COSGROVE: —Northcote—about 60 or 70 percent of the people earn below $40,000 a year. Therefore, with the increase in GST and with 9.5 inflation, they will be worse off. The great “Maestro”, I am sure, will organise one of those wonderful public meetings that he tried to organise in Mt Albert—in a telephone box or a Portaloo. He should collect together the 60 to 70 percent of his electorate who are worse off, hold up the bill, say it is the “I Broke My Promises Bill”, and explain to those of his constituents who remember his name why he broke the promise not to increase GST, why he broke the promise on the Superannuation Fund, why he comes into the Chamber and says that National members are here to encourage savings when he kicked the living daylights out of KiwiSaver and never told his constituents about it, and why he said before the election that National would not borrow for tax cuts yet, under the scenario in the Budget documents, $240 million per week is being borrowed for 3 years, and the financing costs of that will not even start to track down till 2021. I say to the great “Maestro” that those are a couple of political problems that he might want to exercise his mind round, given the hopeless job that he did in Mt Albert.

This bill could be called the “Broken Promises Bill”, as my colleague Mr Nash said. People will be reflecting on that tonight. We know that Government members held a big breakfast meeting this morning, and we know that they puffed out their chests when they read a few of the headlines. We know that they are going around gloating that a poll on Close Up said that 80 percent of the public is positive about the Budget. But I can tell those members that we have all been there after Budgets—we have all been there. We have seen those wonderful polls. The people in our communities will take a little bit of time to work through some of the malarkey that the media put out, and some of the spin from the National Government, but then they will get out their calculators, and they will work out that although the Government has given them a few dollars here, the pile of GST receipts on a Friday from the grocery store has gone up a bit. Then they will work out that the price of vegetables, the price of meat, school fees, car insurance—everything—have gone up. The electricity bill has gone up. Education costs have gone up by 5.9 percent. Then they will work out, of course—it is called inflation, I say to “The Maestro”—that the National Government giveth with one hand and grabbeth all of it back, and then some, with the other hand. If the great “Maestro” thinks that his constituents are silly and cannot work their calculators—

Hon Darren Hughes: Open their eyes.

Hon CLAYTON COSGROVE: —if he wants to pull the smokescreen down over their eyes, as he has been wont to do from time to time with the odd cigar, as we know, he is treating those people with disrespect.

This bill is quite rightly more appropriately called the “Broken Promises Bill”. I will go on to say that if—

Hon Dr Jonathan Coleman: What about the “Clayton Could Be Leader Soon Bill”?

Hon CLAYTON COSGROVE: No, no. There is no danger of that—no danger, at all, I say to the member. But, you see—

Dr Rajen Prasad: Take a call.

Hon CLAYTON COSGROVE: Well, that is a good point, actually. Rather than sitting there barracking from the sidelines, that member should stand on a street corner in his electorate and hold up a sign that says “I ripped off and sold out 60 to 70 percent of my electorate; what do you reckon?”. He should do that.

Dr Rajen Prasad: Sorry!

Hon CLAYTON COSGROVE: Maybe he could say sorry, but he just giggles and laughs. He has Judith Collins-itis. He is grinning away like the Cheshire Cat. But as the weeks and days go by, the men and women in this country—the battling families—will examine this bill and see it for what it is. They will examine the fact that it will cost them an extra $25 a week because of the $400 million cut to the funding of early childhood education. The Government has piled that cut on top of the GST increase, then it has piled inflation on top of that. And we will not talk about—because it would not be appropriate—the accident compensation scheme levy increases, the increase in the cost of car registration, and all the other taxes that have been piled up.

David Shearer: Interest rates.

Hon CLAYTON COSGROVE: Then, as my colleague Mr Shearer says—I say to Jonathan Coleman, the great “Maestro”, that he is the one who thrashed the living daylights out of his candidate in Mt Albert, whom he managed so well—there is that thing called interest rates. Dr Bollard will look through the 2.5 percent increase in GST, but he will not be able to look through the added 4 percent that, when one makes the calculations, makes up the 5.9 percent increase in inflation. What does that mean? Mr Foss said that some members on this side of the Chamber will pay off their mortgages with their tax cut. Well, I say to Mr Foss, who is an economic genius, that I suspect that most New Zealanders—and I am talking about the 20 or 30 percent who are on the top rate, or even less, who will actually get something—might try to pay down their debts and their mortgages, but the vast majority of people will be exposed to an increase in interest rates.

Craig Foss: Phil Goff stated he would use it to pay his mortgage.

Hon CLAYTON COSGROVE: I ask the member whether he will go to his constituents and explain that because of the 5.9 percent inflation rate—

Craig Foss: What interest rates—which ones?

Hon CLAYTON COSGROVE: Well, maybe we should explain the policy targets agreement to that member. Maybe we should explain that the Governor of the Reserve Bank, given a 5.9 percent inflation forecast, will have to lift interest rates in order to get inflation back within the target range. But Mr Foss says that Dr Bollard is wrong. Everybody is wrong except for Mr Foss. [Interruption] The Chairman is not wrong. I would never say that the Chairman is wrong; he is the Chairman. If we add up the mortgage interest, the increase in inflation, the adjustment to the cost of living, and the increase in GST—

Craig Foss: Why are you reviewing monetary policy if Dr Bollard is wrong?

Hon CLAYTON COSGROVE: Oh, those members are very vocal now, but I say to Mr Foss that if he is so vocal, he should hold a public meeting. He should hold a public meeting. But, oh no, he laughs; he will not front up to his constituents. If he is so good and has such a gift of the gab, then he should take this bill, which we are calling the “Broken Promises Bill”, and have a public meeting on it in his patch. He should fill the hall with people who fall in the various tax brackets that he has put in place in the legislation, and let them hear an explanation.

Hon Darren Hughes: And in Nelson.

Hon CLAYTON COSGROVE: Oh yes, goodness, gracious, I forgot about the Minister for ACC, whose electorate is Nelson. Let us look at Nelson, because Nelson is interesting. In Nelson, which is Nick Smith’s electorate, 76 percent of people earn under $40,000 a year—76 percent. After he parks his little car at Nelson Airport and rolls into Nelson Airport, I wager that one or two people on the aircraft might ask him: “Dr Smith, you are our MP. Why am I worse off?”, because they will be one or two of the 76 percent of his electorate who are worse off thanks to that member and his Government. But, oh no, Nick will not front up to his constituents. This bill is the “Broken Promises Bill”, so I challenge that member to hold a public meeting. He should ring up people, get some of the 76 percent of his electorate who earn under $40,000—

Hon Dr Nick Smith: They’re better off.

Hon CLAYTON COSGROVE: No, they are not. Just as Mr Nick Smith cannot do the calculations on accident compensation, he cannot do a decent tax calculation. I say to him that he should hold public meetings. We will be there.

Hon Darren Hughes: It’s his last term.

Hon CLAYTON COSGROVE: It is his last term, all right. We will be there. If National members do not give explanations, then we are quite happy to do that on their behalf. As we speak, 76 percent of Nelsonians will be worse off when this legislation commences, thanks to that member. The Government’s tax calculator does not factor in inflation.

GRANT ROBERTSON (Labour—Wellington Central): The title of this bill, the Taxation (Budget Measures) Bill, is an anodyne one, is it not? But I think we need to look deeper than at just the title to see what this bill really means. I think that a more appropriate title would be the “Taxation (Cake Stalls for Crayons) Bill”, because that is what will be happening in early childhood centres all around New Zealand.

Jo Goodhew: Four percent operations grants.

GRANT ROBERTSON: I say to Ms Goodhew that early childhood centres all around New Zealand are now thinking about how they will make up that deficit. The priority in this bill is tax cuts for the wealthy, not early childhood education. Early childhood centres all around New Zealand know, and parents reading the New Zealand Herald this morning all know, that their early childhood education is at risk. Those cuts of $400 million over 4 years—$400 million over 4 years—will have an impact on the quality of early childhood education services. The cuts will have an impact on access to early childhood education.

I ask what could be more important than that. This is not a Budget where Bill English came down and said that we were in a recession and that we had to pull back. No, this was a Budget where he thought he could be generous. And who did he decide to be generous to? He was generous to people who already had had three tax cuts from this Government. He was generous to them but took money out of early childhood education.

That is an absolute outrage, because one option now available to early childhood centres is that they will probably get rid of their trained teachers. But I ask what good that will do for early childhood education in New Zealand. Other options, potentially, are that centres might have to cut back on hours or try to raise some money some other way. We had someone on the news last night saying that they will have to do fund-raising to buy paper. They will be fund-raising to buy paper. That is why this bill should be called the “Taxation (Cake Stalls for Crayons) Bill”, because that is effectively what this taxation bill will mean. Those early childhood centres, rather than focusing on the quality of the education they are delivering, and ensuring that trained teachers are there and giving children in New Zealand the best possible start in life, will be forced to be out there raising money or cutting back on quality teachers. In many cases, some parents simply will not be able to enrol their children, and that is what people are already saying in the New Zealand Herald today.

Another title could be the “Taxation (Field of Broken Promises) Bill”. Let us be absolutely clear: National went into the election in 2008 saying that there would be no increase in GST. Mr Key can dance on the head of a pin and say he was saying that if a National Government had a deficit or say he was talking in some other way. But he stared down the barrel of that camera and told New Zealanders that there would be no increase in GST when National came into Government. That promise has been broken, and that is why this bill should be renamed the “Taxation (Field of Broken Promises) Bill”.

Another promise was made that there would be no borrowing for tax cuts, but that is exactly what we are seeing today.

Hon Dr Nick Smith: Rubbish!

GRANT ROBERTSON: It is what we are seeing, I say to Dr Nick Smith. If we are to borrow money, which we may well need to do, I ask whether it should not be in things where we are getting a return on an investment. Should it not be in making sure that we have investment in education, and in research and development? That would be real investment, and that should not be broken down. That would be real, proper investment in ensuring we had research and development that grew companies and that grew our economy, but that is yet another broken promise within this bill.

Then there is the broken promise on public services, which is another reason why this bill should be renamed. This Government came in saying that it would cap but not cut public services, but it has continually cut them. In this Budget Bill English tells us there is $1.8 billion of low-priority spending. That “low-priority spending” is in tertiary education, it is in early childhood education, and it is in health. Those are areas where this Government thinks there is low-priority spending. That is another broken promise, and it is another reason to rename this bill. Public services in New Zealand have to be rebuilt time and time again by Labour Governments, who come in on the back of National Governments that know they can get away with undermining public services while delivering tax cuts. This is not a Budget about the long-term future of New Zealand; this is a Budget about short-term political thinking from National. It is not good for the economy of New Zealand, and it is not good for the society of New Zealand.

We could also rename the bill the “Taxation (Rob Peter to Pay Paul) Bill”—literally, to pay Paul Reynolds—and that, in fact, is what this bill will be doing. It ensures that people like Paul Reynolds, who have already benefited significantly from pay rises and tax cuts, once again are the main beneficiaries of this bill. The main beneficiaries are not the strugglers in New Zealand; they are not the people who have been facing higher power prices and who are now facing higher GST.

JOHN BOSCAWEN (ACT): We are debating clauses 1 and 2 of the Taxation (Budget Measures) Bill—that is, the title and the commencement date. I note that the Labour Opposition has focused its efforts on renaming this bill. I would like to focus on the second clause, which is the commencement date. The substance of this bill starts on 1 October. I know that various provisions come into effect on the day after the date of Royal assent, but the substance of this bill commences on 1 October.

Hon Clayton Cosgrove: The man’s a genius!

JOHN BOSCAWEN: I thank Mr Cosgrove. We have a GST increase from 1 October, and we have the start of the personal tax cuts and the income tax cuts on 1 October.

I suggest that this legislation should start on 1 July. I actually think the country needs to have tax cuts on 1 July. The reason I say that is that National has been at absolute pains over the last 4 months to say that if it went ahead with an increase in GST, it would make sure that there were at least equal compensatory reimbursements or equivalent tax cuts. Well, we have another tax coming into effect on 1 July, and it is the emissions trading tax. I know that National does not like me referring to that as a tax, and, no, it is not a tax in the true sense of the word. It is not revenue collected by the Government and redistributed, but the substance of it is a tax on electricity and petrol. Treasury estimates that the impact of that emissions trading scheme tax is to add 5 percent to the price of electricity and 3c or 4c a litre to the price of petrol, and that will double again on 1 January 2013. The effect of that, the Reserve Bank tells us, is to add 0.4 percent to the cost of living. That starts on 1 July.

We could actually bring this legislation further forward than that. We could introduce the tax cuts in June, because Contact Energy, a company that generates electricity from gas and that has to pay for its emissions from 1 July, has already announced tariff increases effective from the middle of June. Naturally, the electricity companies will not all come together and increase their prices on 1 July. So what has happened? Contact Energy has the early running. It has moved to increase its tariffs 3 weeks before 1 July. So we do not need to wait until 1 October for the tax reductions; they need to be brought forward to at least 1 July.

Finally, I will comment on the Minister’s Budget speech. He said, when referring to tax cuts: “First, for all income earners at all taxable income levels, the reduction in personal income tax will be sufficient to match the increase in GST.” The Prime Minister and Government Ministers, including the Minister of Finance, have been at pains over the last 3 or 4 months to say they were going to reimburse people for the increase in GST. The Prime Minister even went and gave a speech at North Shore Grey Power back in April about that. But this Government has continuously refused to acknowledge that we have a tax being put on electricity and petrol, and that that tax will make its way through the whole economy. It puts a cost on every single individual in this country.

Hon DAVID CUNLIFFE (Labour—New Lynn): At this title and commencement debate in the Committee stage, we have the opportunity to reflect upon some of the arguments that have been made of a more technical nature. The first issue I wish to bring to Parliament’s and the Minister’s attention is the inappropriateness of this Taxation (Budget Measures) Bill including within it matters of a technical nature that are not required for the purposes of implementing the Government’s major pieces of Budget policy. There is precedent to put major Budget policy through in urgency in all stages, but it is well established and bipartisan—

Hon Gerry Brownlee: Ha, ha!

Hon DAVID CUNLIFFE: The member may laugh, but he is not known for detailed attention, and it would be of value to him as well as to taxpayers if any unintended wrinkles or mistakes of a technical nature in this legislation were sent to a select committee, as has been the normal practice. I see the officials, who are aware of the risks—

Hon Gerry Brownlee: It has not. My goodness, we’ve forgotten our recent history.

Hon DAVID CUNLIFFE: The member is in danger of digging himself in a deeper hole.

Hon Clayton Cosgrove: It’ll be a big hole.

Hon DAVID CUNLIFFE: We all know it will be a wide as well as a deep hole, and there will be plenty of his colleagues ready to put the dirt in on top when he burrows down. The Leader of the House is misnamed.

We need to put the marker down right at the start that we think it would have been more appropriate to restrict this 96-page bill, much of which is technical. The reason for that is that, try as our officials might, and assiduous as they are, it is always possible that material of a technical nature would benefit from submissions and the review of tax practitioners and others at the select committee process.

The Committee of the whole House has made much note of the fact that, as last evening’s first reaction sees the cold light of dawn, and people’s expectations of being better off meet the reality of next year’s inflation, three-quarters of New Zealanders will find themselves worse off after this budget, at least until 2012 or 2013.

Hon Gerry Brownlee: What rubbish!

Hon DAVID CUNLIFFE: Here is some simple mathematics for the Leader of the House. Let us apply 6 percent inflation to that member’s gross salary. Does that member believe he could multiply his gross salary by 6 percent and come up with a number? I would yield to the member if he would like to do that sum in his head. Would the member like to do that sum in his head—6 percent times God knows what he earns; a quarter of a million dollars? How about 10 percent times a quarter of a million dollars, for the member sitting opposite? Ten percent times a quarter of a million, I say to Gerry. That is an easy one. A round number, I say to Gerry. I ask him to give it a go. Well, I say to Mr Brownlee, that is around about the amount he would lose from inflation over the next 2 years because this ill-informed Budget will stretch the borrowing capacity of the economy. Poor old Alan Bollard’s job just got a lot harder. He will have to raise interest rates to sterilise off this Budget, which ends up borrowing to give a $1,000 a week tax cut to a millionaire.

It does not worry Gerry, because he cannot multiply 250,000 by 10 percent. Detail focus, I think, proves the point that this bill should have gone to a select committee. I ask members whether I am right. I am right about that. When we go beyond the fact that most Kiwis will get nothing out of this Budget for at least 2 years, we then come down to the question of priorities. The Government is really saying that it is a higher priority to give a millionaire $1,000 a week than it is to give a rape victim counselling, to give a frail, elderly woman an hour a week of home help, or to help all the people who are reliant—because they have not got $1,000 a week extra tax back—on our public hospitals and public health services to be there for them and their families when they need them. The health budget is $300 million a year short—$1.2 billion short over 4 years. That is the real change to the health budget when we apply inflation from this Budget. There will be 6 percent inflation, so the health budget will be $300 million short.

DAVID SHEARER (Labour—Mt Albert): I concur with my colleague Stuart Nash in terms of renaming this bill the “Broken Promises Bill”. The Taxation (Budget Measures) Bill is a little bit like one of those sugary drinks: it looks good and it tastes good, but when we have had it, we think it is not so good for us after all. This bill really is not so good for us after all. As David Cunliffe just said, if we subtract from the tax that we are supposedly getting back in this Budget the 6 percent inflation, the accident compensation levies, the car registration increases, the Auckland tax increases that will be imposed upon us in terms of rates because we are making such a mess of the Auckland super-city, the tobacco tax, and the power prices—and, of course, because the inflation rate has gone up, interest rates will go up—what do we have? We have a rather uncomfortable feeling that maybe we have just been had. It will take a couple of days to work through, but, as my colleague Clayton Cosgrove said before, we know what it is like. The Government puts its Budget down, it gets plaudits saying that it is a good Budget, and after 2, 3, or 4 days the real oil comes out, and suddenly we realise that, actually, it is not so good, after all.

I will touch on another aspect of this Budget, and what this Budget really does not address, at all. The Budget mentions agriculture only once or twice. It does not look at the productivity of this country. Productivity is based on, for example, our savings rates. If we look across the Tasman to Australia we see that Australia’s employers’ contribution has just gone from 8 percent—

The CHAIRPERSON (Lindsay Tisch): We are debating clauses 1 and 2.

DAVID SHEARER: I beg your pardon, Mr Chairman. The title of this bill should be the “Broken Promises Bill”.

I will tell members about one other broken promise. In 2008 the National Party said it would double the amount spent on research and development. What do we have today? We have half the rate of research and development that National promised in 2008. Not only that, it took away the 15 percent tax credit that the Labour Government had already put in place. So that is why I believe this bill should be called the “Broken Promises Bill”.

This Government has broken its promises about what it has already said. Not only has the Government broken its promise not to increase GST but also it has broken its promise to increase spending on research and development. The research and development spend that the Government came out with was $56 million a year, which will be paid in the form of grants and vouchers. That means that small and medium sized businesses have to go on their knees to Government bureaucrats to ask for money in order to be recompensed for their research and development. That is what they have to do. If the Government had stayed with the tax credits that Labour put in place, it would have been able to double the amount of business research and development spend in this country. It could have been upped from $1 billion to $2 billion.

This bill is aptly named the “Broken Promises Bill”, as my colleague Mr Nash has said. It breaks the promises on innovation. The Government therefore breaks its promise on productivity, and it breaks its promise on GST. As I said, the “Broken Promises Bill” is an apt name for this bill.

The question was put that clause 1 be agreed to.

A party vote was called for on the question that clause 1 be agreed to.

The CHAIRPERSON (Lindsay Tisch): Before I give the result of the vote I remind members that the previous Chairman, prior to the luncheon adjournment, said that there was to be silence during the taking of votes. I ask members to respect that.

A party vote was called for on the question, That clause 1 be agreed to

Ayes 67

New Zealand National 58; ACT New Zealand 5; Māori Party 3; United Future 1.

Noes 51

New Zealand Labour 43; Green Party 8.

Clause 1 agreed to.

The question was put that clause 2 be agreed to.

A party vote was called for on the question, That clause 2 be agreed to

Ayes 67

New Zealand National 58; ACT New Zealand 5; Māori Party 3; United Future 1.

Noes 51

New Zealand Labour 43; Green Party 8.

Clause 2 agreed to.

The Committee divided the bill into the Taxation (Budget Measures) Bill, the Government Superannuation Fund Amendment Act 1969 Amendment Bill, the National Provident Fund Restructuring Amendment Bill, the Social Security Amendment Bill, the War Pensions Amendment Bill (No 2), and the New Zealand Superannuation and Retirement Income Amendment Bill (No 2), pursuant to Supplementary Order Paper 124.

Bill reported without amendment.

Report adopted.

The ASSISTANT SPEAKER (Hon Rick Barker): Before I call on the Minister to move that the bills be read a third time, I have a small matter to attend to. The result of the vote on the question that the Taxation (Budget Measures) Bill be read a second time was announced as Ayes 69 and Noes 53. The correct result is Ayes 69 and Noes 52. I order that the record be corrected.

Third Readings

Third Readings

Hon PETER DUNNE (Minister of Revenue) on behalf of the Minister of Finance: I move, That the Taxation (Budget Measures) Bill, the Government Superannuation Fund Amendment Act 1969 Amendment Bill, the National Provident Fund Restructuring Amendment Bill, the Social Security Amendment Bill, the War Pensions Amendment Bill (No 2), and the New Zealand Superannuation and Retirement Income Amendment Bill (No 2) be now read a third time.

These bills give effect to the decisions in the Budget yesterday regarding the most radical restructuring of taxation in New Zealand probably since the 1980s. The Committee has spent some time discussing the impact of those changes: the dramatic changes to personal tax rates; the reduction in the company tax rate; the lift in the rate of GST and the associated compensation made available to all those in receipt of superannuation, welfare benefits, Government superannuation, veterans pensions, etc.; and the changes to the company tax to help create a more balanced and rational tax system in New Zealand.

The Committee spent time considering the contention made by the Minister of Finance in the Budget speech that these measures as a package were designed to strengthen growth by rebalancing our tax system so that it better supports and promotes productivity, savings, and investment. I have to tell the House that although there was a lot of debate during that period of consideration, the legislation has emerged unaltered. The position that the Government advanced in the legislation has been held intact by the Committee, and as a consequence we have legislation that will give people greater incentives to work, save, and invest. It makes our tax system fairer and more coherent, and it makes it a more integrated system with more integrity. It will also encourage productive investment in New Zealand.

There was widespread agreement during the Committee stage that those aims were laudable aims for New Zealand, and the fact that this legislation emerges with majority support at the end of that debate demonstrates that this House, like the country as a whole, accepts the validity of these measures, accepts that they are the right course to follow, and looks forward to their early implementation. I am delighted to commend these bills to the House, because they give good tax reform for all New Zealanders.

Hon DAVID CUNLIFFE (Labour—New Lynn): In relation to this tax legislation we have seen the Government bring down a Budget of broken promises. The promise not to raise GST has obviously been broken by this legislation. The promise to make everybody better off has been broken by inflation, and by the skewing of this tax package to the wealthy, who need it not. The promise to protect the elderly and restore superannuation pre-funding has been broken. The promise to protect front-line services, and the funding of entitlements that the public of New Zealand expected under the previous Government, has been broken. The promise to rebalance the economy and put it on a sustainable path to growth has been broken by Treasury’s own calculations. We will prove all of these things in this third reading of the debate.

At this stage of the proceedings I guess some people over there will be feeling a bit in need of a Berocca. They will be feeling that the champagne has worn off after their orgy of self-congratulation last night. Like a lot of New Zealanders, they will be asking to be told again how this Budget leaves them better off. The Labour Opposition can tell New Zealanders that it will not leave them better off.

The first reason is that 6 percent inflation will deal in short order to the small crumbs that fell from the rich folks’ table. Middle New Zealand will see no benefit from this Budget until at least 2012 or 2013. We believe that New Zealanders will be worse off in the medium term because those upper-income tax cuts are funded in part by extra debt and extra borrowing, but the Minister of Finance has the nerve—the gall—to lecture the Labour Party about fiscal prudence. He is borrowing more to give tax cuts to the wealthy while old people go without; he should be ashamed. Inflation will feed into mortgage rises and interest rate rises. If there is one sure way to kill off a recovery, as we all know, it is to raise interest rates. Alan Bollard’s job just got harder, and New Zealanders will pay for it.

It is OK that the middle-income brackets got some income tax relief; members can bet that Labour would have done that too—and raised tax thresholds, as our leader has already said. But it is not OK—and members on this side cannot see past this—that people on a million dollars a year get a thousand dollars a week extra in the hand that they do not need and did not ask for.

Hon Tau Henare: They can go and spend it on the economy.

Hon DAVID CUNLIFFE: Well, that member says they will spend it, but his leader says they will save it. Would somebody please pass the key lines to Tau Henare, because he is off the song sheet again.

Hon Tau Henare: Let them have their own money; stop stealing their money.

Hon DAVID CUNLIFFE: I say to the member “Same to you with bells on.” Underneath all of that is the underlying agenda that National is proposing over time, of progressively shrinking the State by strangling revenue flows. Then National will tell New Zealanders that they will have to do without the services they have counted on. As my colleague Grant Robinson pointed out, New Zealanders will not have enough for the paper and crayons in their sons’ and daughters’ schools, let alone in their preschools. There will not be money for the hip, knee, or cataract operation for granny, because National will be underfunding hospitals by $300 million in the next year. As my colleague the Hon Ruth Dyson so eloquently put it on the radio today, the health system has been on life support and somebody has just turned off the switch. Who has done that? Bill English and John Key have done that, and senior citizens on waiting lists for a hip operation will remember this day—$300 million short. Waiting lists are growing longer but National is shrinking the State, out of pure ideology.

National also said it would be rebalancing the economy and fixing the tax preference towards the binge-bust property cycle, but that has not happened. National has tinkered with depreciation, and it has mingled around the edges in relation to qualifying companies, but it has not solved the problem. It has not offered for the economy a clear path forward that rebalances a tax system that has got out of whack. National will be condemned by that in the years ahead when Kiwi businesses, especially small businesses, cannot borrow or access the debt and equity finance that they need in order to grow and create good jobs, create higher incomes, and drive New Zealand forward in an evermore complex world.

The Government said the bottom line was that it would create growth when it cut taxes for our best and brightest, but it told mainstream New Zealanders not to get jealous: “We need those people; they are better than you.” Well, here are the Budget’s numbers on the growth forecast. There has been no manipulation; this is a straight quote. By the Government’s own calculation, it is shown that in fiscal year 2012 growth will go down, in fiscal year 2013 growth will go down, and in fiscal year 2014 growth will go up by less than one-tenth of one percent. That is the step change. After the high-income tax cut, growth will go down in 2 years out of 3, and will hardly budge in the third. So New Zealanders are being told to put aside—if they can—the fact that granny will get her home help cut and have to wait for her hip operation, put aside the fact that they cannot get a subsidy in the early childhood sector, and put aside the fact that millionaires do not need an extra thousand dollars a week, and judge the Budget by whether it will deliver in the future in terms of jobs, incomes, and growth.

Here is the proof: in Treasury’s own numbers, the Budget fails. On its own objectives and its own numbers, the Budget is a waste of time. It was a waste of ink; it should not have been printed. It takes New Zealand backwards, it does not rebalance the economy, it is not socially just, and it does not leave New Zealanders better off.

When the rosy glow of Beehive spin wears off, New Zealanders will know that they have been swindled. They were promised a step change but they did not even get baby steps. They got a step back in time to the failed policies of an old-fashioned National Government Budget that rewards the rich at the expense of the poor, and in which the forgotten middle class is forgotten again. But this time, what is different is that the middle class is being told not to be envious because the upper class deserves it! Thank you.

AARON GILMORE (National): It gives me enormous pleasure to stand and speak in the third reading of these various bills. Today I was phoned up by my brother in Christchurch. He said the shopkeepers, the taxi drivers, and the rubbish collectors are happy. In straw polls up and down the country about 80 percent of people are happy with this Budget. The only people who are not happy are those Labour Party members over there, because in 18 months’ time, when we get on the hustings, they will all be sad and depressed.

Labour members cannot count and they cannot read. We have heard time and time again from those members about the hairy, scary things regarding 5.9 percent inflation. I do not think those members read the Budget to page 63. I do not think they got as far as that; they got to about page 5 and gave up. On page 63 of (B.2), (B.3), in the Economic and Fiscal Update, a whole lot of numbers are outlined, and it might be a bit too tricky for some members over there. It says that, yes, the CPI will go up—as it normally does—but so will nominal wages. Low and behold, wages go up, the CPI goes up, the world is a better place, and the people are better off. We have heard all the rhetoric from the other side of the House, and we have heard all their discussions, but here it is in black and white. I encourage those members to look at page 63—

Hon David Cunliffe: I raise a point of order, Mr Speaker. There has obviously been some dispute about Treasury’s numbers. Therefore I seek leave to table—

The ASSISTANT SPEAKER (Hon Rick Barker): The member will sit down. It is the accepted practice in this House that members do not interrupt a member who is speaking to table a document. Mr Gilmore was on his feet, and there is no need for the member to table a document at this point. Should the member wish to table it, he can do so at another stage. I advise members that we will wind up this debate with some semblance of decorum, and we will let members give their speeches.

AARON GILMORE: On page 63 it is there in black and white. I encourage the Opposition members to actually read it, because they did not get as far as that. However, some of the journalists have read it, and I encourage them.

The shopkeepers up and down the country and the people visiting their shops are all very happy. I look forward to standing up against whomever I am running against, in 18 months’ time, in any meeting up and down the country, and talking about this and pointing out what has happened. People are happy. Every school up and down the country is getting $10,000. Every school will have more money to spend—that buys a lot of pens and paper. I think that is great.

This legislation is wonderful legislation by a wonderful Minister of Finance led by our wonderful Prime Minister, John Key. I look forward to selling it up and down the country, time and time again. Thank you very much.

Hon SHANE JONES (Labour): The previous speaker, Mr Gilmore, makes Paul Quinn sound and look clever. The previous speaker, Mr Gilmore, shares the name of a bikie from Wanganui who is known as Shagger, and that was the nature of his contribution to this debate in the budgetary session. Mr Mallard has suggested that he is not actually to be referred to in that fashion because he resembles the janitor, and that is why the nature of his speech and the volume of Paul Quinn’s noise show that every Kiwi knows this Budget will put the cost of living up. There is all the brouhaha about the Budget; it will pass, and in October, November, December, when interest rates are up at 9 percent, or 10 percent, property developers will realise that they have been given a “get out of jail free” card and rents will rise, and that is when people will come to us. As day follows night, the cost of living is definitely going to go up.

This Budget was designed by the Prime Minister, the “Prince of Parnell”, to create a caste society—a society where if people have wealth either inherited or from protected areas of the economy, then their mobility and their kids’ prospects are protected, but that is not the vast majority of New Zealanders. This is not a Budget that will advance social mobility. A society that is riddled with the absence of social mobility breeds resentment. It breeds fear, and society does not like being told to shut up and not be envious. That is the view of someone who is embedding a caste-like structure in our economy and forcing people to eke out an existence; in the absence of collective investment, they do not have the opportunity to advance.

The Aussies have a vision that 40 percent of their workforce will be either tertiary or advanced post-secondary qualified. Nothing in this Budget advances those people, as shown by Victoria University’s need to cut university spaces. I ask members to point out to me one single page that narrows the gap between our country and Aussie. There is not one single page. The entire Budget rests on the assumption that the only lever this Government has at its disposal to effect economic development is taxation. That is exactly the recipe used by Bill Birch, and, indeed, goes back to Ruth Richardson. What sort of economic growth or closing of disparities did we see during that period of time? We saw a worsening.

This Budget has an assumption that if we give more money to people who are already wealthy, somehow it will unleash a level of dynamism. That will not happen. In that sense, this Budget will not narrow the gap—this is the test the Government set for itself. It has said “New Zealand, judge us on how we can narrow the gap of the Tasman Sea between Aotearoa and Aussie.” It fails in every measurable form.

It needs to be said that when we change the tax system and move it more to consumption, there are some valid arguments in public policy as to why that would be done. But why would we do it in order to enrich a tiny, narrow caste of people who already exercise an inordinate amount of power through their vested interests? All it does is deepen the roots of their ascendancy; it is almost as if a group of aristocrats have seized control of the fiscal levers and are enriching themselves. So it will take a while for the average family to work it out, but as day follows night, come 2011 when families go to buy the basic necessities, they will find that they are more expensive, rents will have gone up, and those who are trying to encourage nieces, nephews, and children to buy a house will feel that 10 percent interest rate. They can look forward to that. It will hurt the people who are currently silent, not the lobbyists who toppled this Government from the property sector. If they did not like the depreciation changes, it is no wonder that the Government is afraid to take a capital gains tax to them. The lobbyists have triumphed.

There was an invitation on this side of the House at our most senior level to have an open discussion, but we learnt the lesson after we made a similar response to the emissions trading scheme—we did not want anything—that we cannot rely on the integrity. We made a similar request that if it was going to effect a substantial change and look at both income and capital, we were willing to talk. There was not a single response. The lobbyists have conquered this Government.

Where are those lobbyists coming from? They are coming from a narrow range of people. There are a host of other advocates, and we will hear about them. Where are the interventions to change the structure and the nature of our wealth generation? We all know that we have soil, we have water, we have climate, we have fibre, we have food, we have fish, and we have agriculture. But, other than the filching of Jim Anderton’s scheme and its anaemic current example reflected in the Government’s research and development policies, nothing in this Budget moves our wealth up from commodity production into value added. It is probably the case that the Government does not know how to do it. The reason it does not know how to do it is that it is listening to a narrow group who feel that far too much has been done for everyone but their narrow interest. That is not a recipe for advancing a prosperous or cohesive society.

In 2011 there will be a very simple choice to be made. The choice will be made for those of us who unashamedly believe in, and want to harness the power of, collective power, not atomise individual base approaches to human welfare. That is what this is based on, and we will have that debate and we will show that the vast majority of New Zealanders who have been caught in a wage economy for way too long will not vote for the effects or the architects of this Budget. There will be people who are willing to give the Prime Minister the benefit of the doubt—we accept that. He will get the benefit of the doubt, but that doubt will be eclipsed by poverty. We should look at the statistics of the children and the grandchildren in the vulnerable parts of society where people’s ability to pay their way goes right down. That is the first point.

The second point is to look at the institutions that are designed to enable future generations of New Zealand to do better than their parents and grandparents—they are being starved. We should look at the shape and the form of the firms that currently earn our export earnings, and at how many of them have been given a recipe for a step change in collaboration with the Government. None of them have. There is a forlorn belief that by exclusively pulling on the levers of the Inland Revenue Department, a whole new entrepreneurial flow of wealth will be unleashed.

Not only did the Prime Minister break the GST promise, but he has sent garden-variety, hard-working Kiwi families out of the workforce—because they will not be able to put the mokopuna into early childhood education; but in addition to that broken promise, it reflects a narrow, quite frightening focus on the caste defined by the amount of money one can deny others enjoying, just to enrich oneself. That is why this Budget, after all the puffery has passed, will be seen as having driven up poverty in New Zealand. Kia ora tātou.

Hon DAVID CUNLIFFE (Labour—New Lynn): I apologise. I should have sought leave prior to my colleague’s very eloquent speech, after the architect—

The ASSISTANT SPEAKER (Hon Rick Barker): The member knows that when he seeks leave, he is to be succinct and to the point. It is not the time to have a preamble of a speech—to offer congratulations, and so on. If the member wishes to seek leave, he should raise the Standing Order and say what he is seeking leave for.

Hon DAVID CUNLIFFE: I seek leave to table the statistics on growth expectations resulting from the Budget.

The ASSISTANT SPEAKER (Hon Rick Barker): I will not accept that document. It is a published document and it is on the Table of the House. It has been given to everybody else.

Hon DAVID CUNLIFFE: The actual graph is not a published document. The data—

The ASSISTANT SPEAKER (Hon Rick Barker): The graph is not?

Hon DAVID CUNLIFFE: The graph is not. It is new material.

The ASSISTANT SPEAKER (Hon Rick Barker): It is new material; OK. Leave is sought for that purpose. Is there any objection? There is objection.

Dr RUSSEL NORMAN (Co-Leader—Green): I stand to speak on the third reading of the Government’s tax legislation. This is a rather sad day for our country. The reason it is a sad day is that there is in our country a dream of equality. There is a dream of egalitarianism, which runs as a thick current right through our history. It goes back to our most famous and our best Prime Minister, Michael Joseph Savage, who was a champion of egalitarianism. He dedicated his Government to making New Zealand a better place for everyone. The idea at the centre of egalitarianism is that people are judged on their moral character rather than on how much is in their wallet, or on how much was in their father’s wallet. The tragedy of this Budget is that it turns us back to the day when people were judged on how much money was in their wallets rather than on the nature of their characters.

One of the revealing facts that came out very clearly during this debate was the Prime Minister’s comments about envy. The Prime Minister said he did not think that ordinary, middle-income earners should envy those at the top. What this reveals about the Prime Minister’s character, and the Prime Minister’s view of the world, is that he thinks we should judge people on how much money they have. What it reveals about the Prime Minister’s, and the National Government’s, view of the world is that people should be judged on how much money they have.

In this Budget the Government is turning its back on decades and decades of egalitarian tradition in our country. For many years, along with the trade union movement and the Labour Party in earlier days—except for a rather unpleasant middle period during the Roger Douglas period—we have had a tradition of fighting for egalitarianism and making our country more egalitarian. Yet this Budget turns its back on that tradition. For me, it is a sad day in our country when we turn our back on one of the central traditions that is part of our identity, which is a commitment to egalitarianism: the commitment to the idea that people should not be judged on the size of their wallets but on their moral character—on the nature of their character. People should not be judged on which private school they attended, but on the kind of person that they are. That is one of the central themes in our history and in our identity, but with this Budget we are turning our backs on that tradition.

By making our tax system far more regressive than it currently is, by flattening the income tax rate, and by adding to GST, which is by its nature a regressive tax, we are sending our country down a path that is different from the one we were travelling on before. We are sending our country down a path on which there will be more haves, because there will be some people who get richer. But there will be an awful lot more have-nots, because the impact of the tax system will be to increase inequality in our country. It is also important, I think, to remember the history of inequality in our country. Up until the fourth Labour Government we had a relatively egalitarian structure, but during the period of the fourth Labour Government and in the Bolger years, inequality in our country increased dramatically. Moves to address inequality flat-lined, relatively speaking, during the last Labour Government; the only significant difference was made by Working for Families, where there was some reduction in inequality. But we have still ended up in the situation of having a dramatically unequal society, and this Budget will make it only worse.

The other aspect of this Budget that is perhaps surprising, coming from a National Government that prides itself on its fiscal probity, is that it borrows for tax cuts. There is an extra $660 million in borrowing this coming financial year, in order to pay for tax cuts. That means we will have to borrow an extra $660 million—about a billion dollars over 4 years—in order to pay for these tax cuts, in order to pay for motorways that make us more dependent on oil, and in order to pay for climate pollution subsidies. It seems to me absolutely irresponsible that a Government that is already borrowing heavily should borrow further for tax cuts that mostly go to the wealthy, to motorways that increase our dependence on oil, and to climate change subsidies.

Two parts of the triple deficit of this Budget are the fiscal deficit and the social deficit, and the third deficit is the environmental deficit. Part of that deficit, of course, is the subsidies to greenhouse gases, and part of it is the increased subsidy to irrigation schemes. We live in a country now where some of our groundwater is so polluted that it is dangerous for babies to drink, because it causes blue babies down in Canterbury, but that subsidy is a subsidy to allow further destruction of biodiversity. New Zealand is in the middle of a biodiversity crisis. We are losing native vegetation at present at the fastest rate since European colonisation, but this Budget has more subsidies for irrigation schemes, which will drive that loss further. The Budget also lacks a capital gains tax, which could have put some downward pressure on the escalation in rural land prices that is driving a lot of the biodiversity loss. So the Budget has a triple deficit at its heart: a fiscal, social, and environmental deficit.

Another aspect of this Budget that I think is quite worrying concerns the fact that we know that the National Government has said very clearly that in this term it will not privatise. In that regard accident compensation might be a debate, but within limits National has kept to that promise, to some degree. However, it is clear that in the Government’s next term in office it wants to privatise; that is in its genes, so to speak. It is also clear that the Government will use public debt as the rationale for more privatisation. So by adding to public debt, by driving out public debt further than it would have been driven as a result of paying for these tax cuts, the Government is creating the justification that it will use at the next election campaign for the privatisation debate. There will be a privatisation debate at the next election campaign, because National has made it clear that it plans to put privatisation on the agenda at the next election. It will use public debt as the justification for privatisation—mark my words.

The rationale for tax cuts in the legislation before us needs to be challenged. It has been given on the basis that it will reduce tax avoidance. Of course, the other way to reduce tax avoidance is to close the loopholes. But this Budget rewards tax avoidance, so that argument is a specious one. The Government also argued that we had to have tax cuts for migration reasons—that is, to reduce outward migration. We know that that is false from previous times, such as in 1986, when we had big tax cuts and there was a large outward migration from New Zealand. When taxes increased in 2000, after that period a lot of people came into our country, so the migration argument does not hold.

In terms of GDP growth, the argument does not hold, either. There is an awful lot of evidence, just from the New Zealand experience, that there is not much of a close relationship between the top rate of income tax and GDP growth. So that argument does not really hold, either.

One of the things that was interesting, and was a surprise, of course, was the company tax rate cut. I think two things are worth talking about, in terms of the company tax rate cut. The first is that when the whole new-right embrace of globalisation was adopted by Labour and National, the Green Party, amongst others, said the problem was that it would create a race to the bottom. It would create a race to the bottom in terms of standards and taxes. The arguments about cutting the company tax rate have proved how right the Green Party was about the race to the bottom. We are now in a race to the bottom on tax rates, and company tax is part of that. The other part of dropping the company tax rate is that we have now opened a 5 percent gap between the company rate and the top personal rate. I ask members to remember that part of the rationale for why we had to cut the top personal rate from 38 percent to 33 percent was the 5 percent gap between the top personal rate and the trustee rate. Companies were also being used to minimise tax. We have now opened a 5 percent gap between the top personal income tax rate and the company tax rate. There will be people—tax advisers—out there right now, sitting down and figuring out how they can arrange their affairs in order to take advantage of the 5 percent gap that this bill opens up. So on the one hand the Government says it wants to reduce tax avoidance, but on the other hand it has opened up a new loophole.

Finally, I come back to climate change. It is hard to believe that we are sitting in this Parliament debating this tax legislation, but not putting climate change at the centre of it. Climate change is the central greatest challenge facing our planet right now; it is the central greatest challenge facing our country right now. I had the privilege of going to a talk by Dr Robert Bindschadler, who is the former Chief Scientist of the National Aeronautics and Space Administration’s Hydrospheric and Biospheric Sciences Laboratory, earlier this week. We are facing at least 1 metre of sea level rise this century. There is little doubt that we will have at least 1 metre of sea level rise this century, and that will require the displacement of 145 million people globally. It will have a dramatic effect on our country and on the rest of the world. Yet this Budget provides subsidies to greenhouse polluters. It does not make any sense. What kind of Budget is it that does not put climate change at its centre? Instead it provides subsidies for greenhouse polluters. Climate change should be at the centre of this Budget.

JOHN BOSCAWEN (ACT): What a great place that is to start from, because we have just heard from Mr Norman that the central greatest challenge that we face as a country is climate change. He reminds me of Kevin Rudd, who said just last year that the greatest moral dilemma facing the world was climate change. That is what Kevin Rudd said. And what did he do? He planned to introduce an emissions trading scheme, then less than a month ago he said he would not introduce an emissions trading scheme until at least 2013. The impact of that is to put New Zealand right out in front; we are the first and the only country to have an emissions trading scheme, which will put our businesses and our exporters at risk when our three largest trading partners, Australia, China, and the United States, do not have an emissions trading scheme and do not put a tax on electricity and petrol in the same way that we will be doing. I challenge Mr Smith to name one country in Europe with those same costs in relation to its three largest trading partners. I say to Mr Norman that to suggest that the great challenge is climate change puts him in the same place as Kevin Rudd.

There is much to commend in this Budget. One of the great tragedies of the last 10 years is that it has been a period of wasted opportunity. It started off in December 1999 when the then new Prime Minister, Helen Clark, imposed an envy tax. She increased the top marginal rate from 33c in the dollar to 39c in the dollar, and what did that do? That spurred out best and our brightest to commit their time and resources to tax evasion and tax restructuring. We had a whole growth in trust developments, and tens of thousands of new family trusts were formed to take advantage of that gap that opened up between the 33c and the 39c rates. On this occasion the National Government has moved to reduce that top marginal rate from 38c to 33c. That is one thing to congratulate this Government on. It has also moved to lower marginal tax rates.

It has reduced the rate of company tax from 30c in the dollar to 28c in the dollar. The Prime Minister was very proud yesterday—indeed, he should have been—that our company tax rate is now lower than Australia’s. What he did not say, however, was that we have an emissions trading scheme tax on electricity. Our electricity is already more expensive than electricity generated in Australia, and we will make our electricity even more expensive. So it is little wonder that we need to reduce our company rate of tax from 30c to 28c to enable our businesses and our exporters to compete.

I want to focus on just three groups of people affected by this Budget. I turn first to farmers, because National has been very good at saying farmers are affected by this Budget or by the emissions trading scheme no more than the average New Zealander. That is simply not correct. Meat and Wool New Zealand has calculated that the cost of the emissions trading scheme for the average dairy farm will be $10,200 by 2015. Those costs fall into three categories. First, they fall into the cost of electricity and petrol, which most New Zealanders would pay, and Meat and Wool’s estimate of the cost to the average dairy farmer is $1,300 from 1 July this year.

Second, dairy farmers are faced with the costs of Fonterra: Fonterra’s processing costs and the costs incurred by other dairy processors—that is, electricity, and the emissions they have to pay for on gas and coal that they purchase to create steam that is necessary for processing milk. The costs that Fonterra and other dairy processors are expected to incur come to $2,600 from 1 July, with a further $2,600 coming in 2013, and those costs are borne by the dairy farmers. Fonterra is a cooperative of dairy farmers, and those costs fall to dairy farmers. So the cost that dairy farmers will face in the first year of the emissions trading scheme is $3,900.

I notice that Mr Mallard was quoting from the tax tables in this morning’s Dominion Post. The newspaper also states that dairy farmers would need to be earning in excess of $150,000 for them not to be worse off as a combination of the emissions trading scheme tax and this Budget. The same can be said of beef and sheep farmers. They do not incur costs to the same extent, but they certainly incur far more than the average New Zealander, and they incur them not just for electricity and fuel—diesel, and petrol. I say to the farmers of New Zealand that there is only one party here that is prepared to stand up to fight the emissions trading scheme, because this Budget was a real opportunity for the Government—

Hon Dr Nick Smith: What did you tell the foresters?

JOHN BOSCAWEN: I say to Mr Smith that I will come to foresters. This Budget was a real opportunity to suspend the emissions trading scheme. I explained earlier that Australia has put off its emissions trading scheme until at least 2013, and the reason Mr Rudd gave for that was simply the fact that no other countries were following. Australia was not prepared to lead the world. Our Prime Minister promised that he would not lead the world, and that is exactly what we have done; we have been catapulted into world leadership. Unlike the countries of Europe, unlike the countries of the European Union, which put costs on themselves to equally disadvantage each other, this country has put costs on businesses and exporters that none of our three largest trading partners are incurring.

Let us look at foresters. Mr Smith asks what we are going to do with regard to foresters.

Hon Clayton Cosgrove: Dr Smith.

JOHN BOSCAWEN: Dr Smith told this House, if I heard him correctly, less than a month ago that this Government will allocate $1.1 billion of credits to foresters who have planted trees since 1989—$1.1 billion. I spoke to Dr Smith’s officials the day after that, and I am very grateful to him for making his officials available to me. They explained to me that it was actually not $1.1 billion for forests planted since 1989; it was $685 million for forests planted since 1989, and some $400-odd million for forests planted before 1990.

That is a very important distinction, because foresters who have planted trees since 1990—and there have been hundreds and hundreds of hectares of New Zealand planted in forest since 1990—did not plant those forests in the expectation of subsidies from this Government. They did not plant them in the expectation of $1.1 billion worth of subsidies. Let me quote what a newsletter from Greenplan, a company based in the Taumarunui - Te Kūiti area, says to its investors: “When most of you invested in Greenplan the ETS wasn’t known about and global warming had just started to become a buzz word. The prospectus didn’t mention who would get what if ever we sold carbon credits. In fact carbon credits didn’t become common jargon until after the turn of the century.”

There is a real reason that the income tax cuts in this Budget are not greater and that we have to have a 2.5 percent increase in GST, and it is that this Government is determined to give $1.1 billion of credits to people who were not even expecting them. By their very own words, Greenplan’s newsletter to its forest investors says: “You guys have never had such a good deal. You will get a windfall gain, and all we ask is that you give us 10 percent, and you as clients can keep 90 percent.” It is an absolute tragedy, because unless this emissions trading scheme is suspended before 30 June, we will give up $1 billion to $2 billion.

I see Mr Mallard listen, interestingly. I ask him whether there is anything that the Labour Opposition can do to stop this massive transfer of wealth—not to millionaires, so that they can buy more property, but to owners of forests, so that they can plant more forests. I understand that Dr Smith is concerned about our Kyoto Protocol obligations, and there is a very real way we can ensure that we keep within our limits. The trees that are being harvested right now at the end of their 28-year growing life are trees that were planted in 1982, 1983, and 1984. There may be some smaller trees that have been taken for thinning, but, essentially, they are trees planted in the early 1980s. There is a financial disincentive on foresters to harvest those trees without replanting them. It would be absolutely possible to amend the emissions trading scheme so that those people continue to have that financial disincentive.

I could go on to talk about the fact that there are superannuitants who will not be fully compensated. This Budget, which has achieved so much, could have done so much more.

RAHUI KATENE (Māori Party—Te Tai Tonga): The confidence and supply agreement the Māori Party has with the Government requires us to vote in support of the tax changes that the Government proposes. We well know that without the supply of funds, the Government cannot function, so from the outset of this legislation it was always quite simple: if we voted against the legislation, we would effectively be voting against the hefty achievements that were announced yesterday. Amongst them are Whānau Ora, Whare Oranga Ake, Māori tourism and enterprise, and the Youth Guarantee for 16 and 17-year-olds, as well as other generic initiatives such as the $91.8 million worth of support to the early childhood sector, targeting low socio-economic communities—of which many will be Māori and Pasifika—or the $90 million allocated to the Community Response Fund. That was a price too dear for our constituents to pay.

As a party we have been talking with our members and our constituents ever since the Prime Minister mooted the increase in GST. We have received back a very clear, very strong message to honour the agreement we made with the Government, to vote in favour of the changes, and to continue to get all the wins we can. No matter how strongly we feel as individuals, ultimately, as a party built on kaupapa Māori, the wishes of the group prevail over those of any individual. That is the expression of kotahitanga.

As we have said throughout this debate, we appreciate the rationale for why tax changes are necessary, and we have some sympathy with that view. We support the notion that it is our collective responsibility to clear the heavy burden of debt that our generation has built up and not leave it to the next generation to clean up. This is consistent with our kaupapa of manaakitanga, whanaungatanga, and kaitiakitanga.

There are three key planks to the Māori Party’s economic policies: tax relief for those on the lowest incomes, small business development, and better targeting of Government funding to achieve positive outcomes for Māori. With Whānau Ora and an additional $9 million invested into Māori exporter firms and tourism operators to grow their businesses, we are confident that two of those three key planks are well on the way. But we are not a “two out of three” party. We are not satisfied that the Taxation (Budget Measures) Bill has delivered what we needed it to deliver to close the gap and support those on lower incomes.

I am proud to confirm that we will not shirk the responsibility of continuing to promote the need for protection for those on the lowest incomes and, in particular, addressing the unacceptable levels of child poverty evident in Aotearoa. The entire country will suffer if the number of children living in poverty continues to rise. We agree with the Child Poverty Action Group that the Government could have used the opportunity of the tax reforms to improve incomes for beneficiaries with children by immediately extending the in-work tax credit to all low-income families. That did not happen, despite the 2 percent lift in spending on benefits, superannuation, Working for Families, and the student allowance. The problem is that no matter how the other side of the House may paint it up, the Working for Families package has always been highly selective, and in doing so it leaves about 220,000 children behind. These are largely the children whose parents do not meet the paid work hours requirement and/or are on benefits. No matter the crocodile tears shed now by that side, this decision was made by the previous Government. Of these children, about 150,000 live in families experiencing severe and significant hardship. These families miss out on at least $60 a week for their children. Labour had 9 years to clear it up and it did not.

It gets worse. The costs of poverty-related disease afflict the nation in many ways. Estimates suggest that up to $136 million is spent every year on the costs of hospitalisation and deaths from diseases such as rheumatic fever, meningococcal disease, whooping cough, viral hepatitis, and tuberculosis, which are all preventable and were not dealt with under the previous Government.

In this context, I assure the House that we in the Māori Party will continue to advocate hard for taking GST off healthy food. I want to let the House know that there has been a tremendous groundswell of support for my bill to remove the goods and services tax from healthy food. I have received letters of support from, amongst others, the Māori Women’s Welfare League and the Federation of Country Women’s Institutes. I believe that all members will have this week received a letter of endorsement for my bill from Dr Gay Keating, the chief executive of the Public Health Association of New Zealand. She alerts MPs to the research from the University of Auckland that showed that when GST was removed there was an 11 percent increase in the buying of healthy food. She went on to say—

Brendon Burns: I raise a point of order, Mr Speaker.

The ASSISTANT SPEAKER (Hon Rick Barker): I hope this is a point of order about the order of the House.

Brendon Burns: I thought we were talking about the Taxation (Budget Measures) Bill, not a GST reduction.

The ASSISTANT SPEAKER (Hon Rick Barker): I say to the member that it is unacceptable to this House to take a point of order to interrupt the flow of a speech. We have already had one example of that. The speeches in this debate have been quite broad ranging, and if the member is going to raise points of order on Government members about the wide-ranging nature of speeches, the member should also do so on his own benches. I just want to say—[Interruption] I have not finished yet. It is unacceptable to take points of order to interrupt a member’s flow of speech. I find that that point of order is in that particular category. I say to members that they are entitled to have their speech of 10 minutes. If they break the rules of the House, that is fair enough. But if they are speaking in the same tenor as that member’s own party has spoken without complaint, then the point of order is not fair enough.

Hon Dr Nick Smith: I raise a point of order, Mr Speaker. When you came into the House and took the Chair, you made the point that you wanted a higher level of decorum in the debate. I have been, with a great deal of interest, trying my best at short range to listen to the member’s contribution. But continuous barracking—for instance, from Mr Darren Hughes—has made it near impossible to hear the member’s speech. I think the House owes the member concerned the dignity of its actually being able to hear the rest of her speech.

Hon Trevor Mallard: Speaking to the point of order.

The ASSISTANT SPEAKER (Hon Rick Barker): No, I will not take any more points of order on this matter. I say to the member that I could hear the member speaking. Yes, I said that about the decorum of the House. The member you referred to was not barracking; he was asking a line of disjointed questions, but they were questions. Barracking is something different. Had he been engaged in simply barracking, I would have stopped him, but he was not. Whether or not the member thought they were good questions is another matter. That is the point. I say that the point has been well made.

Brendon Burns: I raise a point of order, Mr Speaker. I am not wishing to challenge your ruling, but I ask you to just consider this point: as I heard it, the member opposite was starting to traverse another bill, which will be coming before Parliament quite soon. I think that when we are debating the Budget, that is the issue that should be before the House.

The ASSISTANT SPEAKER (Hon Rick Barker): I say to the member that whenever members stand up and say that they are not going to challenge my ruling, the fact is that they do exactly that. When you concluded your comments I thought: “QED, my case is proved beyond all doubt.” You were challenging my ruling. I say to the member that if a member is speaking about a bill and there are other related issues, I think it is fair enough for the member to pull those issues in, as long as it is not the substance of their speech. The member made a few references to it—

Hon Trevor Mallard: We’re all going to be doing that, don’t worry.

The ASSISTANT SPEAKER (Hon Rick Barker): The member can get picky about it, but I am not going to be as picky as that about it. If the member Mr Mallard wants to get up, I would say to him that nearly every contribution that he made during the Committee stage was outside of the strict Standing Orders of the Committee stage. He made no reference at all to the actual substance, the nuts and bolts, of the bill. Instead—

Hon Trevor Mallard: Oh, read the Hansard.

The ASSISTANT SPEAKER (Hon Rick Barker): I will. We had great dissertations about 1984 and Roger Douglas, I heard, with much interest and a personal reflection. Let us not get too prissy about this. We have had what I think is a very good debate; it has been quite wide ranging. We have had rewrites of history, we have traversed economies around the world, we have had various reviews of 1984, and it has all been pretty good stuff. Let the member continue with her speech.

RAHUI KATENE: Dr Keating spoke about taking GST off healthy food by saying: “Those benefits include helping all New Zealanders improve their diet, particularly families on lower incomes which are likely to be harder hit by any increase in GST. Supporting Ms Katene’s bill would be a great move towards increased fairness. It would also be a great start towards lowering the high rate of avoidable disease, hospital admissions and premature deaths that plague lower-income families.”

This proposal is part of the long-term economic outlook that we believe any responsible Government must plan for. We advocate for taking GST off food on the grounds that GST hits low-income people disproportionately. Removing GST from healthy foods may be one way of encouraging healthier living as well as supporting the many families who are currently struggling to provide just the basics. I know that some concerns have been raised about the cost of such a proposal, but I think those who are sceptical need to look closer at the figures before they judge. Analysis of the Statistics New Zealand Household Economic Survey (Income): Year Ended June 2008 estimated that annual GST on all fruits and vegetables sold to New Zealand households was just $167 million. If we were to take off GST from all dairy products, fresh fruit, and vegetables the total cost would be $302 million. Either way it is not insurmountable.

If members are still in any doubt about the value of taking GST off food, I think they would benefit from a close reading of a recent article by Gordon Campbell. He debunks some of the prevalent myths that have built up, reassuring cynics that if compliance is an issue we should look to Australia, which operates its food exemptions so smoothly and cost-effectively that compliance is no longer an issue. He also identified the fact that the Australian Taxation Office has established a computerised model that makes GST food and beverage compliance extremely easy to manage. It would be great if the GST advisory panel that Mr Dunne has announced today could be asked to look at this model and to provide us with some advice about how the model could work in our setting.

The other finding that the Campbell article reported on was the results of a major New Zealand research study released in March. The research proved that if supermarket customers were given a 12.5 percent price discount, an almost dollar for dollar higher investment in healthy food will result and will still be observable 6 months later. In other words, cutting GST on food will result in lasting health benefits. To quote Mr Campbell: “The question then is not why do it—but why not do something so easy, so readily manageable by business, so justifiable on grounds of social justice, and so likely to deliver practical health benefits to the community?”. I cannot help but be thrilled about the strength of support that is building for the move to take GST off food.

JOHN BOSCAWEN (ACT): I seek leave to table the Greenplan Forestry Investments newsletter dated December 2009, which refers to the windfall gains to 1990 foresters.

Mr DEPUTY SPEAKER: Is this document in circulation?

JOHN BOSCAWEN: It is a—

Mr DEPUTY SPEAKER: Is this a public document in circulation?

JOHN BOSCAWEN: Well, it is a newsletter to the people who invested in forests in Taumarunui. It is not readily available.

Mr DEPUTY SPEAKER: Leave is sought to table that document. Is there any objection? There is no objection.

Document, by leave, laid on the Table of the House.

Hon Dr NICK SMITH (Minister for the Environment): I seek leave to table the New Zealand Environment and Energy Business Week, in which Mr Rodney Hide said he supported carbon credits going to foresters.

Mr DEPUTY SPEAKER: Leave is sought for that purpose. Is there any objection? There is objection.

JOHN BOSCAWEN (ACT): I seek leave to table the Meat and Wool New Zealand calculations of the cost of the emissions trading scheme on beef farmers, sheep farmers, and dairy farmers.

Mr DEPUTY SPEAKER: This document is definitely in the public domain, because I have read it. I will not accept that document.

JONATHAN YOUNG (National—New Plymouth): We are gratified to hear of the concerns that the Opposition has in regard to inflation in this country. Its members must be very happy that we repealed their emissions trading scheme, which would have seen 10 percent added to power prices on 1 January as well as an increase of 7c a litre in fuel prices.

Looking at the third readings of the bills arising from the Taxation (Budget Measures) Bill, we understand that the legitimate increase of wealth essentially comes in two ways in this country: either by what people earn or by what the Government gives them—or in the case of tax cuts, what the Government gives back. We need to be reminded that the previous Labour Government gave nothing back—oh, of course, 1 month out from the last election it gave us a tax cut. After 108 months of Government, what a coincidence that in the last month we got a tax cut! Well, it was because Labour could never afford to give tax cuts, for a number of reasons. One them was that it just could not afford to. The previous Labour Government’s expenditure grew by 50 percent in its last 5 years, a bureaucratic blowout to regulate and control New Zealanders.

In fact, the 2007 Budget papers released under the Official Information Act, show that the previous Labour Government Ministers were well aware of the contribution overspending would make to higher interest rates and higher exchange rates. Treasury warned them that they needed to stay close to previously agreed limits, otherwise the Government would risk an interest rate response from the Reserve Bank, an exchange rate staying higher for longer, and a more pronounced economic slow down. And that is exactly what happened.

National came into Government at a time of dire financial circumstances. It was great to read what John Armstrong from the New Zealand Herald said about yesterday’s Budget announcement. He said: “It has turned those muddy economic waters into wine by constructing a clever package of significant tax cuts when the Government’s books are written in deep dark red.”—just like Mr Mallard’s tie.

New Zealanders should know what Phil Goff said, should they ever consider returning Labour to the Treasury benches. He said that he would lift the highest marginal tax rate back up to 38c, he made no commitment to reduce GST back to 12.5 percent, and Shane Jones said today that Labour would consider a capital gains tax. New Zealanders see the economic futility of the type of Government that Phil Goff wants to go back to. True wealth generation, in essence, is not about what the Government gives or gives back. Stimulus packages can assist, and it is important for the Government to prime the pump at times, but true wealth generation is when New Zealanders can, with confidence, invest their money into businesses, big or small, which will, in turn, earn them a profit. They can then employ other New Zealanders.

Our incomes are below those of countries we like to compare ourselves with, including Australia. It is important that the legislation arising from the Taxation (Budget Measures) Bill sends a signal to all New Zealanders that this Government has confidence in the country’s future and confidence in New Zealanders to be able to build true wealth, given the right environment. As I close, I congratulate the Minister of Finance, the Hon Bill English, and his team, and the Prime Minister, on their great leadership of this nation. Thank you.

Hon TREVOR MALLARD (Labour—Hutt South): I raise a point of order, Mr Speaker. I put on the record the fact that Mr Quinn has accepted my donation to his campaign for Hutt South on the basis that he will be my candidate. I want to put that on the record. Thank you very much.

Mr DEPUTY SPEAKER: Although we can have a bit of a laugh at this time in the proceedings, with not much time to go, that is really just interrupting things.

STUART NASH (Labour): It is easy to have a bit of a laugh, but it is not easy to have a bit of a laugh when I look at this tax package and see that it delivers absolutely nothing. It was interesting that the gentleman who last spoke, Jonathan Young, asked whether we wanted to return to the sort of Government that we had had. I will tell him about the sort of Government that we had. We had a Minister of Finance who completely eradicated Government debt. Our leader did not stand in front of a camera and say: “I will not increase GST.”, then do that. What do we call that? The sort of leader we have in the Labour Party would not stand in front of a camera and say: “I will not borrow to pay for tax cuts.”, then do that. What did the National leader do? He broke his promise. This is a Budget of broken promises and these bills are broken promises. It is a disgrace.

Mr Gilmore stood up and said before that it was all going to be OK and we should not worry about it; the statistics on page 63 of the Economic and Fiscal Update say that it is all going to be OK. Well, I can tell members that in the same document, on page 65, Treasury says that it assumed that pre-tax wages would not respond fully to the price rises caused by the higher rate of GST. That is what Treasury says—that is what Treasury says.

As for Ms Rahui Katene, I cannot believe that she stood up and said that she is not satisfied with this legislation. I tell the House that we are not satisfied with this legislation, either. What we do when we are not satisfied with legislation is vote against it—that is what we do. How dare that member opposite stand up and say that she is not happy with the legislation, then vote for it! What is that called?

Hon Darren Hughes: We can’t say what it’s called.

STUART NASH: That is right. But, worse still, the member outlined why she was not satisfied with this legislation, and it was because it increased GST. In that member’s electorate 72 percent of people earn under $40,000. Those people will be worse off.

Hon Darren Hughes: What’s she doing about it?

STUART NASH: Well, she is not voting against it. She is supporting this legislation. Then she had the nerve to talk about her member’s bill, which she says will take GST off healthy food—of course, it defines healthy food as fish and chips and Kentucky Fried Chicken. She says she wants to take GST off healthy food, but she votes for this legislation! I think that is a travesty, and I think the 72 percent of people in her electorate who earn under $40,000 will think exactly the same thing.

The last National speaker was right: this legislation does send a message to the people of New Zealand. The message it sends is that we cannot trust the Government, because its leader promised us that he would not do what he has done in this Budget. This is not aspirational legislation for all of New Zealand, at all. I cannot see how it drives growth, because the economic theory behind it is outdated, and that was highlighted by Tau Henare, who stood up and said: “If you give money to the wealthy they will spend it.” That is the economics of Margaret Thatcher and Ronald Reagan. It is the economics of last century and it does not stack up in this day and age—it has been proven not to stack up in this day and age. I can tell members what the wealthy will do with this tax cut: they will either retire debt, or they will save it. That is what economic theory has now proven.

But there is one thing this legislation does do. It delivers tax cuts for the very wealthy. Paul Reynolds, who is the head of a company called Telecom—and we all know what a fantastic service Telecom has provided recently—has a base salary of $1.7 million.

Hon George Hawkins: How much?

STUART NASH: About $1.7 million. He will get about an extra $1,600 a week in the hand. That is about $88,000 extra in his back pocket every single year. Very few Kiwis earn as much as that, but that is going to be his tax cut.

Louise Upston: Reynolds is great for our tax coffers.

STUART NASH: I tell that member that the 73 percent of people in her electorate who are on the median wage will get about $5 a week.

I also tell the member that the president of the New Zealand Property Investors Federation has now come out and said that the Treasury figures about rent going up about 1.5 percent are wrong. This man represents the people who own investment properties and rent them out to people who cannot afford to buy their own home. He has said that rents will go up between about 4.5 and 6.5 percent. Then he said there might be an inflationary effect thrown in there, as well. Well, Merry Christmas to the people of New Zealand. This is not a tax cut that delivers anything. It is a tax cut that delivers something to the very wealthy and nothing to the vast majority. It is a disgrace.

The gap between Australian and New Zealand workers could not be starker. Yes, Australia did lower the company tax rate. But do those members opposite know why it lowered the company tax rate? I will tell them. It lowered the company tax rate because it gave back to the workers. The Australian Government gave back 33 percent and said that it was going to increase the savings of Australian workers. That is why it gave a tax cut to Australian companies. What has this Government done? It has said there will be tax cuts for New Zealand companies but nothing for the workers—nothing for the workers. There will be tax cuts for the wealthy, but nothing for the poor. That is not the way forward.

It brings me back once again to Mr Key’s comment about people being jealous of the tax cuts for the rich in this bill. It shows his true colours. It shows that Mr Key judges people by the amount in their back pocket, by how much they earn, not by the sort of person they are. Many people in our communities contribute significantly. They do not earn as much as Mr Key, or a law partner, or an investment banker, or a top scientist, but that does not mean that they do not contribute. We all know that there are people in our community who give their time freely to help others less fortunate. In fact, sometimes the opposite can be true; it is often the less well-off in our communities who contribute the most to the safety and the well-being of our fellow citizens. They often volunteer. What sort of message do they get from this tax legislation? The Prime Minister’s statement on envy did nothing to make them feel valued. In fact, it did quite the opposite. They contribute in toil and hard work, and they give their hours freely for the benefit of the whole community. I tell Mr Key to not treat them like they are worth less than someone who earns $500,000. They are not lesser people and they deserve better.

My beautiful daughter is taught by a teacher earning under $70,000. My wonderful son is in a fantastic day-care centre—that industry has just been gutted—and is being taught and looked after by amazing staff who earn under $70,000. A lot of our police who patrol our streets and keep us safe earn under $70,000. The vast majority of the nurses who fix us up when we fall over earn under $70,000. The people who make our communities tick are the people who receive nothing in the legislation we are now debating. Those people are just as valuable as—in fact, I would argue that they are often more valuable than—a merchant banker who makes millions betting on our exchange rate but creates nothing and cares for no one.

This is a Budget and this is legislation that do not deliver for New Zealand. This Government came in on the promise of a step change. That has not occurred. Paul Reynolds, one of our wealthiest, will get $1,600 extra a week—$1,600 a week in the hand. That is how much he will get.

Hekia Parata: How much is he paying?

STUART NASH: But someone on the median wage in that member’s electorate will get $5 extra a week—$5 a week. How is that aspirational? On top of that, the rent will increase. This legislation will widen the gap between the very few who have the most in our society, and the vast majority who are struggling, and who will struggle, with increases in GST, increases in the price of power, increases in the price of everything they buy, and increases in rent. It is a sad day in this House for the vast majority of New Zealanders, because they have received nothing from this Government except broken promises. Thank you.

HEKIA PARATA (National): Tēnā koe, Mr Deputy Speaker. Tēnā tātou e te Whare. Is it not terrible that we have to sit here and listen to a depressing outlook from people who are sent to this Parliament in the best interests of this country? We have been treated to a tired litany of lethargic arguments about what is wrong with the country. We on this side of the House are committed to a better New Zealand. We are committed to the politics of hope. We are committed to the politics of potential. Unlike members on the other side of the House, we are not mired deep in the hope that things will go wrong. That is the wishful thinking that we have been treated to by the Opposition this afternoon.

New Zealanders will be ashamed of the kind of sentiment that has been expressed by members on that side of the House. Their ambition is so low that it is below the lowest, as we sit here and listen to the terrible hopes of members on that side of the House about what could possibly go wrong. It is our settled conviction that this Budget is transformational. It is transformational because it strikes the balance between giving immediate opportunity and gain to New Zealanders, and restructuring for the long-term focus on how we get growth and productivity. Unlike members on that side of the House, we do not focus on how we can get ever smaller slivers of the pie; we focus on how we can grow it bigger so that more people can enjoy a higher quality of living and have greater prospects for the future, for themselves and for their children. This Budget is a transformation.

From that side of the House we have heard quoted a figure of 72 percent. Well, let me tell members a remarkable fact: 73 percent of income earners will now face a statutory income tax rate of 17.5 percent or less. For those near the top of that income range the tax rate has been halved—it is down from 33 percent in just 2 years—and this rate will apply to their incomes and savings, including KiwiSaver. So there we are—three-quarters of New Zealanders paying tax will now be on the 17.5 percent rate. Do members know why? It is because this Government trusts New Zealanders to make better choices for themselves.

Hon Trevor Mallard: She’s reading Jonathan Young’s speech. It was better the first time.

HEKIA PARATA: Actually, I tell Mr Mallard, that is not so. I am quite capable of standing here for a couple of hours and not reading anything and still making sense. I am threatening to do that, so perhaps the member could keep quiet.

Two-thirds of the cost of personal income tax cuts has gone into reducing the lowest two tax rates. That means that two-thirds of the tax cuts apply to those earning $48,000 or less. So although the Opposition wants to focus on a very small handful of people—who, it is true, will get tax cuts, and who, it is also true, pay significant amounts of tax—two-thirds of tax cuts will apply to people on incomes below $48,000.

Opposition members do not have to take my word for it. They can read every headline in this country. They can listen to every radio, and then they can go out and listen to New Zealanders, who are very pleased with the opportunity for the potential they see to improve their lives, not only immediately from 1 October but for the future. But what do we hear? There are cries of condemnation in the hope that, no, people will not improve their lives. Well, that view is for that side of the House. This Budget is a historic document, and we are proud of this document. We make policies for the many and we deliver for the many while members on that side of the House just talk about it. I commend this bill to the House. Kia ora tātou.

BRENDON BURNS (Labour—Christchurch Central): It is interesting to follow the previous speaker, Hekia Parata, and her comments about this being a transformational Budget. A transformational Budget it will be, all right; it will transform the wealthy into the super-wealthy—that is what this Budget is about. This is a shiny Budget, but it is a hollow Budget. It is a Budget that has been designed to repay the shiny but hollow men. It has some sizzle in it, but there is not much meat in the sausage. It is a cappuccino Budget with a lot of froth.

What it exercises and what it shows is that the National Party in Government has only one raison d’être, it has only one real tool in the economic toolbox, and that is tax cuts. There is nothing new in that, because the National Party promised tax cuts as the main plank of its election platform in 1999. It promised them as the main plank of its election platform in 2002. It promised them as the main plank of its election platform in 2005. It promised them as the main plank of its election platform in 2008. Here we are in 2010 and those at the top end of town are getting their third tax cut in 3 years, and all the time we are being told that, somehow, cutting taxes will lead us out of the economic woods. Well, where have we heard that before? I wonder whether that is a philosophy that Greece followed. Effectively, it had tax cuts, because nobody paid tax, and now it is in economic meltdown.

We are in a world that is still so precarious that somebody entering a wrong figure on to a Wall Street screen can take billions of dollars off the value of Wall Street. We are somehow meant to believe that all is well, we have gone through the recession, we are absolutely out of the woods, and it is time to deliver the third set of tax cuts for the top end of town, when we have just got through supposedly the worst economic situation the world has faced since the 1930s. I say to the National Party members opposite that you are supposed to be the conservatives. Where is the fiscal prudence in this Budget? Where is the party that was once the introducer of fiscal responsibility? You are supposed to be a conservative party; that means conserving. You accuse the Labour Party of being—

Mr DEPUTY SPEAKER: You know what I am going to say.

BRENDON BURNS: My apologies, Mr Deputy Speaker; you are quite right. The National Party is supposed to be a conservative party. It accuses the Labour Party at times of being a tax-and-spend party, yet this Budget represents a cut tax, borrow-and-hope approach. The member opposite referred to hope; that is what is encapsulated in this bill. It is all about hope. This is a Budget that is all shine and no substance.

At first glance the tax cuts—modest though they are—for low to middle income earners may look good. But people will soon work out the not so hidden costs in this Budget. They will take time to work them out. Once the tax cuts take effect people will rapidly see an inflationary tsunami. Nearly 6 percent is the Treasury prediction of what will engulf households budget as a result of this Budget—a 6 percent increase in inflation, which is more than twice the rate we have had over previous years. We will see GST go up to 15 percent with this legislation. Well, 76 percent of people in my electorate of Christchurch Central earn below $40,000 a year. A poll in the Press this morning indicated that the majority do not believe that that increase is appropriate, no matter what promises this Government makes about compensating them, because they are suspicious. They can see the writing on the wall. They know, especially those on lower incomes who spend every dollar they get, that a one-off compensatory move will not compensate them for the long-term inflationary impacts of this legislation and what it introduces.

What about the people who will lose some of the funding they currently enjoy in terms of early childhood education support? The estimation is that that could mean adding $1.50 an hour on to the costs that some parents are meeting to place their children in early childhood facilities. If parents who have one child in early childhood education pay $1.50 extra an hour—

Hekia Parata: What about the $91 million for those who aren’t participating at all?

BRENDON BURNS: —I say that Hekia Parata should tell that to her constituents, if she has any—that is $60 extra a week for one child. That is twice what the average income tax cut will be, even before the GST increase takes effect.

I understand that projections today from the Property Investors Federation show that the changes will mean a 6.5 percent increase in rents. A 6.5 percent increase in rents plus 15 percent GST will engulf any prospect people have of being better off as a result of this Budget. And that is before we start talking about rising interest rates, which will be fed by this Budget, as well. The inflationary boom that will follow this Budget will very, very much erode the incomes of those on middle and low incomes. It will not worry Paul Reynolds a jot whether he rents or owns his own home, because he will be getting $1,650 a week extra as a result of this Budget, as will many, many others.

The message, if the Government would only listen to it, is that tax cuts do not actually deliver prosperity. The Government should have taken account of the fact that the top Australian tax rate remains at 45c in the dollar, which is 12c or 13c above the rate that we will see in this country from October, if this legislation is passed.

What this Budget should be about is higher productivity, higher wages, and higher skills. What is in this Budget to deliver any of those? Well, we see that there is reference to a Productivity Commission being formed. I wonder whether it will pick up on the work of the task force led by Don Brash. He produced a wonderful report on productivity for this Government.

David Garrett: It’s wonderful.

BRENDON BURNS: It was absolutely wonderful, said the member David Garrett from ACT; of course, the Government took on board all the recommendations of that previous look at productivity!

What is this Budget doing about savings? We have heard reference time and time again to Australia in comparison with New Zealand. Well, the most recent Australian Budget moved to increase the employers’ contribution to superannuation to 12 percent. Where is the remedy in this Budget to the vicious, venal cut to the KiwiSaver scheme introduced under Michael Cullen? He was a prudent Minister of Finance, a Minister who paid off debt, and a Minister who established savings regimes in terms of KiwiSaver and the Cullen fund. Where is the move in this Budget, if we are to feed economic growth, to use some of the supposed new surpluses that will be emerging to fund superannuation and savings? There is nothing in it about restoring the employer contribution to KiwiSaver to a very modest 4 percent, while the Aussies go to a 12 percent contribution to their superannuation schemes—nothing whatsoever.

The National Government has only one tool in its tool box, and that is tax cuts. There will be huge gains for those earning over $100,000, but in effect there is nothing in this Budget, once we have taken into account all of the inflationary and other impacts, for students, low-income workers, and battling families.

I will comment on the matter of economic growth, which supposedly is at the heart of this Budget. I am reading from page 78 of the volume containing the Minister’s Executive Summary and the Economic and Fiscal Update. I note that exports are this year supposed to increase by 2.8 percent, but what are imports doing in the same period? Well, they are increasing by 9.9 percent. Next year there will be a 2.4 percent increase in exports, but what will imports do? There will be a 10.8 increase. That is the measure of this Budget. It will feed into import growth, because some at the top end will be spending their money. There may be some modest increase in internal economic growth as a result, but I ask where the productive sector will gain from this Budget. Where is the benefit for the productive sector? There is nothing for that sector. No wonder Business and Economic Research has commented—and has quoted the Minister, in fact—that our single largest vulnerability as an economy and a nation is our net external liabilities, and has said that we owe the world around 90 percent of our current GDP. What is this Budget doing? Well, we will see the percentage of our Budget as a measure of our external liabilities grow over the next 3 to 4 years to 99 percent of GDP. So we are actually going backwards at the very time that we become increasingly vulnerable as a nation; our balance of payments goes further and further into debt.

There is nothing in this Budget. It is framed around trying to ensure that the National Party is re-elected next term. It does nothing to improve the state of our economy. It does very little to improve the household incomes of moderate and low income New Zealanders. It is a payback Budget for the hollow men. It is a payback Budget for those who are in business class. It moves them up to first class, and it means that those at the back end, back in economy class, are now paying for their lunch. It is a Budget that is shallow. It is hollow. It will not deliver for New Zealand. It will not make New Zealanders wealthier. It is actually illusionary and very, very much a shallow, shiny-but-hollow Budget.

TODD McCLAY (National—Rotorua): Before coming to the House I asked my colleague Dr Cam Calder whether, if I listened to Brendon Burns in the House, I would live longer. He said I would not, but it will certainly feel like that was the case.

Hon Trevor Mallard: Well—

TODD McCLAY: I say to Mr Mallard that it might be cold outside, but it is definitely barbecue season. After the horrible speech made by the Leader of the Opposition yesterday, it is certainly barbecue time.

I have a piece of paper in front of me. Members opposite have spoken about GST going up and the effects that that will have. This piece of paper comes from the BBQ Factory. In fact, that store has a special at the moment. It is a small, red barbecue that few people would ever use, with an adjustable cooking grid. It has a shield to protect the flame from the wind in winter, and it is priced at $49.99. I guarantee that when GST goes up on 1 October, there is a reasonable chance that that barbecue will still cost $49.99. Some members already know about this special, because they have been out today looking for the closest BBQ Factory, and they have bought one.

Hon Darren Hughes: Sit down.

TODD McCLAY: I say to the member opposite, whom many have respect for, that he is right: it is often better to be silent and be thought to be a fool than it is to speak and remove all doubt about that. I might have offered the member that advice earlier, most certainly.

What has this Budget done for New Zealanders? It is the biggest reform of our taxation system in 25 years: 73 percent of New Zealanders will now pay a tax rate of 17.5 percent. Is that not wonderful? What about some of the people out in the public who do not spend as much time here as we do? I received some messages overnight from people in Rotorua. Joe from Rotorua said: “Thank you, Todd. I remember asking what you were going to do for me before the election. Thank you all. Finally, something for those of us who work hard, do overtime, and want to get ahead.” Then we have John, who is also from Rotorua. He said: “Great Budget, Todd. Watching the debate now, with Goff and Cosgrove, etc. spitting tacks.” He corrected himself; he actually said they were spitting “tax”. He went on to say “It shows you guys have done well.” There is a final message that I will read out: “J K said yesterday middle-income earners have received nothing from Labour. In fact, we have been shafted—in other words, received nothing. Our kids, three of them, have all left home. We have two incomes, and finally have a chance to keep a little more of what we earn.”

Those people are real, everyday New Zealanders, not the people who write on Labour members’ blogs.

Hon Steve Chadwick: What about the 70 percent of Rotorua citizens? Ask them in one year, Todd.

TODD McCLAY: Mrs Chadwick has just asked whether this Budget will be good for Rotorua. It would be pretty hard to know what is good for Rotorua when one sits in an office in Tauranga. But that is a debate to be had on another day; we will do that next year.

The only thing that stands between the people of Rotorua and these tax cuts is the rest of my speech. This was to be a 10-minute speech. I say to members that those people have waited 10 long years for a tax cut. For the good of the people of Rotorua, I will happily give up the rest of my time so that we can vote after this speech, and give the people of New Zealand the tax cuts that they have wanted for a long time. I support this legislation. Thank you.

A party vote was called for on the question, That the Taxation (Budget Measures) Bill, the Government Superannuation Fund Amendment Act 1969 Amendment Bill, the National Provident Fund Restructuring Amendment Bill, the Social Security Amendment Bill, the War Pensions Amendment Bill (No 2), and the New Zealand Superannuation and Retirement Income Amendment Bill (No 2) be now read a third time.

Ayes 67

New Zealand National 58; ACT New Zealand 5; Māori Party 3; United Future 1.

Noes 51

New Zealand Labour 43; Green Party 8.

Bills read a third time.

The House adjourned at 4.11 p.m. (Friday)