Sir Michael Cullen - CGT Parliamentary Library Research

Contents
English, Bill: Questions for Oral Answer — Questions to Ministers: 14-Nov-2007 - Volume:
Session1;Volume643;Week61 3
Key, John: Questions for Oral Answer — Questions to Ministers: 07-Nov-2007 - Volume:
Key, John: Questions for Oral Answer — Questions to Ministers: 23-Oct-2007 - Volume:
English, Bill: Questions for Oral Answer — Questions to Ministers: 19-Jul-2007 - Volume:
English, Bill: Questions for Oral Answer — Questions to Ministers: 21-Jun-2007 - Volume:
English, Bill: , Questions for Oral Answer — Questions to Ministers: 20-Jun-2007 - Volume:
English, Bill: Questions for Oral Answer — Questions to Ministers: 02-May-2007 - Volume:
Copeland, Gordon: Questions for Oral Answer — Questions to Ministers: 17-Oct-2006 - Volume:
Budget Debate 25 May 2006 19
Key, John: Questions for Oral Answer — Questions to Ministers: 23-May-2006 - Volume:
Key, John: Questions for Oral Answer — Questions to Ministers, Questions to Members: 11-May-2006 -
Volume: Session1;Volume631;Week14 23
Jones, Shane: Questions for Oral Answer — Questions to Ministers: 15-Nov-2005 - Volume:
Parker, David: Questions for Oral Answer — Questions to Ministers: 26-Jul-2005 - Volume:
Supplementary Estimates — Imprest Supply Debate 14 June 2005 31
Key, John: Questions for Oral Answer — Questions to Ministers: 14-Jun-2005 - Volume:
Cullen, Michael: Budget Debate: 07-Jun-2005 - Volume: Session1;Volume626;Week91 33
Cullen, Michael: Budget Statement — Budget Debate, Procedure: 19-May-2005 - Volume:
Cullen, Michael: Appropriation (2004/05 Estimates) Bill — Third Reading, Imprest Supply Debate: 24-Aug-
2004 - Volume: Session1;Volume619;Week65 47
Prebble, Richard: Questions for Oral Answer — Questions to Ministers: 25-May-2004 - Volume:
2
Cullen, Michael: Income Tax Bill — Instruction to Committee, In Committee, Third Reading: 30-Mar-2004 -
Volume: Session1;Volume616;Week53 63
Cullen, Michael: Financial Review Debate — Procedure, In Committee, Speaker Recalled, In Committee: 23-
Mar-2004 - Volume: Session1;Volume616;Week52 64
Cosgrove, Clayton: Questions for Oral Answer — Questions to Ministers,: 17-Feb-2004 - Volume:
Prebble, Richard: Questions for Oral Answer — Questions to Ministers: 02-Dec-2003 - Volume:
Brash, Don: Questions for Oral Answer — Questions to Ministers: 30-Apr-2003 - Volume:
Cullen, Michael: Debate on Budget Policy Statement: 05-Mar-2003 - Volume: Session1;Volume606;Week17
68
Hansard - Stage: DEBATE---GENERAL - 1 MAY 02 DEBATE---GENERAL 70
Hansard - Stage: IN COMMITTEE - 18 NOV 1998 TAXATION (TAX CREDITS, TRADING STOCK, AND
OTHER REMEDIAL MATTERS) BILL : In Committee 71
Hansard - Stage: REPORT OF SELECT COMMITTEE - 29 SEP 1998 TAXATION (SIMPLIFICATION AND
OTHER REMEDIAL MATTERS) BILL : Consideration of Report of Finance and Expenditure Committee 72
Hansard - Stage: IN COMMITTEE - 29 SEP 1998 TAXATION (SIMPLIFICATION AND OTHER REMEDIAL
MATTERS) BILL : In Committee 75
Hansard - Stage: IN COMMITTEE - 29 SEP 1998 TAXATION (SIMPLIFICATION AND OTHER REMEDIAL
MATTERS) BILL : In Committee 76
Hansard - Stage: SECOND READING - 23 JUN 1998 TAXATION (SIMPLIFICATION AND OTHER
REMEDIAL MATTERS) BILL : Second Reading 77
Hansard - Stage: REPORT OF SELECT COMMITTEE - 19 JUN 1996 TAXATION (REMEDIAL
PROVISIONS) BILL---S.O.P. 199 : Referral to Finance and Expenditure Committee 79
Hansard - Stage: SECOND READING - 16 MAR 1993 APPROPRIATION (FINANCIAL REVIEW) BILL :
Second Reading 79
Hansard - Stage: QUESTIONS ON NOTICE - 7 OCT 1992 Pre-election Statement---Government Policy 83
English, Bill: Questions for Oral Answer — Questions to Ministers: 14-Nov-2007 - Volume:
Session1;Volume643;Week61
[Volume:643;Page:13074]
8. Hon BILL ENGLISH (Deputy Leader—National) to the Minister of Finance: Did the business tax cuts
announced in the 2007 Budget meet his “four tests” for tax cuts; if not, why not?
Hon Dr MICHAEL CULLEN (Minister of Finance) : As I made clear, the four tests relate to changes to
personal tax. The main tests apply to the business tax package.
Hon Dr Nick Smith: Oh, a different test for companies.
Hon Dr MICHAEL CULLEN: It is very hard to apply a test of equity to business tax cuts. The main tests applied
to the business tax package were fiscal affordability and the likely impact on economic growth. As with all tax
reductions introduced since I have been Minister of Finance, the National Party voted against these tax cuts.
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Hon Bill English: Why is he introducing a test of social equity now for personal tax cuts, when he did not apply
it to his tax credits for KiwiSaver and his business tax cuts, possibly for the reason that they would not have met
a test of social equity?
Hon Dr MICHAEL CULLEN: Let me just deal with the issue of KiwiSaver. Tax credits for KiwiSaver rise to a
maximum of $20 a week. In other words, the maximum tax credit under KiwiSaver is achieved at $26,000 a
year. A person on that level who can afford to save $20 a week—in some cases that means giving up less than
two packets of cigarettes in a week—will get $40 a week, and eventually $60 a week, into his or her savings. A
person, say, on $78,000 a year will have to save $60 a week to qualify for the same $20 a week tax credit. That
is in fact a progressive assistance for savings.
Charles Chauvel: Has the Minister seen any other reports outlining appropriate tests to be applied when
considering support for tax cuts?
Hon Dr MICHAEL CULLEN: I have seen a report basically that says tax cuts should be opposed if they are
proposed by Labour. This can be the only reason why the National Party has voted against every tax cut this
Government has introduced. But I should also note that I have gone back 40 years trying to search the records,
and in not one of those 40 years—during most of which, of course, the National Party was in power—did
National ever introduce a reduction in the standard corporate rate of business tax. The only change it made was
in 1970, to increase it.
R Doug Woolerton: Can the Minister confirm the fact that his business tax cuts form part of the confidence and
supply agreement between New Zealand First and Labour, and that new parties, such as New Zealand First,
have had a greater role in cutting taxes for business than the National Party within the last two decades, given
that National did not cut business tax at all when it was last in power?
Hon Dr MICHAEL CULLEN: Indeed it was the subject of the confidence and supply agreements of both New
Zealand First and United Future. Of course, it is most unlikely one would ever have a confidence and supply
agreement with National, because, for a start, we have no confidence in National.
Hon Peter Dunne: Can the Minister also confirm that as part of the business tax review, both in the original
document and in its conclusion, it was acknowledged that any consequential changes for personal taxes would
have to be considered, and that that is precisely what is on the agenda at this point?
Hon Dr MICHAEL CULLEN: That is absolutely correct and, as I have said now on a number of occasions, as
the economy is growing faster than anticipated and the Government has higher surpluses than it was previously
forecasting, that means that the country at large can enjoy a dividend out of that. The question is how much,
when, and to whom it goes.
Hon Bill English: Does he recall saying: “The actual benefit of a lower company tax goes to foreign resident
shareholders, for whom it is, in the main, the final tax. Leaving aside the political question of whether our fiscal
priority is to give tax breaks to foreigners …”; and, if that is the case, why should anyone take seriously a social
equity test that he sets up, when he spent his first billion dollars of tax reductions on foreign resident
shareholders?
Hon Dr MICHAEL CULLEN: It is pity one cannot apply a social equity test to business tax cuts, because that is
the nature of the ownership of business. It is equally clear that a number of people have noticed—perhaps it has
gone missing in the minds of National members opposite—that the Australians have lowered their corporate tax
rate. Of course, in that situation two things may happen: a higher corporate tax rate here may tend to bias
investment into Australia rather than New Zealand; also, of course, it may tend to bias trans-Tasman profit
activity to be in Australia rather than New Zealand to take advantage of the lower rate, even though, of course,
in Australia corporates have to pay things like stamp duties, general capital gains tax, and a number of other
taxes they do not have to pay in New Zealand.
Hon Bill English: Given his very recent attention to the comparison, does he recall saying: “Firstly, it is not valid
to compare a 30 percent nominal company tax rate in Australia with 33 percent in New Zealand. … Australian
corporates have other non-discretionary levies … Since this is a small increase in what is left over from
profitable investment, is the business community really saying to me that the profit potential of investment
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options for foreigners here versus elsewhere is so finely balanced …”; and does not that mean that he never
even believed in the company tax cut when he did it?
Hon Dr MICHAEL CULLEN: As I said in the Budget, if the member cares to go back to the speech, businesses
kept saying that they saw reducing the corporate tax rate as one of the most important issues for corporate
profitability and investment. As I said in the Budget, they will now have a chance to put their actions where their
words have been for some time. I am sure that any future Government will monitor very carefully what their
response is, before considering further changes to the corporate tax rate reduction.
Hon Bill English: Why does the Minister not just own up to the fact that his new attention to a social equity test
for tax cuts is an attempt to hang on to some shred of what he believes is his principled opposition to tax cuts,
when he has been under enormous pressure from the Prime Minister to deliver personal income tax cuts and he
will have to do it whether he likes it or not?
Hon Dr MICHAEL CULLEN: I have been under no such pressure at all. The member just keeps making that up,
as he makes up almost everything he ever says on any issue. The member totally lacks credibility. The reality is
that the National Party always argues for tax cuts where the vast bulk of them go to those on high incomes. It is
not worried about people on low incomes. If we can afford a dividend, that dividend should go across the board,
not simply to those on the highest incomes. That may be what the Macquarie Bank is paying for from National; it
is not what it will get from a Labour-led Government.
Hon Bill English: Can the Minister confirm that a quick look at the facts shows exactly the opposite and that, in
fact, National brought in the family tax credit when it was last in Government, and, as he said himself, did not
reduce company tax, and that he who is meant to be the prophet on social equity, and so principled, has done
just about the opposite—that is, his first $1 billion of company tax cuts have gone to high-income people, most
of whom are foreign-resident shareholders?
Hon Dr MICHAEL CULLEN: What a short memory a man has when he has to make it up as he goes along.
The Government’s first big moves on tax were the Working for Families package, which is now worth $2.5 billion
a year, which has increased the average income for families with two kids by about $100 a week, and which the
National Party voted against and still will not endorse. Indeed, National says that any campaign to advise people
of their rights to Working for Families is a political campaign—ipso facto, one that distinguishes Labour from
National.
Key, John: Questions for Oral Answer — Questions to Ministers: 07-Nov-2007 - Volume:
1. JOHN KEY (Leader of the Opposition) to the Prime Minister: Does she stand by her assurance, given
on Agenda, that she expects to have new initiatives and new programmes and new spending in health and
education while still delivering tax cuts?
Hon Dr MICHAEL CULLEN (Deputy Prime Minister) on behalf of the Prime Minister: Yes.
John Key: How does the Prime Minister reconcile her view with that of the Minister of Finance, who, last year,
said: “When anyone promises tax cuts you need to read their lips carefully, because what they are actually
saying is longer waiting-times for health care, longer queues for public services, lower pensions, and fewer
police, and so on and so forth.”?
Hon Dr MICHAEL CULLEN: I am assured the Prime Minister always reads the Minister’s lips carefully.
John Key: Is this the first time since 1999 that it has been possible for the Government to fund new initiatives
and new spending in health and education, while still delivering across-the-board personal tax cuts, or has it
been possible in previous years?
Hon Dr MICHAEL CULLEN: I think this member referred yesterday to 2003-04 and advised that there was
some increased fiscal headroom, and the Government at that point delivered very substantial increases in the
family support tax credits, averaging about $100 a week for a two-child family. Of course, the National Party still
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refuses to commit to the entire Working for Families programme and is still promising to take back $10 per
week, per child, from the poorest families in this country.
John Key: How does her finance Minister’s four tests for tax cuts have any credibility, when the finance Minister
said, during the last election campaign: “It’s like a household budget: when you cut your income—that is, when
you cut your taxes—you either borrow more or spend less. What John is going to try and get you to believe is
that you can do all of it without borrowing more or spending less.”; and how come when John cuts taxes it
means spending less but when Michael cuts taxes it means spending more?
Hon Dr MICHAEL CULLEN: What the member seems to have forgotten is that he keeps saying, week after
week, that the Government should be borrowing more and that the Government’s balance sheet is too strong.
What he will not do is accept an invitation from Agendato go on the programme and repeat that assertion.
John Key: Does it not strain the credibility of the Government’s position that only 6 months ago across-the-
board personal tax cuts were so unaffordable that the Government cancelled $400 million of proposed tax cuts,
yet, lo and behold, at the Labour Party conference all of a sudden tax cuts have become the high priority,
affordable, and doable in an election year?
Hon Dr MICHAEL CULLEN: What the member seems to have forgotten is that Treasury, over the last 2 years,
has underestimated the total cash surplus by a total of over $7 billion. Why is that? It is because this
Government has produced stronger growth than Treasury expected.
Jeanette Fitzsimons: Does the Prime Minister have enough confidence in the economic modelling at Treasury
to ensure that any tax cuts will not be inflationary?
Hon Dr MICHAEL CULLEN: Treasury continues to advise the Minister of Finance that there is still significant
uncertainty about the size of fiscal headroom. Both Treasury and the Reserve Bank are clear that any moves
have to be calibrated carefully to avoid further inflationary pressure.
John Key: Does the Prime Minister anticipate that the Minister of Finance will have to phase in any tax cuts the
Government may make, and is it likely that those tax cuts may well start before the election in 2008?
Hon Dr MICHAEL CULLEN: As both the Prime Minister and the Minister of Finance have said, there are no
decisions yet about the timing, size, or shape of any tax cuts. The one thing that the Prime Minister has been
very, very clear about is that the Minister of Finance will be delivering those tax cuts—and that got the largest
round of applause at the Labour Party conference.
John Key: When the Prime Minister said “Michael Cullen is the man to deliver tax cuts.”, was it because he is
on the record as having said: “My view is that tax cuts are largely offered as a political bribe, not because of
beneficial economic or social effects.”?
Hon Dr MICHAEL CULLEN: The Minister of Finance certainly still believes that the notion that modest tax cuts
would suddenly accelerate the growth in the New Zealand economy, long term, is a pure piece of
nonsense—and ideological nonsense, at that. What the Minister of Finance has been very clear about is that
any tax cuts will be across the board and have a substantial element of fairness—something the National Party
has never promised in that area, at all.
Rt Hon Winston Peters: In regard to the complexity of our economy or similar economies, is it right and sound
to describe a surplus being maintained, and tax cuts replacing that surplus as having the same potential
economic effect—particularly in regard to the second half of my question?
Hon Dr MICHAEL CULLEN: I think that is true. The important point, of course, is that members opposite still
cannot work out that an operating surplus is not what is available for tax cuts. Mr Key, at one point, when the
operating surplus was $11 billion a year, promptly that day promised $11 billion a year of tax cuts, which would
have required something like $9 billion a year of borrowing.
Jeanette Fitzsimons: What specific aspects of Treasury’s economic forecasting has the Prime Minister been
informed needs revision, in light of Treasury’s recent admission that the surpluses are structural?
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Hon Dr MICHAEL CULLEN: It is important to remember that the most important factor in this is actually
estimates around the growth rate in the economy. Treasury has consistently forecast over the last 3 years a
declining rate of economic growth, and that has not actually occurred in the out-turn. Obviously, stronger
economic growth means high revenue, more people in employment, and lower expenditure on benefits. Under
this Government, after 8 years, we are still not spending an additional dollar on working-age benefits than we
were at the start of the Government. After 9 years under National, despite cutting benefits, it was spending a
vastly increased amount of money on working-age benefits.
John Key: If the Prime Minister just told the people of New Zealand that modest tax cuts do not have much
impact on economic effects, can she now tell the country whether we are in store, under Labour, for large tax
cuts or tiny tax cuts; and if previous form is anything to go by, should New Zealanders go to bed tonight knowing
that not only will they be tiny tax cuts but, for the record, they will never be delivered?
Hon Dr MICHAEL CULLEN: It may surprise the member to learn that between tiny and large there is a very
large amount of space.
Rodney Hide: When the Government is designing its tax cuts for next year, will it be considering removing the
taxes that it has introduced—in particular the top rate of tax of 39c, which is both unfair and inefficient to the
economy?
Hon Dr MICHAEL CULLEN: As I have said on many occasions, no decisions have been taken about shape or
timing, or indeed even phasing, around any matters. Of course, if one is on the top tax rate it always looks
unfair. Those people who would love to be earning more than $60,000 a year may have a somewhat different
view.
Rt Hon Winston Peters: I wonder whether the Deputy Prime Minister could outline what the differences are
between our tax rates and Australia’s, seeing as Australia is so often used by certain members of this
Parliament as a comparison, and unfavourably, against New Zealand?
Hon Dr MICHAEL CULLEN: The largest differences are pretty simple. Tax rates are much lower at the bottom
end in Australia—indeed they start with a zero rate—and they are higher at the top end. Equally important is
that Australia has a range of taxes that do not exist in New Zealand, including a general capital gains tax, stamp
duties, and a range of other taxes.
Key, John: Questions for Oral Answer — Questions to Ministers: 23-Oct-2007 - Volume:
1. JOHN KEY (Leader of the Opposition) to the Prime Minister: Is it still her Government’s goal to see New
Zealand’s economic indicators back in the top half of the OECD?
Rt Hon HELEN CLARK (Prime Minister) : The Government would certainly like to see New Zealand’s GDP
per capita ranking back in the top half of the OECD. As I told the member several months ago, to achieve that
requires clear, deliberate policy programmes sustained over time.
John Key: Is the Prime Minister aware that in 1999 only nine countries in the OECD had a lower tax burden
than New Zealand but that by 2005 it was 17 countries, and that under her leadership she certainly has got New
Zealand into the top half of the OECD—the half that pays a lot more tax?
Rt Hon HELEN CLARK: I am advised that taking into account a one-off change, our tax revenue as a
proportion of GDP sits at around the OECD average and puts us in the same bracket as the United Kingdom.
John Key: Is the Prime Minister concerned that for the last 5 years the Australian Federal Government has
embarked on a programme of lowering personal taxes, and that we have now seen both the Labor Party and
the Liberal Party in Australia promising large future personal tax cuts; and does it not worry her that that gap
between New Zealand and Australia for after-tax income continues to widen because of those tax cuts, and for
how long can New Zealand ignore this problem?
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Rt Hon HELEN CLARK: As has been said many times, this matter will be addressed in next year’s Budget.
John Key: Why is the Prime Minister telling New Zealanders that for 8 years the Government has been roughly
running large surpluses, that the inflation environment in many of those years has been low, but that,
miraculously, the only time a Labour Government in New Zealand will ever talk about tax cuts is election year,
and does she not think that looks a little bit desperate?
Rt Hon HELEN CLARK: Of course, the Government has enabled families to have substantial tax cuts, it has
cut taxes on savings, and it has made substantial tax cuts on business to encourage economic growth.
Hon Dr Michael Cullen: Given the Leader of the Opposition’s enthusiasm for the Australian tax scales and
rates, will the Prime Minister be expecting from him support for lifting the top tax rate, introducing a capital gains
tax, and introducing stamp duty, which are all part of the Australian tax system?
Rt Hon HELEN CLARK: My experience is that the National Party borrows very selectively from Australian
figures. For example, it does not want to face the fact that under a Labour Government unemployment is
consistently lower than in Australia. It does not want to face the fact that under a Labour Government in New
Zealand economic growth rates have outpaced those of Australia as well as the whole OECD.
John Key: Is the Prime Minister aware that in 2000 the average wage in New Zealand was roughly $34,000 and
it has risen to about $44,000—that is, a $10,000 increase—but that, in fact, if one takes into account the
increase in inflation and the bracket creep, the average New Zealander is only $500 better off after that $10,000
increase, and is that not a bit of a insult to the average New Zealander?
Rt Hon HELEN CLARK: I would not take any of that member’s figures at face value. What I know is that for the
average single-earner couple with two children in the family, the tax wedge is at the second-lowest in the OECD
at 2.6 percent, compared with 13.6 percent when National left office. The National Party did nothing to reduce
the tax burden on the average family.
John Key: If tax cuts have not made sense for the last 8 years, why will they miraculously make sense next
year, in election year?
Rt Hon HELEN CLARK: The member should listen more carefully. There have been huge tax cuts for families
under Labour, and there have been big tax cuts for business under Labour. Both those areas of tax cuts have
been consistently voted against by the National Party.
John Key: Why should any New Zealander trust whatever miraculous tax cut programme Labour comes up with
in election year when all of those New Zealanders will know that they are the same people who were promised
tax cuts in 2005 only to have them taken off them by the same Labour-led Government?
Rt Hon HELEN CLARK: I wonder why any New Zealander would believe anything those National members
said about tax cuts when they have consistently voted against every Government bill bringing in tax cuts in the
House.
Rodney Hide: Does the Prime Minister accept that no OECD country has achieved 4 percent growth on a
sustainable basis—which was her Minister of Finance’s goal on assuming office—with total spending above 40
percent of GDP, and if she does not accept that the tax take has an impact on growth, why not?
Rt Hon HELEN CLARK: I understand that there have indeed been countries in the OECD that have seen
growth rates like that. They might perhaps be better described as emerging economies that have come more
recently into a market economy system. But the last time I looked, the average amount of economic growth
since this Labour-led Government took office was close to 3.4 percent a year. That was higher than Australia,
higher than the US, Japan, the United Kingdom, the OECD, and the European Union average rates for that
period. That is economic success, Labour style.
English, Bill: Questions for Oral Answer — Questions to Ministers: 19-Jul-2007 - Volume:
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3. Hon BILL ENGLISH (Deputy Leader—National) to the Minister of Finance: Does he stand by his reported
statement that there is “nothing the Government could do about the exchange rate in the short term”; if not, why
not?
Hon Dr MICHAEL CULLEN (Minister of Finance) : As I have said all along, there is no silver bullet. However,
unlike the member, I am prepared to consider ideas that may help the productive sector.
Hon Bill English: Why is it that less than 2 months ago the Minister reappointed Dr Bollard, praised his
stewardship of monetary policy, and signed, with Dr Bollard, an unchanged policy targets agreement when he is
now saying that he is willing to entertain new ideas; why did he not put them in the agreement then?
Hon Dr MICHAEL CULLEN: First of all, I have confidence in Dr Bollard’s operation. Secondly, of course, the
policy targets agreement is within the framework of the Reserve Bank of New Zealand Act. Given that the
Finance and Expenditure Committee was just beginning to undertake an inquiry into the operation of monetary
policy, it seemed a particularly inappropriate time to change the policy targets agreement, as the Opposition,
which loves to say that it wants to be consulted, has the opportunity to be consulted and to participate in that
select committee inquiry.
Hon Mark Gosche: What reports has he seen on the links between the exchange rate and fiscal policy?
Hon Dr MICHAEL CULLEN: I have seen numerous reports of Mr English suggesting that the only solution is to
cut Government spending. I have also seen reports of most of his colleagues calling for greater spending on
their pet projects—most recently, just today, from Dr Jackie Blue, who called for extra spending by the Ministry
of Women’s Affairs. I am sure that that would be a magnificent answer to the problems of monetary policy
operation!
Heather Roy: What responsibility does the Minister believe that he and Dr Bollard should accept for interest
rates hitting double figures, for the dollar being about to breach US80c, and for the Reserve Bank having blown
over $100 million of taxpayers’ money in a foolish attempt to outplay the market?
Hon Dr MICHAEL CULLEN: On the last point, I make the comment that the Reserve Bank is a long-term player
in the market—unlike some people—and not a short-term player, and therefore it is most unlikely that it would
actually lose money over the longer term. The second point I think I need to make to the member, the House,
and the country is that the primary thing that has been happening in recent months is that the US dollar has
been going down. It may come as a shock to members of this House, but no operation of fiscal or monetary
policy in New Zealand will lift the United States dollar.
R Doug Woolerton: Does the Minister agree that section 12 was actually inserted as a safeguard that could be
utilised when facing a particular economic crisis, and given that fact would it not be preferable to avoid such a
crisis by having the safeguard built into the primary function of the bank?
Hon Dr MICHAEL CULLEN: I think the problem with setting multiple targets into the primary function of the
bank is that, inherently, the bank cannot simultaneously achieve all those primary targets. If one wishes to have
accountability for the operation of monetary policy by the governor, he or she has to be held accountable
against an achievable target—not a multiplicity of targets, which would probably mean that all would be missed
simultaneously.
Hon Bill English: If, as Dr Cullen says, one of the major influences on the high New Zealand dollar is the
weakness of the US dollar, just what intervention did he have in mind when yesterday he raised the possibility
that he might invoke section 12, override the Governor of the Reserve Bank, and take action himself?
Hon Dr MICHAEL CULLEN: One always has to be very precise. I did not raise the possibility of using section
12; I did not rule out the use of section 12. That is not the same thing.
Hon Bill English: Why is it that after spending 6 months saying that monetary policy did not work and floating
four unsuccessful ideas for attacking house values, the Minister signed a policy target agreement with no
change and reappointed the governor, and then, within 6 weeks of doing that, came along to Parliament and
said that section 12 is there and could be used, and he is too scared to do anything in case the select
committee does not like it?
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Hon Dr MICHAEL CULLEN: What a silly remark that last one was! On the one hand, National members keep
saying they want to be consulted, but when there is a prospect of being consulted they say that the Minister is
afraid to act. Just which leg is that member standing on? Every time he makes a statement in public or private,
he has two positions in a single sentence—every time. And that is why he reduced the National Party to its
lowest-ever vote in 2002—because the public saw through it.
Hon Bill English: Which of the ideas that the Minister has floated should the markets and the people of New
Zealand take seriously: the mortgage interest levy, the capital gains tax, the ring-fencing of investment losses
on housing, the select committee inquiry, or, now, the use of section 12, whereby he would effectively take
control of monetary policy; and as he has not followed through on any of these ideas, what credibility does he
think he has on monetary policy?
Hon Dr MICHAEL CULLEN: Firstly, I have never floated the idea of a capital gains tax. The only person in this
House in recent times who has floated that idea, apart from the Green Party, is in fact Dr Brash, who was a
long-time supporter of a general capital gains tax. Secondly, the mortgage interest-rate levy is ruled out. Thirdly,
the select committee inquiry is in fact under way. The member may have had a hissy fit, thrown his toys out of
the cot, and stamped out of the committee room, but the other people on that select committee are participating
in the select committee inquiry. Fourthly, the markets need to be aware, as the governor keeps pointing out, that
in fact there are a range of mechanisms, and section 12 is one of those. Finally, as a number of external market
commentators have pointed out, the New Zealand dollar can go a long way down from where it is now.
Hon Bill English: Now that Dr Cullen has raised the possibility of invoking section 12, does he now not believe
he is obliged to create some certainty by either stating that he certainly will not use it, or by making clear what
conditions would apply that would mean he did use it?
Hon Dr MICHAEL CULLEN: It is those who are making money out of speculating on New Zealand’s currency
who want certainty. It is not my job or that of the governor to create that certainty for them, as the governor
himself has pointed out on a number of occasions. If the member wants to come into this House and be the
spokesperson for international money market speculators against the New Zealand productive sector, then,
finally, we have found common ground between Mr Key and Mr English.
Hon Bill English: So is it the case now that the Minister is simply speculating about section 12 as part of his
little game of trying to scare someone in the markets, as he tried several times in respect of housing; and when
will he learn the lesson that every time he has tried that, the dollar has gone up—it has reached record levels
today after his comments yesterday—so why does he not just stop and give exporters a break?
Hon Dr MICHAEL CULLEN: Finally, we have managed to get “Mr Angry” on the side of the exporters instead of
the financial market speculators, for once. I will take the member through it again: section 12 exists in the
Reserve Bank of New Zealand Act. It is not an idea floated by me. It is not an idea, and no Government should
tell the financial market speculators when it might use such a provision. Mrs Watanabe, the mythical investor, a
Japanese housewife, needs to know that that is what the Reserve Bank of New Zealand Act says.
1. Hon BILL ENGLISH (Deputy Leader—National) to the Minister of Finance: Is it Government policy to
introduce the ring-fencing of losses on investment property?
Hon Dr MICHAEL CULLEN (Minister of Finance) : No.
Hon Bill English: Why did he suggest ring-fencing losses on investment property when, on 25 July 2005, he
told the Wellington Property Investors Association seminar that “our position on the taxation of property is that
the status quo is quite adequate, … change does not promise significant overall benefits … In other words, any
new form of property tax is off our agenda.”; or is that just the sort of thing he says before an election?
10
Hon Dr MICHAEL CULLEN: Since that time we have had 2 years of continuous increases in the heat in the
property market, increasing interest rates, a high dollar, and, more important, the publication by the Reserve
Bank and the Treasury of their suggestions around supplementary stabilisation instruments, including, of
course, suggestions around changes of this sort. I am not afraid to discuss ideas when they enter the public
arena.
Hon Mark Gosche: Why is the Government interested in options to take the heat out of the housing market?
Hon Dr MICHAEL CULLEN: The Government is concerned about the long-term impact of the high dollar on the
productive sector of the economy. I agree with the Canterbury Manufacturers Association that we need to have
a debate on these issues. That is why Treasury and the Reserve Bank produced their supplementary
stabilisation instruments report, and why, I assume, there is a select committee inquiry. What I cannot accept is
Mr English’s approach of turning a blind eye to the problems of exporters.
R Doug Woolerton: What was the effect of the tax changes surrounding investment properties made in 1991
by Ruth Richardson?
Hon Dr MICHAEL CULLEN: We moved from a position where net taxable income on rental property was about
80 percent of the gross income on rental property to one where over the last few years the net taxable income
has averaged about 10 percent of the gross income on rental property. That suggests an interaction between
the taxation regime and the ability to gear on property that is causing significant over-investment.
Hon Bill English: If ring-fencing tax losses and biasing the tax system against housing is not Government
policy, does the Minister intend to advocate it until it is Government policy, or does he agree with the position of
a spokesman from the Prime Minister’s office that that is a matter that will be dealt with by the Finance and
Expenditure Committee inquiry, which increasingly seems to be where economic policy is meant to be made
under Labour?
Hon Dr MICHAEL CULLEN: I get the impression—perhaps I am misled—that there is a discussion going on in
a range of fora at the present time around these possibilities, but I am surprised to see an Opposition
spokesperson suggesting that it is wrong that a select committee should be able to discuss what policy should
be for either the short or the long term.
Hon Mark Gosche: Does the Minister see any of the proposals currently being discussed as a silver bullet?
Hon Dr MICHAEL CULLEN: No. Unfortunately, there are no silver bullets in economic policy, but I am open to
exploring options to address what is a serious issue facing this economy. All I have heard from Mr English is
that he thinks interest rates should have been raised higher earlier and Government spending should be
slashed. He is not prepared to engage in any intelligent discussion of other options, even those proposed by
Treasury and the Reserve Bank.
Jeanette Fitzsimons: Will the Minister’s investigation of supplementary measures look at individual measures
such as ring-fencing and isolation, or will he explore the effect of a holistic package that could combine ring-
fencing with a capital gains tax on all investments except the family home, and more Government investment in
low-cost rental housing?
Hon Dr MICHAEL CULLEN: I think it is fair to say that, if one was looking at a capital gains tax, which I am
certainly not, it would apply to all asset classes. I think the arguments in favour of such a tax, which probably 20
years ago were quite strong, become much, much less strong in the intervening period of time, for a whole host
of reasons. So I think that that is actually not a very worthwhile avenue to explore, not least because it comes, in
effect, at the end of a process, rather than trying to address the over-investment at the start of the process.
Hon Bill English: Now that the Minister sees his main political role to be criticising Opposition propositions to
reduce taxes, will he also be criticising the statements made by the Associate Minister of Finance Trevor
Mallard, who announced in the Melbourne Age today that Labour will be cutting personal taxes in the next
election, probably by increasing thresholds?
Hon Dr MICHAEL CULLEN: On the second point, I have already announced that it is likely we will be making
announcements—I did so before the Budget—around changes to personal tax rates. Mr Mallard expressed a
11
preference for one option. There are many, many options around how one can address the issue of personal
taxation. On the former matter, it is a rare event when the Opposition expresses a clear view on policy. It will
have to get used to being kicked around that for the remainder of this term of Parliament, as it comes up with
the remaining three ideas between now and the election.
Rt Hon Winston Peters: Why has the Minister of Finance not considered four silver bullets over the last 20
years—or now, so belatedly—such as: a national savings strategy, a wise immigration policy, an export-
sympathetic series of policies that have been adopted by other First World countries, and, last of all, a
respectable investment regime safeguarding investors in this country, thereby removing our obsession with
housing over these last 20 years?
Hon Dr MICHAEL CULLEN: It is certainly correct that in the last few weeks we have moved significantly on the
savings regime, with bold moves that I think people are beginning to really understand how significant they are
and how much they will benefit a very wide range of the public. We made announcements this week around the
regulation of non-banking financial providers. We are looking at further ways to underpin exporting. I think what
underlines a number of these moves is that there is no such thing as the Holy Grail of a perfectly level playing
field. A perfectly level playing field in taxation often results in quite different outcomes in different parts of the
economy.
Hon Bill English: Which Minister of Finance should we listen to: the actual Minister of Finance, who has now
floated two disastrous proposals to try to cool down the housing market, being the interest rate levy and the
ring-fencing of losses on investment, or the Associate Minister of Finance, who is announcing policy that the
Labour caucus actually supports and that everyone believes will happen in the next Budget?
Hon Dr MICHAEL CULLEN: I advise the member always to listen to the once and future Minister of Finance in
that regard, and the member is talking to him at this precise moment.
Hon Bill English: Why is it that Labour Prime Minister Helen Clark would keep Dr Cullen in the finance
portfolio, when Trevor Mallard has now taken over next year’s Budget, Winston Peters is running the savings
policy, a select committee of Parliament is running monetary policy, and, according to Morning Report this
morning, Russel Norman is doing his media?
Hon Dr MICHAEL CULLEN: I would never be reduced to the last state of affairs; I am sure of that particular
matter. I am actually running the process for next year’s Budget. What the member might care to explain on
such a matter is why his leader went to Sydney and told the trans-Tasman leadership forum he was totally in
favour of the Australian relationship and the single economic market, and Bill English told the mood of the
boardroom in Auckland he did not care much about the Australian relationship and he disagrees with Mr Key on
so many issues we are running out of paper to write them down on.
Hon Bill English: Can the Minister confirm that in fact he has already moved into Opposition, because he
spends most of his time as Minister of Finance criticising the policies of the Opposition at the same time as
miscueing and failing to execute all his own proposals?
Hon Dr MICHAEL CULLEN: In an average 14-hour day I probably devote about 5 minutes to the Opposition. I
find it difficult sometimes to stretch it out that far.
Jeanette Fitzsimons: With regard to stabilising an overheated market, who does he think he is accountable to
as Minister of Finance: 200,000 property investors, or 3.9 million New Zealanders who need an affordable roof
over their heads?
Hon Dr MICHAEL CULLEN: In the first instance, I am accountable to the Prime Minister. In the second
instance, I am accountable to this House. In the third instance, I am accountable to New Zealand as a whole.
English, Bill: , Questions for Oral Answer — Questions to Ministers: 20-Jun-2007 - Volume:
12
4. Hon BILL ENGLISH (Deputy Leader—National) to the Minister of Finance: What effect would ring-fencing
any losses from investment in housing have on house prices and rents?
Hon Dr MICHAEL CULLEN (Minister of Finance) : Given the effective tax advantage on investment in
housing it should cool the housing market, particularly over the longer term, The impact on rents is less certain,
particularly as it may become easier for those renting to purchase their own homes. Generally speaking, one
would expect a convergence between house prices and rentals, over time, as a return on investment.
Hon Bill English: Can the Minister confirm, then, that the effect of ring-fencing losses would initially be to force
rents up and to force everyone’s house value down?
Hon Dr MICHAEL CULLEN: A change of this sort takes some time to occur. For example, when ring-fencing
was removed in 1991, we did not move immediately to a position where rental losses outweighed rental income.
That did not occur until about 1996.
H V Ross Robertson: Can the Minister advise the House whether the Government is taking any steps to
support people who might want to save for their own homes?
Hon Dr MICHAEL CULLEN: Those who join the KiwiSaver scheme, which comes into effect on 1 July, and
save 4 percent of their income for 3 years will have access to a first-home deposit subsidy of $1,000 per year of
membership, up to a maximum of $5,000 for 5 years for each member, subject to certain eligibility criteria—so,
potentially, $10,000 for a couple. The Minister of Housing is currently developing a shared equity scheme, and
this will be considered as part of Budget 2008.
R Doug Woolerton: Does the Minister share the views of the Governor of the Reserve Bank and New Zealand
First that rampant immigration has had a major impact on house prices and rents, and will he be seeking to limit
immigration numbers to help ensure that Kiwis can still afford to own their own houses in their own country?
Hon Dr MICHAEL CULLEN: I do not think it is fair to describe Dr Bollard’s view as being that “rampant”
immigration has had an impact on inflation. He pointed out that, obviously, an increase in population, whether by
immigration or by other means, has an impact upon the housing market. Equally, of course, immigration has
served to provide additional labour into a tight labour market, which otherwise might have seen high rates of
increase in the cost of labour.
Gordon Copeland: Is the Minister open to alternatives to the ring-fencing of tax losses, for evaluation against
the criterion of increasing housing affordability and as a supplementary monetary policy instrument, whether
arising from Finance and Expenditure Committee inquiries or from elsewhere, including those alternatives that
other parties in the House may care to offer?
Hon Dr MICHAEL CULLEN: I am always open to alternatives and discussion. If the member is capable of
bringing another 48 votes with him on this matter, I will be extraordinarily grateful.
Madam SPEAKER: Supplementary question, the Hon Bill English.
Rt Hon Winston Peters: I raise a point of order, Madam Speaker. I was on my feet asking for a question, and
you gave the question to somebody who was sitting in his seat. That is not the way it is done, Madam Speaker. I
was on my feet.
Madam SPEAKER: Yes, well, I am on my feet now, Mr Peters. I determine who gets the call. New Zealand First
had had a call. There is a convention that the call goes on rotation. When I do not do that, that member, I am
afraid, also criticises the Chair.
Rt Hon Winston Peters: I raise a point of order, Madam Speaker. Would you please explain to me which
Standing Order, Speaker’s ruling, or convention requires you to seek someone who is not on his or feet and
give that person the question?
Hon Dr MICHAEL CULLEN: Speaking to the point of order, I say that the member raises a point that is useful in
a wider context, because a habit has developed in the House—I think partly because of the rotation of
supplementary questions—whereby a lot of members do not now actually rise and call before receiving the call.
I think that often the Speaker sees that, for example, it is time for a Green call, and if a Green person is rising to
13
his or her feet, the assumption is that he or she is doing so to ask a question. I think it would be helpful if we
reverted to the more traditional practice where people have to rise in their seats and call. It is quite correct that
Mr English did not call at that point, and began to sit down again when Mr Peters sought the call at that point.
Madam Speaker, it is worth bringing to the attention of the House that it is helpful from your perspective if
people do actually stand and call when they are seeking to ask a supplementary question.
Madam SPEAKER: I thank the member for that. In the past I had noticed that Mr Peters had risen then actually
sat again. I will consider the issue, and I will come back tomorrow with a considered ruling on it. In the past, if
parties did not get the call in the rotation when they were expecting it, then matters were raised—as the member
has done himself. That is fair enough. I think we do need some clarity on this. I also am aware—and I want to
put this as sensitively as I can—that some people take some time to rise to their feet. I am trying to be sensitive
to that, as well.
Rt Hon Winston Peters: If the Minister is saying that the job market was filled by high immigration numbers,
then what evidence does he have that is different from the briefing of the Department of Labour post election
2002, which said that up to that point fewer than one out of two immigrants had been placed in the economy;
what has changed in the last 4 years to make that false?
Hon Dr MICHAEL CULLEN: What has changed in part is the significant change in the criteria for immigration,
to place far greater emphasis upon the general skills category. Of course, if a person is immigrating with a
family, then not all of that family will be entering the job market, necessarily—particularly if there are children.
But the reality is that if the member cares to look at the data over a significant number of years, he will see that
the balance of immigration has moved very significantly in the direction of an emphasis upon the skills element.
Hon Bill English: What does the Minister believe will be the effect on homeowners with large mortgages when
their 2-year interest rate goes from 7½ percent to 9¼ percent, as will occur for thousands of them in the next 6
months; and why is he not satisfied with that impact on their pockets and their house values, without his adding
another measure, which may have the effect of pushing their house values down even further than high interest
rates will?
Hon Dr MICHAEL CULLEN: One of the reasons for considering measures around this is, in fact, to aid
monetary policy, so that interest rates do not need to be raised as much. This member has been calling for
higher increases in interest rates by the Governor of the Reserve Bank, as a means of throttling off demand. It is
a bit rich now for him to turn round and bemoan the consequences. In the immortal words of Tom Paine, he
“pities the plumage, but forgets the dying bird”.
Hon Bill English: Where has the Minister been for the last 6 years, when house prices have been rising
continuously; if he thought that this measure was effective at all, why did he not bring it in 5 years ago?
Hon Dr MICHAEL CULLEN: The member bounces around from opposing such a measure to suggesting that it
already should have been done. Once he settles at some particular place, I will know how to explain to his
leader, John Key, why and where he differs from him.
Hon Bill English: Does the Minister have the support of the Prime Minister for his campaign to push down
house values, in the light of her comments on Monday explicitly ruling out a capital gains tax; and does her
failure to rule out ring-fencing losses mean that it is now Government policy?
Hon Dr MICHAEL CULLEN: No such proposal has been taken to Cabinet, therefore by definition it is not
Government policy. One of the problems with a capital gains tax—apart from the fact that if it were done, it
should apply to all asset classes—is that countries overseas that have capital gains taxes have significant
inflation in house prices on occasion.
Hon Bill English: In reference to overseas data, has the Minister seen the data in the Reserve Bank
submission that shows there is absolutely no correlation between the tax treatment of housing and the rise in
house prices—in other words, it does not seem to matter what tax treatment different countries have; their
house prices have risen to roughly the same extent?
14
Hon Dr MICHAEL CULLEN: If the Reserve Bank is saying that, I am stunned. In fact, the variability in house
price increases in the last 10 years, even in developed countries, has been extremely large. Some countries,
such as Japan, have seen a fall in house prices over that period of time. Some countries, such as Ireland, have
seen very much higher increases than those in New Zealand over that period of time. What is significant in New
Zealand is that before ring-fencing was removed in 1991, net rental income was more than 80 percent of gross
rental income, in total, whereas, on average, over the last 7 or 8 years net rental income has been less than 10
percent of total rental income. That points to very heavy gearing of purchasing property for rental purposes.
3. Hon BILL ENGLISH (Deputy Leader—National) to the Minister of Finance: Has he asked Treasury for any
advice on new forms of taxation of property investment or any changes to the current regime?
Hon Dr MICHAEL CULLEN (Minister of Finance) : Following the joint recommendation of Treasury and the
Reserve Bank in their Supplementary Stabilisation Instruments report of February 2006, I agreed that further
work should be done. One option that emerged as having potentially positive impacts was the ring-fencing of
losses from residential property investment. This, of course, would not be new. It was the law in New Zealand
before 1991.
Hon Bill English: What is the Government’s policy on ring-fencing losses from investments in rental property?
Hon Dr MICHAEL CULLEN: The Government does not have a formal policy position on that. I personally
believe that it is worth investigating, because since the repeal of those provisions in 1991 there has been very,
very substantial growth in losses, which have substantially outgrown the actual rental income.
That clearly points to heavy gearing of the purchase of rental property, and probably has contributed to an
overheated housing market.
Hon Mark Gosche: Has the Minister seen any other advice on changes to the tax system?
Hon Dr MICHAEL CULLEN: Almost daily. I regularly see reports of Mr Key calling for large-scale tax cuts, while
Mr English is saying that now is not the time for extensive tax cuts. According to Mr English, this is “hardly a sin,
because while John articulates a confident and aspirational view about the future, I focus on putting together the
numbers and the programme”. So what should we believe: the aspirational view or the numbers?
Rt Hon Winston Peters: On the words in the question, or any changes to the current regime, is the Minister
aware of comments made by the Governor of the Reserve Bank that amount to admitting now, 13 years on, that
high immigration is leading to high house prices in Auckland, and is leading to high indices in respect of the
inflation rate, and then to high interest rates; could he tell me where the Governor of the Reserve Bank, his staff,
and his predecessor have been these last 13 years, and will the governor too be called a racist for raising the
effect of immigration on inflation and high prices in this country?
Hon Dr MICHAEL CULLEN: I think Dr Bollard did quite rightly point to the fact that very strong levels of
immigration—particularly through 2002-04—placed significant further demand pressure into the economy. There
have been a number of other factors, as well. It is also worth remembering, of course, that we have a very tight
labour market and strong shortages of skills, and immigration is part of the answer to that problem.
Sue Bradford: Does the Minister agree that all returns on investment should be treated equally by the tax
system, whether annual income or capital gain, and whether from property or from shares; if so, when will his
Government introduce policy to this effect?
Hon Dr MICHAEL CULLEN: Generally speaking, that has been the underlying principle of taxation changes
over the last 20 years, and that is why Mr Oliver, in responding to questions at the select committee, pointed out
that taxation on housing, in respect of capital gains, is not tax advantaged compared with any other asset class.
That comment was completely misunderstood. It is also true, however, that housing purchasing is one of the
15
very few areas where one can actually borrow 100 percent of the purchase price with no prospect of an actual
return on equity except in terms of the capital gain at the end of the process.
Hon Peter Dunne: Will the Minister confirm that work to develop a capital gains tax is not on the Government’s
work programme?
Hon Dr MICHAEL CULLEN: That is correct. The Government is not working on a capital gains tax. To take the
logic of Mr Oliver, it would have to be a generalised capital gains tax across all asset classes, and the
Government has no intention of introducing such a regime.
Hon Bill English: Is the Minister aware that, at the select committee, the Inland Revenue Department made it
quite clear that housing does not enjoy any tax advantage, and can I take it from his previous answers that the
Government is looking to bias the taxation system against housing by ring-fencing losses from investment in
housing?
Hon Dr MICHAEL CULLEN: Firstly, the member completely misquotes and misrepresents what Mr Oliver told
the select committee. What Mr Oliver told the select committee was that, on the issue of capital gains, housing
was not tax advantaged in comparison with other asset classes. He went on to say that it does benefit from
more general features of the tax system, such as deductibility of interest, appreciation deductions, and, of
course, the point I have just made that one can borrow 100 percent of the asset and offset the losses from that
against other income. There is no other asset class where one can borrow 100 percent of the purchase price
with no expectation of a return in terms of income, as opposed to capital gain at the end of the day. That is why
Mr Key supports the position I have taken.
Hon Bill English: So is the Minister now saying that he intends to change the tax law to prevent people from
taking the benefit of losses on one single investment—that is, housing—although they can take losses on
everything else, and that he is going to change the tax law in order to make banks change their lending criteria?
Hon Dr MICHAEL CULLEN: What I am saying is that when we can sort out the difference between the
aspirational view and the numbers view of the National Party, there may be consensus around a sensible
change to the taxation regime.
Hon Bill English: Can the Minister confirm, and make it clear to the House, that despite the Inland Revenue
Department advice that there is no particular tax advantage for housing, he is involved in a work programme
with Treasury that is designed to implement tax law that ring-fences losses made on rental housing?
Hon Dr MICHAEL CULLEN: I repeat: the member is wrong. The Inland Revenue Department has not given that
advice. I—
Hon Bill English: They did. They did.
Hon Dr MICHAEL CULLEN: No. The Inland Revenue Department told the select committee—no matter how
many times the member misrepresents it—that there is no difference in asset class, and Mr Oliver himself has
advised me on that fact. Indeed, the Inland Revenue Department supports ring-fencing of housing losses.
Hon Bill English: If the Minister is so convinced that housing has some tax advantage, can he please advise
the public and investors exactly what it is, because the Inland Revenue Department expressly told the select
committee, in answer to my two direct questions, that there is no tax advantage for housing?
Hon Dr MICHAEL CULLEN: Mr Oliver was responding to the issue around capital gains on housing versus
capital gains in asset classes. That is what he told the select committee, and that is what he has told me. I invite
the member to try to borrow 100 percent of the purchase price of any other asset where he would make no
return on that investment by way of income, and would simply have to wait for a capital gain at the end of the
day. The bank would laugh him out of the door.
Hon Bill English: When does the Labour Government plan to implement a policy ring-fencing the tax losses on
rental housing?
Hon Dr MICHAEL CULLEN: When Mr Key wins the argument with Mr English, because I know that Mr Key
supports this particular move.
16
English, Bill: Questions for Oral Answer — Questions to Ministers: 02-May-2007 - Volume:
2. Hon BILL ENGLISH (Deputy Leader—National) to the Minister of Finance: Does he agree with the
Christchurch Press that “Suggestions of tampering with monetary policy are a sideshow designed to distract
attention from areas that really need it.”; if not, why not?
Hon Dr MICHAEL CULLEN (Minister of Finance) : No, I do not support the implicit advocacy for a capital
gains tax on housing in the Press editorial. I notice the one area where there is some significant possibility of
consensus is in tax changes made in 1991 by the National Government, which has almost certainly led to tax
advantaging for investment in housing. And, like Mr English, the also fails to spell out what Government
spending should be savagely cut.
Hon Bill English: Does the Minister still agree with the findings and recommendations of an independent
review of the operation of monetary policy that he commissioned in 2000, conducted by Professor Lars
Svensson, one of the world’s leading authorities on monetary policy, that concluded that no significant change
could or should be made to New Zealand’s monetary policy framework?
Hon Dr MICHAEL CULLEN: I think, in the light of the fact that we are now into the—I think—third economic
cycle since the Reserve Bank Act was passed, that in each cycle we have seen the period of time at which the
exchange rate has remained very high to be much longer, with consequentially more damage each time to the
exporting sector. It is useful for the Finance and Expenditure Committee to examine the basis of monetary
policy and to make recommendations. I think we should never be afraid of ideas.
Charles Chauvel: Does the Minister agree with the Christchurch Press that the Government is “doling out
largesse”?
Hon Dr MICHAEL CULLEN: No, I do not see announcements such as that by my colleague the Minister of
Health yesterday to deliver fairer pay for aged-care workers as doling out largesse. They will not improve
productivity in the health sector. The problem those opposite have is to front up on what Government spending
they would actually cut, not least because core Crown expenses are currently 33 percent of GDP—exactly the
same as in 1999.
Hon Bill English: Does the Minister recall that the Reserve Bank and Treasury took part in the supplementary
stabilisation review just last year, and the general conclusion of that review by more world experts on monetary
policy was that the New Zealand framework approximated world’s best practice?
Hon Dr MICHAEL CULLEN: I am aware that, as a consequence of that review, and after I mentioned the
possibility of a broader consensus of a select committee, Mr Key wrote to me seeking talks. I am aware that
those talks were held between myself, Mr Mallard, Mr Key, and Mr English, and I am aware that Mr English
sabotaged those discussions.
Hon Bill English: Why does the Minister not stop trying to distract anyone with proposed changes to the
monetary policy framework, which, even if they were of value, could not apply in this cycle, and get on with the
business of explaining to New Zealanders why they should pay higher interest rates because of his fiscal
policies, given that, presumably, he thinks it is worthwhile that New Zealanders pay higher interest rates
because of his fiscal policies?
Hon Dr MICHAEL CULLEN: I remind the member that when the issue of ownership policy has come up, Mr
English has said that there is nothing wrong with monetary policy and that all Dr Bollard needed to do was lift
interest rates earlier and higher than he did.
Hon Bill English: Does the Minister intend to continue his fascination with what he believes are comments that
I have made about economic policy—much as I regard that as a compliment—and when will he start explaining
to this House and to the country his own policies; why is he so anxious to avoid doing this and to not take
opportunities, such as through the questions I am asking him, to explain to the people of New Zealand why he is
planning $4 billion of new spending, as a result of which they will have to pay higher interest rates?
17
Hon Dr MICHAEL CULLEN: As I pointed out to the member, the member has called for higher interest rates
than we have at the present time as an answer to monetary policy. Secondly, I point out to the member that his
estimate of $4 billion includes $2 billion for changes to the corporate tax rate, which his party has argued should
have been done although, in fact, the corporate tax rate was last cut in 1988 and remained entirely unchanged
throughout the last National Government.
Hon Bill English: Can the Minister confirm his view that he is the only person, in thinking about economic
policy, who believes that the Government’s planned spending surge over the next 2 years will have no impact
on inflation; and why is it that he is right and everyone else is wrong?
Hon Dr MICHAEL CULLEN: No, I am clearly not the only person who believes that, because the member’s
leader only last year said there was room for $11 billion a year of tax cuts. Over 2 years that is $22 billion a year
of fiscal expansion.
R Doug Woolerton: Does the Minister agree that parliamentary consensus seems to be rallying around giving
our Reserve Bank more tools to control the direction of our economy, and that National’s suggestion of adopting
a common currency with Australia would not provide a panacea for our economy—rather, it would be a huge
step in the wrong direction?
Hon Dr MICHAEL CULLEN: Indeed. Almost every commentary has rejected the idea of a common currency,
not least because, of course, nobody in Australia is talking about a common currency. Australia is putting
forward that it would be very kind to allow us to use its currency if we were silly enough to give up our own
currency. Mr Key favours that policy; I do not favour that policy for New Zealand.
Copeland, Gordon: Questions for Oral Answer — Questions to Ministers: 17-Oct-2006 -

Volume: Session1;Volume634;Week28
10. GORDON COPELAND (United Future) to the Minister of Finance: Is work being carried out by the
Treasury on a possible link between continuing high house prices, artificial constraints in the supply of land and
the price of housing; if so, what is the current status of that work?
Hon Dr MICHAEL CULLEN (Minister of Finance) : Treasury, obviously, is involved in a wide range of work on
housing, but it is not currently working on the specific matter raised by the member.
Gordon Copeland: Does the Minister agree that raising the official cash rate has done little, if anything, to
dampen the property market, and is it possible that the variable most responsible for continuing high house
prices may be the restraints placed on the supply of land for new housing?
Hon Dr MICHAEL CULLEN: No, I do not agree with the latter point. I think one of the problems is that with the
high proportion of fixed-rate mortgages, it sometimes takes quite a long time for monetary policy tightening to
flow through into household incomes and disposable incomes. There are signs that it has been occurring in
recent months. I think the problem with the member’s assertion is that, presumably, it would lead to the logic
that one should have a variable land supply as a means of moderating demand and supply within the economy,
which I think could be pretty difficult to work in practice.
R Doug Woolerton: Is the Minister concerned about the potential loss of valuable, highly productive land if
constraints were to be removed from city housing expansion?
Hon Dr MICHAEL CULLEN: The member raises actually a very important and interesting point—that it is all
very well to look at the housing issue from one specific side, but there are a whole range of other issues around
land use that also have to be considered. One of those is the maintenance of land in a productive capacity in
the rural sector, and at a reasonable enough price for the productive sector to be able to make a profit out of
that land.
Sue Bradford: Is work being carried out by Treasury on a possible link between the way property investors can
claim tax losses against their investment and against their income tax, and rising housing unaffordability; if not,
is the Government considering making any changes in this area?
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Hon Dr MICHAEL CULLEN: On many occasions these issues have been looked at by Treasury, and,
obviously, suggestions come forward from the general public. I think the conclusion that tends to emerge at the
end of the day is that it does not seem to make a lot of difference. Countries like Australia, which have heavy
stamp duties on housing and which have a quite different kind of capital gains tax regime, have at least as
marked housing cycles as New Zealand does, so it does not seem to be a particular answer to the actual
problem in that respect.
Gordon Copeland: In the light of that response, is the Minister aware that in Australia the Federal Government
is now giving a lot of attention to the freeing up of land for housing, does he see a role for Treasury in making
housing more affordable for first-time homeowners, and would that include a rigorous economic analysis of any
link between rising house prices and the availability of land for new subdivisions?
Hon Dr MICHAEL CULLEN: The Government is already taking a number of actions that, over time, will assist in
the affordability of housing for first home owners, which, obviously, is where the key concern should be. After all,
once one is into the first home, then rising house prices is an entry on both sides of the ledger from the point of
view of most families, depending on which part of the country they are living in. But again—going back to the
previous answer—it is important to be careful in this respect. The Australians do have, of course, a lot more
land to free up, but they are also running into enormous problems around water supplies, not least because of
urban demands.
Sue Bradford: Is any work being carried out by Treasury on a possible link between the lack of a capital gains
tax and continuing high house prices here; and does the Minister accept that a capital gains tax on property
sales apart from the family home could help to make housing more affordable again?
Hon Dr MICHAEL CULLEN: I think it is extremely hard to make that connection between a capital gains tax and
the affordability of housing, in so far as there has never been a theoretical argument put forward about a capital
gains tax on housing. It is more in the direction of a level playing field around investment; it is not around the
notion that it will make houses cheaper. Indeed, it is very hard to see how it would necessarily make houses
cheaper.
Keith Locke: What concerns does the Minister have about extending the urban limit, in addition to the matter
raised by Doug Woolerton—such as, the cost to New Zealand in extra Kyoto Protocol carbon credits from
allowing urban sprawl to continue largely unchanged in places like Auckland, and the fact that it makes it more
difficult to establish a viable public transport system to replace some of the longer car journeys from the
suburbs?
Hon Dr MICHAEL CULLEN: Again I think that is a very good point. Obviously, unlimited urban sprawl simply
raises the difficulties around providing adequate public transport, which is already a major issue in terms of
public transport in Auckland because of the very large amount of urban sprawl and the distances to be covered
in relation to the size of the population. We are very different from, say, compact-style European cities. So there
are a lot of factors that need to be taken into account. It would be very undesirable to seek short-term solutions
for a particular point in the housing cycle, which would have long-term damaging consequences from the point
of view of New Zealand’s social, economic, and environmental development.
Te Ururoa Flavell: What advice has Treasury provided to respond to the damning finding in the Social Report
2006 that the proportion of low-income households who are spending more than 30 percent of their incomes on
housing is over twice as high as it was in 1988, and that of those, Māori are highly overrepresented?
Hon Dr MICHAEL CULLEN: It underlines the importance of policies such as the Working for Families package,
other means to assist with housing acquisition, the rates rebate scheme, and a whole range of measures
targeted to try to ensure that people on low to modest incomes are able to be in a better position to afford
housing. Of course, as we move to the next stage of the economic cycle and monetary policy eases back again
at some point in the future, that housing affordability index will show, again, quite a significant change. It is a
very cyclical measure of what is happening in society.
Budget Debate 25 May 2006

19
Hon Dr MICHAEL CULLEN (Minister of Finance) : I congratulate that member on that brief, scintillating, and
brilliant speech, in which he managed to mention my name as often as John Key did in his speech during the
Budget debate—he seems to have a fixation about me.
National members have had one simple message throughout this debate.
Darren Hughes: What’s it been?
Hon Dr MICHAEL CULLEN: “We lost, you won, we’ve got indigestion.” That is all they have managed to say
during this entire debate, so far. The other thing they did during the debate was to keep asking themselves this
simple question: “Why are we here?”. We echoed it. We too asked them why they are here, because they said
they wanted to be in Australia. They said: “Please free us from this bondage so we can go to Australia.” Indeed,
that dinky-di Australian, Don Brash, acted as a sort of advertising agency for the Australian immigration office
throughout his speech, followed by both his acolytes and the rest of the members of the National caucus, during
the Budget debate we have had so far.
I will respond on a couple of issues. I do not want to attack my friends in Australia, but it is true that I thought a
couple of things Peter Costello said raised some issues about the tradition of mateship that Australians are
supposed to stand by. But let us look at growth over the last 5 years. Per capita GDP growth in this country rose
by 12.4 percent. In Australia, it rose by 9.9 percent. It was one-quarter more in New Zealand. But what about
the previous 5 years, for comparison, when Dr Brash’s colleagues were in office? Australia had a growth rate of
17.9 percent; New Zealand’s rate was 11.9 percent—two-thirds the size of Australia’s.
What about that taxation? We will hear a lot this afternoon about capital gains tax. In Australia, every taxpayer
has to pay a net capital gains tax on their worldwide assets every year, in full—100 percent capital gains tax,
worldwide, every year—and that is in a country where there is a 1.5 percent Medicare surcharge. And if
someone is earning over $50,000 and does not have private hospital insurance, there is another 1.5 percent on
top of that. Plus, there is stamp duty that might set that person back 20,000 bucks when he or she buys a house
in Sydney. So before Dr Lockwood Smith strips off his gear again and rushes off to Bondi, he had better think
about the stamp duties he might have to pay when he gets there, and the extra taxes he will have to pay.
Members should not believe what Dr Donald T, “Dinky-di” Brash is telling them about going to Australia.
[Interruption] What is Ms Bennett trying to say?
Paula Bennett: I said: “Gosh, you’re funny!”
Hon Dr MICHAEL CULLEN: Oh, I do not know what I said that was so funny. Perhaps she will tell me later, and
we will learn about that.
Of course, Dr Brash used to be extremely close to the Business Roundtable. He used to tell us that he believed
in cutting health spending, cutting education spending, and cutting spending in almost every area of
Government. These days, of course, he has only a loose connection with the Business Roundtable, and he tells
us that he will increase health spending, increase education spending, increase law and order spending,
increase roading spending, and that he will cut taxes but will not increase borrowing; he will just increase debt.
That is the National Party’s fiscal position as explained by Dr Brash, almost entirely by himself, on Morning
Report the day after the Budget. I could not believe it. He said there would be more spending on roads, more on
health, more on education, more on law and order, and that there would be less revenue but they would not be
borrowing more. There are just too many tooth fairies opposite for that to be believable in terms of where
National gets to with its fiscal position.
So what did the Budget actually do? First of all, a lot of money is to be spent on roading. That has got the
Greens upset, but all I can say is that they should look at the big four-lane cycle tracks we will be building for
them in the future, throughout New Zealand. The Greens will be able to cycle fully abreast—the entire
caucus—down some of those roads. They will be able to take a positive view of life in that respect, and they will
stop moaning about the fact that some of us poor, decrepit, older ones who cannot ride our bicycles for about
100 kilometres will be using our cars and getting along more rapidly as a consequence—with less pollution, and
hopefully killing far fewer people on the way, because we would have addressed safety issues on those roads.
In the Waikato and Bay of Plenty, those safety issues are very serious indeed. There are terrible rates of vehicle
accidents in some of those parts of the country.
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Dr the Hon Lockwood Smith: We’re not going to see these roads for years.
Hon Dr MICHAEL CULLEN: Yes, it will take some time to build the roads, because the National Government
left a huge infrastructure deficit.
During this period of time we will be spending 130 percent more per year on roads than we inherited from
National. We will be spending on land transport all of the income from excise duty, from road-user charges, and
from motor vehicle registration fees. So when people in Auckland and Wellington say they want even more
spent on public transport, it has to come out of general taxation. There is nothing left out of the fees on motorists
to spend in those areas. So they have to make a strong case and not simply tell me that if we put electric
engines rather than diesel engines in trains, Aucklanders, who are so unused to the notion of electric trains, will
flood on to them in perpetuity and use them instead of diesel trains. Given that this is a country where one-
quarter of us go overseas every year, it seems likely that most Aucklanders have already been on electric trains
and have already enjoyed the experience.
Secondly, we did—let us announce it again; a sort of ex post facto leak—indeed foreshadow the regulation of
telecommunications; unbundling the loop. What has that done? Already, Telecom has indicated investment in
higher speed broadband. Already, TelstraClear has indicated massive investment. Even before the legislation
has been drafted, we are getting investment committed to improve this country’s telecommunications system.
That is a major improvement, crucial to economic transformation, and crucial to economic growth.
Thirdly in this Budget, we provided the funding for the introduction of the KiwiSaver scheme, which will lift the
rate of savings. The only argument now is about whether it should be compulsory, but I note that nobody in
business wants to pay for it, as they do in Australia. They want employees to pay for that, if it is going to be a
compulsory scheme. Fourthly, we provided for the fulfilling of our promises. Now, that is the bit the National
Party hates about all the seven Budgets I have produced. In every one we fulfilled pre-election promises and
other undertakings. That for National members is indecent, appalling, and a betrayal of the political tradition that
they are the proud inheritors of, which is: “Say everything to get elected and then turn round and deny it. Once
you’re in and don’t actually do it.” That is the approach they believe Governments should take. We do not take
it. And, of course, we do not have to pay for just our own promises; we have to pay for some other people’s as
well, as part of forming Governments under MMP.
Then I foreshadowed that Mr Dunne and I are working on a business taxation document that will address issues
of taxation within the business area and assist in terms of productivity growth and economic growth within New
Zealand. We signalled more investment in skills, and more investment in building human capital in the country,
which is the most important input.
The Government makes no apology for the fact that in this Budget we provided the money to give an $88 a
week increase, on average, to 350,000 families with children, reducing the number of children living in poverty,
by 2007, by some 70 percent, compared with the figures that we inherited from a National Government. We do
not believe we have to have New Zealanders living in mass poverty in order to make a few people comfortable
about living here. If some people believe they must live in a country with high levels of poverty in order to feel
good, then they should go—leave this country—because this country’s national identity is not one for people
who believe that kind of thing. This is a country committed to social justice, committed—
Dr the Hon Lockwood Smith: You’re so arrogant.
Hon Dr MICHAEL CULLEN: That is not arrogant. Abolishing poverty is not arrogant, I say to Dr Lockwood
Smith. If he did not come from such a privileged background, he would not say something as stupid as that. The
most important thing a Government can do in the modern world is ensure that all its citizens can enjoy a decent
life, bring up their children in decency, enjoy good employment, have a decent house, and retire with dignity. If
Dr Lockwood Smith hates that, then he can go to a country where they do not do those things, and I will stay
here with a Labour Government for years and years to come.
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7. JOHN KEY (National—Helensville) to the Minister of Finance: Does he stand by his statement, in relation
to the proposed new tax on overseas investment, that “GPG is not registered in New Zealand, it’s registered in
the United Kingdom and its call for a special exemption makes no sense in terms of tax policy or fairness”; if not,
why not?
Hon Dr MICHAEL CULLEN (Minister of Finance) : Yes.
John Key: Why then, only 4 days after making that statement, did the Government announce it was creating a
special exemption for companies that satisfy five criteria, the combination of which applies to only one company
in the world: Guinness Peat Group?
Hon Dr MICHAEL CULLEN: Because we have been involved in discussions with Guinness Peat Group for
some few weeks. Indeed, I offered to Mr Tony Gibbs that officials could talk to the company, some few weeks
ago. We have arrived at a satisfactory outcome whereby, if the member cares to read what is proposed, he will
find Guinness Peat Group has a transitional period to come within compliance with the new legislation. There is
no permanent exemption from the proposals.
John Key: Why is he making legislation that favours investors in just one company in the world, when he has
admitted it makes no sense and is unfair, and does he think tax experts will struggle to understand that, under
his rules, the new definition of a “grey list” country is New Zealand, Australia, or Guinness Peat Group?
Hon Dr MICHAEL CULLEN: The member did not listen to the answer, but then he never listens to any answers
in the House. He always thinks he knows everything. Guinness Peat Group has 5 years to come within the new
rules. But if the member understood anything about that company, he would understand why it can, within 5
years, solve its problem with the British tax authorities.
John Key: Will the Government cave in to any other companies if they too start to take out full-page ads in the
newspaper, and, in that case, which companies?
Hon Dr MICHAEL CULLEN: No. I see suggestions are made that those who set up UK investment trusts
should have some kind of transitional exemption. Those trusts are set up deliberately as avoidance mechanisms
using the “grey list”, and, as usual, the party that calls for tax cuts supports the avoidance of tax obligations,
which raises tax for everybody else in the country.
John Key: Can the Minister confirm that under the proposed new tax rules, individual investors who hold shares
costing over $50,000 in the UK, USA, and five other countries will have to pay an additional tax from 1 April next
year and that that tax is a new capital gains tax, which will diminish the returns they make on their savings?
Hon Dr MICHAEL CULLEN: I can confirm that people who hold shares outside the “grey list” will, in fact, have a
reduction in the existing capital gains tax, which is a 100 percent capital gains tax outside of the “grey list”. The
“grey list”—
John Key: I raise a point of order, Madam Speaker.
Madam SPEAKER: There is a point of order, but the Minister has not finished. As I heard the answer, he was
going to get to the point that I think the member is about to raise: addressing the question.
John Key: I have asked the Minister that question on numerous occasions and every time he fails to answer it,
either in answers to written questions addressed to him or in answers to my oral questions in the House. He
fails to admit the obvious, which is that he is making changes to the “grey list” countries and that it is a new tax if
an investor owns more than $50,000 in total in shares in those countries. Why can he not admit it is yet another
tax grab or capital gains tax? It is not very hard to admit that is the truth.
Madam SPEAKER: That is not a point of order. Obviously, the Speaker cannot direct the answer that members
want to be given, but I would like the Minister to please complete his answer in the light of the comments.
Hon Dr MICHAEL CULLEN: I was getting there. Just to excite the member, I was teasing him for a few
seconds. A capital gains tax applies within the current overseas investment regime. The exemption from it for
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the “grey list” countries has been used as a means of tax avoidance. As a consequence, a unified regime will
now be applied. That is supported, in some form or another, by almost every tax expert who has looked at that
issue.
John Key: Does the Minister think that people who invest their savings for their retirement should be penalised
for directly investing their savings outside the tiny sharemarkets of Australia, New Zealand, and Guinness Peat
Group; and why is he on this crusade if it is not simply just to get additional taxes, which clearly he does not
need?
Hon Dr MICHAEL CULLEN: The overseas investment part of this regime is assumed to be revenue neutral.
The rest of the regime will cost some $113 million a year in lost tax revenue. That increases the return to savers
overall. But it does deal with the issue of the deliberate creation of tax avoidance vehicles, which that member
clearly supports.
John Key: Has he seen the letter dated 11 October 2005 from the Rt Hon Winston Peters to a constituent, in
which he stated: “New Zealand First supports savings incentives and is opposed to new taxes.”, and has he
seen a letter written on 2 December 2005 by the Hon Peter Dunne to a constituent, stating: “United Future
opposes capital gains tax, and I am happy to assure you that as a party we will not support any moves in that
direction. I certainly will not be promoting a capital gains tax.”; and, on the basis of that, is he worried about
getting the numbers to pass the legislation?
Hon Dr MICHAEL CULLEN: No, no, and no. The only member of this House who I know has supported a
general capital gains tax for many years—up to the point that he became a National Party MP—is Dr Donald T
Brash.
Key, John: Questions for Oral Answer — Questions to Ministers, Questions to Members:
11-May-2006 - Volume: Session1;Volume631;Week14
3. JOHN KEY (National—Helensville) to the Minister of Finance: Does he intend to make any reductions to
personal tax rates or increase personal tax thresholds in Budget 2006; if not, why not?
Hon Dr MICHAEL CULLEN (Minister of Finance) : No, because at this point neither the fiscal nor the
macroeconomic position would make that a sensible move.
John Key: Does he seriously think, in a week when Australia announced $45 billion of tax cuts, that a New
Zealand campaign launched today in Australia and costing $400,000, with such clumsy billboards as “In New
Zealand a cultural wilderness is a concert at a vineyard”, will really make a blind bit of difference in attracting
back the half a million Kiwis who now call Australia home?
Hon Dr MICHAEL CULLEN: If the member lived as close to the Church Road winery as I do, he would not
sneer at concerts in vineyards. Also, if he lived almost next door to a New Zealand family that has just returned
from Australia, he would not sneer about New Zealanders returning from Australia.
John Key: Is this ham-fisted campaign not just further confirmation that privately this Government is deeply
concerned about the impact that Australian tax cuts are having on attracting and retaining New Zealand’s skilled
and motivated workforce, and if he is not concerned about that, why is the Government bothering to launch the
campaign in the first place?
Hon Dr MICHAEL CULLEN: Clearly, we want to attract New Zealanders back home to New Zealand from
Australia, and we are so generous that we would like to attract Australians to come to New Zealand. There is a
competitive market out there in the world in that respect. We can be sure that if we saw a National Government
again, people would flee the country, as they did during the 1990s.
John Key: Has it come to his attention that 680 people leave New Zealand each week for Australia, in which
case will the Government be running this clumsy campaign not only in Australia but here in New Zealand as
well, in a bid to stop the flood of talent across the Tasman—or has the Government reconciled itself to the fact
that those New Zealanders already know that this administration will not be cutting taxes, as he pointed out in
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his answer to a question today, at least as long as he is Minister of Finance, which we all mercifully know is not
for much longer, when Mr Cunliffe will move along one seat?
Hon Dr MICHAEL CULLEN: I think that is what psychologists call projection, though in his case it is two seats.
Rt Hon Winston Peters: Has he received reports in a historical context about political parties and tax cuts,
namely in the late 1980s and in the latter part of the 1990s, and does that not suggest that although the National
Party talks about tax cuts, in contrast to the Labour administration under Douglas and Caygill, the record of the
administration under Ruth Richardson and Birch is not to have introduced tax cuts when it got into office, and
that the last and biggest tax cuts of $1.1 billion happened when New Zealand First provided the Treasurer in this
country?
Hon Dr MICHAEL CULLEN: It is certainly true that the top tax rate when we became the Government was 33
percent and the company tax rate was 33 percent. It is certainly true that National became the Government in
1990 and the top tax rate was 33 percent and the company tax rate was 33 percent, and that those rates were
put in place by a Labour Government. It is also true that the highest level of net out-migration to Australia from
New Zealand occurred in late 1998, 1999, and early 2000.
Shane Jones: Does he intend to introduce a general capital gains tax, impose stamp duties, or introduce a
dedicated health tax in Budget 2006?
Hon Dr MICHAEL CULLEN: No, certainly not. However, of course, if the Opposition wants to talk turkey and lift
the top tax rate to 45 percent and the second rate to 40 percent, introduce a stamp duty, and have a general
capital gains tax, we could talk about some tax gains for low to middle income New Zealanders.
John Key: Why is Jason Walker from Hays Specialist Recruitment wrong when this morning he said on
National Radio that the impact of tax cuts would have “pretty serious ramifications, with individuals crossing the
ditch.”?
Hon Dr MICHAEL CULLEN: I invite the member to think for a moment and look in the mirror. In the year 2000
this Government put up the top tax rate; Mr Key came back to New Zealand.
Rt Hon Winston Peters: Is it correct in a historical context that the highest-ever personal taxes in this country
occurred under a National administration with a Minister of Finance called Ruth Richardson, when she imposed
a surtax increase in 1991 of effectively, in its worst case, an impost of 92c in the dollar?
Gerry Brownlee: Why did the member vote for it?
Rt Hon Winston Peters: I raise a point of order, Madam Speaker. Again Mr Brownlee shouted out during the
question.
Madam SPEAKER: No, it was after you had finished the question.
Rt Hon Winston Peters: And the answer is that I did not vote for it. I was expelled from the National Party.
Madam SPEAKER: That is not a point of order.
Hon Dr MICHAEL CULLEN: It is certainly true that in the 1991 so-called “mother of all Budgets” the National
Party attempted to introduce a very rigid income test on the State pension, which it subsequently had to
abandon. I do note that in Australia such an income test still exists, so presumably we can expect to see New
Zealanders come home again when they get to about 55.
John Key: Why is the Australian Chamber of Commerce and Industry wrong because it believes that low taxes
play a part in attracting skilled workers and welcomes the fact that the Australian Treasurer has had the courage
to cut personal taxes in Australia for 4 years in a row, and why does he think that that has a significant impact
on attracting New Zealand workers over to Australia?
Hon Dr MICHAEL CULLEN: If we look at the total migration flows we see, in fact, that over the last 5 years net
migration flows as a percentage of population have been higher in New Zealand than in Australia.
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John Key: Is it not a fact that when it comes to tax cuts, Kiwi workers contrast his inaction with the action of an
Australian Government that, for 4 years now, has cut taxes and shared prosperity; if so, does he agree it will not
be Australia but New Zealand that will wake up one day soon looking for its skilled and motivated workforce and
asking the most obvious question: “Where the bloody hell are ya?”
Hon Dr MICHAEL CULLEN: I am over here. I do not know where he is, but I am right here and I intend to stay
here for the long-term future. The public was offered the chance to have unsustainable tax cuts at last year’s
election, and it did not get over the line, and now all National can do is to wobble across the plank and try to get
to the future.
Rt Hon Winston Peters: In the context of the history of tax reform and tax changes, can he recall the
commitment made by a political party to remove the surtax “no ifs, no buts, no maybes”, and then having got
into power on that promise—much like a used-car salesman, with plenty of pre-sales talk but no after-sales
service—can he recall that it increased the worst impost of that tax to 92c in the dollar; and what was that party
called?
Hon Dr MICHAEL CULLEN: As the Minister of Social Welfare at the time the promise was made, I well recall a
former member of the National Party—who has since seen a great deal more sense about life—promising in an
address in the Wellington Town Hall that “no ifs, no buts, no maybes” the surtax would go, then trying to
introduce an income test, and never removing the surtax until it was a condition of coalition Government with
New Zealand First. That was the National Party and, indeed, in 1999, once no longer in coalition with the New
Zealand First Party, National cut New Zealand superannuation again once it had a tax cut legislated for.
John Key: Can the Minister of Finance recall a Government that left office telling the people of New Zealand
there was an $89 million surplus, when there was actually a $3 billion deficit, and can he name that
Government?
Hon Dr MICHAEL CULLEN: If the member had bothered to check his facts—[Interruption]
Madam SPEAKER: If I cannot hear the member, then I am sure those at the back cannot. Would the Minister
please start his answer again.
Hon Dr MICHAEL CULLEN: I wish the Leader of the Opposition would not wave his pinkie at me when the rest
are waving their forefingers. In fact, if the member cares to consult his facts, he will find out that the party he
belongs to was saying before that election there was a $1.8 billion deficit.
4. JOHN KEY (National—Helensville) to the Minister of Finance: Will he be following the lead of the
Australian Treasurer, Peter Costello, by raising income tax thresholds and/or cutting tax rates in his 2006
Budget; if not, why not?
Hon Dr MICHAEL CULLEN (Minister of Finance) : I have no intention of raising the top two personal tax rates
to 40 percent and 45 percent, plus a 1.5 percent Medicare levy as in Australia.
John Key: Is he aware that Australian tax thresholds have been raised and/or taxes lowered in Australia in
2003-04, again in 2004-05, again in 2005-06, again in 2006-07; and why is it that we in New Zealand have to
wait 3 years to get the better part of 67c, which he is telling us we probably will not get anyway?
Hon Dr MICHAEL CULLEN: It has already been announced that the Hon Peter Dunne and I are undertaking a
review of business taxation where those matters will be dealt with. The Australian Government, of course, last
night projected what it called an underlying cash surplus of about $10 billion. The National Party’s policy would
have implied, in fact, substantial extra borrowing in order to pay for it.
Hon Mark Gosche: What recent reports has he seen on the tax burden on the average New Zealand worker?
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Hon Dr MICHAEL CULLEN: According to a recent report from the OECD, New Zealand has the third-lowest tax
rate for the average worker. Australia had a higher tax burden on the average worker than New Zealand had.
John Key: Can he explain why tax cuts are affordable in Australia, when they will be running a future surplus of
1 percent of GDP, but apparently they are not affordable in New Zealand when we will be running a surplus of
2.2 percent of GDP, even after he has fully funded the New Zealand Superannuation Fund?
Hon Dr MICHAEL CULLEN: That really does show the member’s ignorance of how Government accounts are
calculated. The Australians report what they call an underlying cash surplus, which is on the core Crown activity
in Australia. This Government will not be reporting a cash surplus at all for the next 4 years.
John Key: Has he seen Australian Labor leader Kim Beazley’s comments in support of the Australian tax cuts
when he said: “You can’t keep failing to give when you’re running surpluses like they’ve been running. You can’t
keep failing to give to middle Australia a tax cut.”; if so, why does he think that Labor leader Kim Beazley thinks
tax cuts are affordable when their surplus is half what New Zealand’s surplus is—or does he just think that Peter
Costello is being totally irresponsible in announcing tax cuts?
Hon Dr MICHAEL CULLEN: I tell the member again, he does not have the foggiest idea how Government
accounts are calculated. The Australians report on a different financial basis—
Madam SPEAKER: Members know that barracking is not permitted; interjections are. It is very difficult to hear
the member’s answer.
Gerry Brownlee: I raise a point of order, Madam Speaker. You might require the Minister to answer the
question rather than starting with the provocative statement that he did. If we could ask a question by saying
something about the Minister of Finance’s inability to understand his capacity to deliver tax cuts, that might be
fair. But for him to respond that way will, unfortunately, just lead to the sort of response we get.
Madam SPEAKER: I say to the member that the Minister was getting to his answer and I did notice that some
questions have been prefaced by superfluous comments, as well. So perhaps we could all stick to the rules in
future.
Hon Dr MICHAEL CULLEN: The Australians report their Government finances on a different accounting basis
from New Zealand. Their headline rate is what is called the underlying cash surplus. New Zealand’s underlying
cash surplus on the Australian basis is already lower than Australia’s and will be negative for the next 4 years.
Large tax cuts in New Zealand over that period can only be paid for either by slashing social spending—and
every member opposite calls for increases—or by increased borrowing and rising debt levels. Mr Costello’s
proudest boast last night was that he had paid off Government debt, and Australia had a net debt of zero. We
achieved the same position in March this year. Thank God we did not have a National Government!
John Key: Has the Minister bothered to reflect on the fact that if an Australian worker earns $30,000 or $40,000
a year—not a lot—he or she will pay $1,500 a year less in tax, or $30 less a week, than the equivalent New
Zealand worker earning exactly the same amount of money; if so, what is he going to do about that for the New
Zealand worker?
Hon Dr MICHAEL CULLEN: That same person in Australia also pays a 1.5 percent Medicare levy. That
provision is not payable within New Zealand; here it is met out of general taxation. That same person will also
pay a very large payment of stamp duties, if he or she buys a house. That person would also be subject to
general capital gains tax and, indeed, to a range of taxes that are not payable within New Zealand. That person
would also qualify for a State pension that is income and asset tested, which it is not in New Zealand.
John Key: Has the Minister bothered to calculate that if a New Zealand truck driver earns $45,000 a year, his
tax will be $9,720, leaving him a take-home pay of $35,280 to live on, and that when he emigrates to Australia
he is likely to earn $60,000 for the same job and have a take-home pay of $48,400; or does the Minister not
consider that the $250 a week extra that the worker would get in Australia is material?
Hon Dr MICHAEL CULLEN: I am always amazed that any members opposite still live in this country. If they
think Australia is so good, then for God’s sake let us benefit both countries and let them all go to Australia.
26
Peter Brown: Will the Minister confirm that wages went down in this country as a direct result of the
Employment Contracts Act?
Hon Dr MICHAEL CULLEN: I can confirm there were serious cuts in both wages and conditions for many New
Zealand workers, particularly in terms of conditions such as time and a half on overtime, which of course Mr Key
never does—at least, not in respect of his work. Indeed, the largest gap between wages in New Zealand and
Australia occurred during the period when the policies that Dr Brash and Mr Key are most keen on were being
implemented.
John Key: When the Minister finally gets to read the rest of David Cunliffe’s Budget next week, will the cheering
from his back bench be because the whips have told them to fall into line, or because they have worked out that
under the Minister’s financial stewardship they have the privilege of paying $6,540 more in tax than if they had
earned their $118,000 back-bench salary in Australia, and is that why the Prime Minister has signalled that next
week’s Budget will almost certainly be his last, because she agrees with the back bench that they deserve a tax
cut?
Hon Dr MICHAEL CULLEN: I can understand that somebody who is worth $50 million would have had to
arrange his affairs to qualify for a Wellington accommodation allowance as a member of Parliament, and would
regard an MP’s salary as somewhat miserable. I have to say that most Kiwis would be happy to earn
$118,000—and I would be happy if almost anybody on that side actually earned their $118,000.
Hon Dr Nick Smith: I was amused to hear Winston Peters criticising the Employment Contracts Act, and I seek
leave to table the third reading vote on the Employment Contracts Act, which Mr Peters voted for but of course
that was when he was on this side of the House.
Madam SPEAKER: Leave is sought to table that document. Is there any objection? There is objection.
Rt Hon Winston Peters: I raise a point of order, Madam Speaker. Dr Smith should pay attention. I have not
asked any questions today, other than the one to do with question No. 2 to the Prime Minister. I did not ask any
questions in respect of the last line of questions, so why is he accusing me of having done so?
Madam SPEAKER: That is not a point of order. The member is quite right, on a point of information.
6. JOHN KEY (National—Helensville) to the Minister of Finance: What will be the formula for New Zealand
residents calculating their tax liability if they hold shares outside of New Zealand or Australia after 1 April 2007?
Hon Dr MICHAEL CULLEN (Minister of Finance) : That would depend on the nature of the resident, the
nature of the company invested in, and the total cost of the investment held.
John Key: Does the Minister support the New Zealand Superannuation Fund’s diversified approach to asset
allocation, where the vast bulk of equities are owned offshore; in which case, why is he proposing a capital
gains tax on ordinary Kiwis that will penalise them for everything he says he supports the New Zealand
Superannuation Fund undertaking?
Hon Dr MICHAEL CULLEN: All managed funds have investments offshore, primarily because the New Zealand
sharemarket is relatively small. But the member, of course, continues to make a fundamental misstatement. At
present, a 100 percent capital gains tax applies to investment in all countries outside of eight “grey list”
countries. That will be significantly reduced under the new regime, and that will encourage diversification. The
member is arguing that we should continue to advantage investment into Germany compared with India.
John Key: I am glad the Minister answered in that way, because does he understand that currently the capital
gains tax - exempt, “grey list” countries comprise 80 percent of the world’s market capitalisation of listed
stocks—80 percent of the world’s capitalisation is in those companies—which leaves only 20 percent on his
blacklist, yet, after his latest “envy tax”, that 80 percent will now shrink to a mere 2 percent; armed with this
27
knowledge, does he still think it is such a great idea to introduce the new rules, which replace a bias against 20
percent with a bias against 98 percent?
Hon Dr MICHAEL CULLEN: No, the advantage is in relation to New Zealand and Australia only, because they
are treated as a single economic market—and that member will go up to Auckland on Friday and pretend to
support that, but in this House, of course, he will oppose it. The reality at the moment is that the “grey list”
regime was developed on the theory that those countries could be relied upon to tax at source. In practice, that
is not happening in many instances.
Hon Peter Dunne: What reports, if any, has the Minister seen of positive industry reaction to the proposals that
were recently announced?
Hon Dr MICHAEL CULLEN: I have received a number of such reports, and, particularly, from those who know
something about these issues. Ernst and Young describes the change as a “triumph for tax neutrality”. The NZX
Chief Executive, Mark Weldon, said that the change would be positive for New Zealand capital markets. Carmel
Fisher, of Fisher Funds Management, stated that the tax changes are great news for investors and for New
Zealand capital markets. Jo Doolan, in the Independent, wrote: “It is evident the Government … moved a long
way in trying to make the rules more user-friendly.” The only people opposing this are a British-based company,
Guinness Peat Group, its paid agents, and the National Party.
Peter Brown: If the legislation is enacted along the lines reported, will a person be able to avoid any capital
gains tax liable on American shares by selling those shares and transferring the money to Australia?
Hon Dr MICHAEL CULLEN: Yes, because, of course, the value of those shares has not been repatriated to
New Zealand. I might add that, given that the American context is of specific importance for countries involved
in what might broadly be called new-technology venture capital areas, talks are well advanced on ensuring that
those kinds of companies will not be adversely affected by the changes.
Dr the Hon Lockwood Smith: Will this new capital gains tax apply to new migrants and returning New
Zealanders who qualify for a 4-year tax exemption on foreign income; if not, once the exemption expires, will
capital gains be calculated on an increase in value from 1 April 2007 or from when the exemption expires?
Hon Dr MICHAEL CULLEN: My understanding is that that would apply from the date of the expiry of the
exemption, but I will check on that and get back to the member. The member, however, does help with a very
important point to clear up a misunderstanding. The new regime applies prospectively only from 1 April next
year; the gains are not backdated from the time of purchase of shares. There has been a good deal of
misunderstanding of that point within the public arena.
Shane Jones: By how much will taxation on investments be reduced under the proposal announced on 11 April
2006?
Hon Dr MICHAEL CULLEN: Contrary to the impression some people are trying to create, the proposals will cut
tax on investments by a net $110 million a year by reducing tax advantages for investors using managed
funds—primarily those on lower incomes—
John Key: Absolute nonsense—$25 million if you’re lucky!
Hon Dr MICHAEL CULLEN: —which is why the “Young Pretender” is squeaking away over there; he is not
interested in those particular people—and abolishing the tax on capital gains on New Zealand and Australian
shares held via a managed fund, which at present are subject to a capital gains tax.
John Key: Can the Minister confirm that New Zealand investors’ liability under his new capital gains tax is not
capped by his formula of 85 percent of 5 percent—the formula he wants everyone to believe—but that, rather,
the formula applies to the total capital gains, once the assets have been sold and repatriated to New Zealand?
Hon Dr MICHAEL CULLEN: Effectively, what there is here is a rolling imputation credit along the way, and, on
repatriation, that will occur. But, of course, what the member completely fails to point out, yet again, is that all
investments in countries outside the “grey list” at the moment are subject to 100 percent capital gains tax. There
is not a new capital gains tax; it is a rationalisation of the existing regime.
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John Key: How much additional revenue will the Crown receive as a result of his cracking down on the salary
sacrifice rules, and when this is added to the additional revenue from the abolition of all but Australia as the
“grey list” countries, is it not a fact that, rather than cutting tax by the figure of $110 million that he was
trumpeting before, in an earlier answer on this question, this policy is pretty much revenue neutral, like every
Michael Cullen tax adjustment, and just like his business tax review will be when he slaps on his shiny new little
payroll tax?
Hon Dr MICHAEL CULLEN: From 1 April there were very significant business tax cuts, which cost some
hundreds of millions of dollars a year, and which were not in the least revenue neutral, but the member, of
course, as usual, wants to avoid those particular things—a member who, in an interview on Saturday morning,
could not even answer whether he believed in God.
Jones, Shane: Questions for Oral Answer — Questions to Ministers: 15-Nov-2005 -

2. SHANE JONES (Labour) to the Minister of Finance: Has he received any reports of support being
expressed by the Governor of the Reserve Bank for the introduction of capital gains tax on housing?
Hon Dr MICHAEL CULLEN (Minister of Finance) : I have seen a number of reports from the Governor of the
Reserve Bank recommending a capital gains tax as an appropriate response to New Zealanders’ “obsession
with property”, and a useful measure to “take the steam out of the property market”. I should of course make it
clear, in all fairness, that those statements were made not by the current governor but by his predecessor, who
is now the leader of the National Party.
Shane Jones: Is the Government planning to introduce such a tax?
Hon Dr MICHAEL CULLEN: No. We take very little advice from the former Governor of the Reserve Bank who
is now the leader of the National Party. I have asked for a report from Treasury and the Reserve Bank on
possible instruments the bank could use to underpin the effectiveness of the interest rate mechanism. The
terms of reference exclude consideration of such a tax. Of course, only one politician of note in the House has
argued for such a tax, and that is Dr Brash.
John Key: Can the Minister confirm that, far from ruling out the introduction of a capital gains tax, last week’s
terms of reference outlined by the Reserve Bank and Treasury simply delayed it “beyond the scope of the
present review”; if this is the case, will he once and for all get up in the House and confirm that he does not
intend to put in place a capital gains tax on property?
Hon Dr MICHAEL CULLEN: I can confirm it again, but Treasury and the Reserve Bank are independent
bodies, and no doubt they foresee the possibility that at some stage in the long distant future, when Dr Brash is
in his 80s, they may have to carry out a review at his request.
John Key: Why, having preached that New Zealanders should buy shares, and having lamented that they have
far too much invested in property and not enough invested in shares, is he now proposing to apply a capital
gains tax on New Zealanders who own foreign-domiciled shares, including most of the banks that operate in
New Zealand and many of the utilities?
Hon Dr MICHAEL CULLEN: What I have said in the past, and I think it is one area where Dr Brash actually
agrees with me, is that too high a proportion of our savings is in housing, not because we have a love affair with
housing—I do not agree with that—but because we do not save enough to save in anything else but our
housing.
Parker, David: Questions for Oral Answer — Questions to Ministers: 26-Jul-2005 -

29
12. DAVID PARKER (Labour—Otago) to the Minister of Finance: What reports, if any, has he received on
proposed changes to the tax system?
Hon Dr MICHAEL CULLEN (Deputy Prime Minister) : I have seen reports that propose that tax changes
would be announced within 2 to 3 days of the election date being announced, then that the date for announcing
those changes would be announced within 2 to 3 days, and then that the policy would not be announced for
something like another 4 weeks. All those statements came from National within the space of 2 weeks, on this
occasion.
David Parker: Has the Minister received any further reports on proposed tax changes?
Hon Dr MICHAEL CULLEN: I have seen reports that the tax changes proposed would cost about $1 billion per
year—indeed, “$1 billion per year max” was the phrase used. But the same group has already announced tax
proposals that would cost $1.165 billion per year, before it has come to the main part of the menu. That, of
course, is the National Party, yet again.
John Key: If the Minister thinks that diversification is such a good strategy, as he said last night to the
Wellington Property Investors Association, why is he imposing a capital gains tax on foreign shares held by New
Zealand residents, which will inevitably result in less diversification for New Zealand investors?
Hon Dr MICHAEL CULLEN: The current tax regime encourages New Zealanders to invest offshore. It
differentiates between the destinations of offshore investment. It has four different methods of calculating the
foreign investment fund. It is a complex mess that fails to address the fundamental issues. The issue here is
how to simplify the system. As usual, the National Party proposes a highly complex tax system, including an
array of tax rebates that would recreate the early 1980s tax system.
Gordon Copeland: Has the Minister seen a report that indicates that 325,000 couples with dependent children
could benefit from income splitting; if so, why does he continue his opposition to that concept, notwithstanding
that the current system greatly overtaxes single-income families?
Hon Dr MICHAEL CULLEN: Yes, I do continue to oppose that system, because the gains to those on higher
incomes would be a multiple of those on modest incomes. For example, the single-income family that earns
around $40,000 to $50,000 per year would gain very, very little, indeed. For those on $150,000 per year, the
gains would be very, very substantial. Again, United Future is yet to explain where the reductions in expenditure
will occur to pay for that kind of policy.
Gordon Copeland: Is the real reason for opposing income splitting the fact that it recognises for tax purposes
the contribution of the partner who stays at home to raise children, thus jeopardising the Government’s bleak
vision of seeing all mums in the workforce, with strangers providing dawn-to-dusk care?
Hon Dr MICHAEL CULLEN: I must say that in a broader social sense, I regard all mums as being in the
workforce already. Raising children is a job; it is just that it is often an unpaid one.
Gordon Copeland: I raise a point of order, Madam Speaker—
Madam SPEAKER: The point of order is that the question needs to be addressed. Would the Minister like to
have another go.
Hon Dr MICHAEL CULLEN: I thought I had rather explained that by saying that, in my view, women at home
looking after children are in the workforce already. At least, in terms of my children I have regarded it as
something of a job to bring them up.
Gordon Copeland: I raise a point of order, Madam Speaker—
Madam SPEAKER: The Minister did address the question.
Gordon Copeland: It was rather disingenuous, because I specifically talked about mums in the workforce, with
strangers providing dawn-to-dusk care. The question was not about mums staying at home; it was about mums
being in the workforce.
30
Hon Dr MICHAEL CULLEN: What the member is trying to get at is that there is some deep, dark socialist plot
to force all women out into paid labour. I might say that there is exactly the same attitude among members
opposite, who have been announcing policy that would do precisely that to women who do not have a husband
to help support them.
Supplementary Estimates — Imprest Supply Debate 14 June 2005

Hon Dr MICHAEL CULLEN (Minister of Finance) : I move, That the Appropriation (2004/05 Supplementary
Estimates) Bill and the Imprest Supply (First for 2005/06) Bill be now read a second time. This will be, of course,
the last imprest supply bill before the election. It is a good time to place on the record certain key facts. It is a
good time to ask some key questions of the desperate and dateless members opposite us.
This Government has a proud record, and we are grateful for the support we have received from parties in the
House. We have seen economic growth at the highest sustained level for 30-odd years in New Zealand. We
have outstripped Australia for 4 years in a row, which the National Government never achieved. We have seen
the growth and innovation framework, which is guiding that economic policy. We have seen employment rising,
with 260,000 new jobs, the vast majority of which are full-time jobs. We have seen unemployment dropping to
record low levels since the modern indices began. We have seen poverty falling for the first time for many years
in New Zealand, and that is before the Working for Families package started to come into force in any great
sense on 1 April this year. We have seen health spending rise. We have seen mortality rates fall and life
expectancy rates rise. We have seen the growth of primary health-care organisations, cheaper doctors’ visits,
cheaper pharmaceuticals, and increased operations across the board.
We have seen a restoration of the level of New Zealand superannuation, which was cut by the National
Government in 1999, at the same time that it legislated for a tax cut. One paid for the other then, as it would
again in the future under a National Government. We have seen the setting up of the New Zealand
Superannuation Fund, which secures the future of New Zealand superannuation, and, finally, the National Party
has had to accept that that fund is a permanent part of New Zealand’s public policy.
We have seen successful industrial relations reform, which has seen record low levels of industrial disputes,
and, indeed, underemployed institutions for settling industrial disputes. We have seen the introduction of paid
parental leave and so much else. Moving forward we will see the introduction of the KiwiSaver scheme to help
average, ordinary, hard-working, battling Kiwis save for their future, their retirement, and their deposit on a first
home, and this Labour-led Government is the first party in 30 years to introduce those sorts of measures.
We will see, on 1 April next year, stage 2 of Working for Families, which will deliver to many two-child, low to
middle income working households $30, $40, or $50 a week extra in the hand, which could never be matched
by any tax cuts the Opposition can offer. On 1 July next year we will see the introduction of the rates rebate
scheme, which will help tens upon tens of thousands of superannuitants pay the rates they struggle with at the
present time. We will see, on 1 April next year, the introduction—indeed some of it was on 1 April this year—of
business tax changes and the simplification of that scheme.
From members opposite, all we have heard offered against that is one thing: tax cuts. National has become like
the ACT party these days. Tax cuts is the answer from the members opposite to everything, from paedophilia to
boils on the back, as far as one can tell. How do we solve the problem of too many people being in accident and
emergency departments? Give them a tax cut! Give them a tax cut, and they will leave, bleeding but
happy—marching into the golden future they will go under a National Government.
We ask now: where is the beef? It has been promised for so long. It is a case of Salome with about 97 veils on,
and only five have gone; there are still 92 left to go. Under National, there would be tax cuts by Christmas, then
it was by 1 April next year, then it was in 6 or 9 years, then it was for the top end, then it was for the middle, then
it was for the top again, then it was for everybody. So it goes on and on in utter confusion.
Watching Dr Brash against Simon Dallow on Saturday morning was an exercise in elderly confusion. Like an
ageing courtesan, the National Party is trying to keep its policy covered up until the lights have gone out, the
election is on, and the public cannot really see what is actually underneath. And underlying that policy is a whole
31
set of myths. The first myth is big government. The National Government never got government spending below
32 percent of GDP. It is 30 percent of GDP now. After Working for Families and all the other things, it will rise
back to 32 percent of GDP and stay there. Where is this big government that Labour has been putting in place?
The second myth is high tax. Australians have two tax rates above our top tax rate, and tax on top of their
higher taxes in terms of Medicare, compulsory superannuation, capital gains tax, stamp duty—and so on, and
so on.
The third myth is that National can deliver a lot to the ordinary, hard-working Kiwi by means of tax cuts. What
would the Australians deliver for the equivalent of a billion dollars or so a year if it was in New Zealand? Six
dollars a week! Will that be the big bribe? That will not fill up a billboard, will it? Not even half a billboard would
be filled up by $6 a week from the Opposition—and it is not what people are expecting, or have been led to
believe, if National were to be elected.
National is now promising significant tax cuts for all workers. We know what that means. People are expecting
about 30 bucks a week from National. National has promised movements in every threshold, and to get back to
5 percent on the top rate means raising the top threshold to $80,000. It has promised to cut the top rate from
39c to 36c. It has promised to cut the company tax rate from 33c to 30c. It has promised to divert all the money
out of the Government account, over time, into the National Land Transport Fund. It has promised to scrap the
carbon tax. What does that add up to? It adds up to $4 billion a year to start with, rising to $5 billion a year by
2007-08. That is the cost of National’s policy. That cannot be done by simply cutting the number of public
servants in Wellington. There are not enough to go around. If we cut the lot of them, there would not be enough
left over.
The fourth myth is that we can pay for tax cuts next year, and the year after, and the year after, and the year
after, with this year’s cash surplus. But this year’s cash surplus will be all gone by 30 June. It has been used to
pay off debt. It has gone into the superannuation fund. It has gone here, it has gone there, it has gone
everywhere. None of it will be left on 1 July.
So what will pay for these tax cuts, come a National Government, if it is ever elected? We know the
consequences. Firstly, higher interest rates, because that much looser fiscal policy must mean tighter monetary
policy, and it must mean higher interest rates. Those hard-working, battling Kiwis will pay more on their
mortgage to pay for John Key’s tax cuts. He will be laughing all the way and putting more of his money offshore,
as it all is at the present time. He will continue to invest overseas, rather than in the future of this country, as we
learnt today in question time. It is pretty obvious what that was all about. The hard-working, battling Kiwi will be
the person who has to pay for that.
National would have to cut into core spending. The billboard is right. It is tax, or it is a cut. It is tax or a cut in
health; it is tax or a cut in superannuation; it is tax or a cut in education; it is tax or a cut in law and order. That is
what the battle is about, as we lead into this election over the next few weeks. Electing a National Government
would be the 1990s all over again—cuts, cuts, and cuts to pay for tax cuts for those who are better off. We saw
it in 1996, 1998, and 1999.
The real question for New Zealanders is very, very simple. Can they afford National? The answer for the great
majority of New Zealanders is very simple. No, they cannot afford National. Only a small minority can afford a
National Government. That is why National will not release its policy until the last possible moment. If it is
released too soon it will be clear there are holes in the policy, it will be clear it does not add up, it will be clear it
will make this country worse off, it will be clear it will make most New Zealanders worse off, and it will be back to
the misery and strife of the 1990s under Ruth Richardson and Bill Birch. Bring it on, in 2005, for this election.
Key, John: Questions for Oral Answer — Questions to Ministers: 14-Jun-2005 - Volume:
32
4. JOHN KEY (National—Helensville) to the Minister of Finance: If a New Zealander holds shares in an
Australian company, does the investor pay any tax on any capital gains, and could this position change after 1
April 2007?
Hon Dr MICHAEL CULLEN (Minister of Finance) : Possibly, and therefore possibly.
John Key: Why should New Zealanders who passively own shares in an Australian company be forced to pay a
capital gains tax after April 2007, something they are currently exempt from, given that the Australian
companies they invest in are in many cases no different from the equivalent New Zealand companies that invest
capital, create jobs, and pay tax here in New Zealand?
Hon Dr MICHAEL CULLEN: As the member knows, I have clearly expressed a view that there is no single
solution that will treat—[Interruption] Goodness me! This is from the party that admires the Australian tax
system, which has a generalised capital gains tax in place.
John Key: Is this capital gains tax not just another tax grab from a Government that is spending so much that it
is always looking at new ways to gain tax, whether it is through sherry, petrol, or carbon emissions?
Hon Dr MICHAEL CULLEN: I am fascinated that the member has finally read the Budget speech, where I refer
to this as being potentially a capital gains tax. It has taken only 4 weeks for him to wake up to what everybody
else recognised in a space of minutes.
John Key: How on earth can the Minister be serious about promoting a single economic market with Australia,
when he is now proposing a capital gains tax on Australian investments held by New Zealand residents?
Hon Dr MICHAEL CULLEN: Given that Australia has a general capital gains tax, it is rather strange to suggest
that a capital gains tax could not be applied to any form of investment in Australia. The fact is that if we want to
simplify a system that at present distinguishes between where people invest, how they invest—whether on a
revenue or capital account—and how they calculate the investment according to four different methods, there is
only one way of doing it. But of course anything that is simple is beyond the National Party.
John Key: How can the Minister expect a small stock market like New Zealand’s to cope with all the offshore
capital that could get repatriated as a result of his proposed capital gains tax; and is it not true that if the bulk of
that capital does come home, it will just end up in the property market, something the Minister was moaning
about during the earlier part of this year?
Hon Dr MICHAEL CULLEN: Given that member’s plans to give away billions of dollars a year in terms of tax
cuts, I am sure he would want a lot of money to be repatriated to pay for that.
John Key: I seek leave to table the tax schedules that show the New Zealander who passively owns shares
today in Australia does not currently pay tax but will do so after 1April 2007.
Madam SPEAKER: Leave is sought to table that document. Is there any objection? There is.
Cullen, Michael: Budget Debate: 07-Jun-2005 - Volume: Session1;Volume626;Week91

Hon Dr MICHAEL CULLEN (Minister of Finance) : It is a time-limited debate, and 10 minutes before the end
of the Budget debate the Minister of Finance is called in reply, regardless of whoever is actually speaking at that
point.
The ASSISTANT SPEAKER (Hon Clem Simich): That is correct.
Hon Dr MICHAEL CULLEN: Tonight I address my remarks particularly to the full quivering ranks of the National
Party opposite—a group of people whose heads are so empty that even if they rattled, one would not hear a
sound coming forth from them. Of course, National has put up those wonderful billboards that extend the entire
vocabulary of Sandra Goudie. In other words, they are limited to two words per billboard. One of those
billboards has it right on the money. It is absolutely correct. It is exactly the Labour message, in response to
National. It is tax, or it is a cut. It is tax, or it is a cut in health. It is tax, or it is a cut in education. It is tax, or it is a
33
cut in superannuation. It is tax, or it is a cut in law and order. It is tax, or it is a cut in defence. We want to know
what cuts the National Party is planning. National has said that if it is elected it would have a mini-Budget before
Christmas. Of course, Sandra Goudie was still doing strippergrams the last time the National Party had a mini-
Budget before Christmas. I want to tell her what happened in that mini-Budget.
Sandra Goudie: I raise a point of order, Mr Speaker. I take exception to a comment made by the Minister, and I
would like him to withdraw and apologise.
Hon Dr MICHAEL CULLEN: I withdraw and apologise, and I shall now sleep a great deal easier at night, not
having to think about that.
The first thing that happened in that mini-Budget, introduced before Christmas in 1990, was that a widow, in
order to qualify for the widows benefit, had to apply for it on the day her husband died. That was the start of 9
long years of a National Government, of cuts, and of ideological insanity, as my colleague has just been
through. What has National told us? It has told us that it can do this because the Government has grown so
much. I tell Mrs Goudie that when National left office, core Government spending was 33 percent of GDP.
Where is it now? It is now 30 percent of GDP. Where is it forecast to go to? To 32 percent of GDP, with Working
for Families and with the tax measures in this year’s Budget.
When National was in Government, Government spending was higher than the OECD average. Now it is lower
than the OECD average. So much for the record on those matters! Or, of course, as National says in one of
these things, it is going to get rid of the pen-pushers, whoever they are. Only the National Party has not realised
that in the public service they use computers these days. But never, never mind.
What is public service employment in terms of the core State sector public service, the administrators? It has
gone from 2.18 percent of total employment, to 2.34 percent. What it is actually talking about is the teachers, the
social workers, the staff of what used to be the Special Education Service; all of those people. Those are the
people whom Mr Key is going to cut, and as he told us on a Sunday night programme, he has sacked people
before and did not shed a tear, because he is a man who never cries and does not know how to.
We spend only $1.9 billion on that core public service administration. That is an interesting figure. I said that the
National Party has to cough up at least $2 billion a year for tax cuts, and Mr Key said that it would not be
anything like that much. What does $1.9 billion buy? If we just cut the 21 cent rate, and nothing else, it can be
cut by getting on for 6 cents. We can actually give a massive $30 a week at $35,000 a year, and a maximum of
$33 a week. That is $1.9 billion. All those people on $100,000 that the National Party keeps talking about will
not be happy with only a $33 a week tax cut, and all those on $30,000, getting $23 a week, will want to know
what will pay for the $1.9 billion. What will go? Will it be my local police officer, my school, my teachers, or my
nurses? Who will go, to pay for those tax cuts? The National Party will not tell us. It will not tell us what its tax
cuts will be. National wants to keep that secret for as long as possible, because it knows that the numbers will
not add up.
National has people expecting large tax cuts, which it cannot deliver, except at the expense of core social
services—superannuation, health, education, and law and order—and we should not be surprised. Dr Brash is
on record as to what he believes about all these matters. He has given many, many speeches over the years.
He has said what his views are. He said that the Employment Contracts Act did not go far enough on labour
deregulation, and it should be taken further. He said that he wanted schools privatised; that he saw no reason
for the State to own schools or hospitals. He said that he wanted to raise the age of eligibility for
superannuation, and indeed, even now at his age, he is still comfortable about raising the age of eligibility. All he
says now is: “Well, it won’t be for those over 50.”, which is a pretty strong signal that it will be for those under 50,
under a National Government. One would have to be pretty hardy at 49 to change all one’s patterns of
retirement behaviour, to take account of the fact that the goalposts will move again if a National Government
were elected. He wants a capital gains tax on housing. He wants to cut the rates of able-bodied benefits. He
wants to use prices to limit health-care demands. Therefore, people get in on the basis of whether they can pay,
not on whether they need an operation or need assistance from the health-care system. Don Brash wants to
scrap the minimum wage. A man who used to earn nearly half a million dollars a year as Governor of the
Reserve Bank would deny people a miserable $9.50 a week; $9.50 a week is too much for Dr Brash. Dr Brash
tells us that those kinds of wages are too much for some New Zealanders.
34
So is it tax, or is it cuts? We are taxed significantly less than the OECD average. An average worker on a full-
time wage is taxed less than in Australia, as a proportion of wages. Employers do not pay payroll taxes, as they
do in Australia. So what is going to give? If it is not cuts in expenditure, then it is looser fiscal policy, and it is
higher interest rates. I invite the National Party to go to the people, promising higher interest rates so that they
can pay for their own tax cuts. How does that work out for most people? It is tax that pays for health, education,
superannuation, and law and order. Of course, on Budget night half a dozen of National’s spokespeople
immediately said that we were not spending enough. They said we needed more for the police, more for
defence, more for justice, more for health, more for this, more for that, more for the other, less revenue, no blow
out in spending, no increase in the fiscal deficit, and no interest rate rises.
Dr Brash used to give speeches about that kind of nonsense when he was Governor of the Reserve Bank, but
now it is becoming official National Party policy. So it is clear who the winners would be under a National
Government. It would be those on the highest incomes. It is clear who the losers would be. It would be the great
majority of the rest of the population. I invite the National Party, over the next few weeks, to tell us which part of
the health spending it objected to. Was it the increase in pay for nurses? Was it the faster roll-out of primary
health organisations? Was it the cancer control strategy? Was it the cataract operations? Was it the increase in
mental health funding? Which part of that spending goes, under a National Government.
Then I want to know from National which part of the spending goes from education, in terms of increased
numbers of teachers, changes to student allowances, and so on. What goes from the pensioners? Is it the new
rates rebate scheme? Would that go under a National Government? I want to know National’s position on
savings. Would it abolish the KiwiSaver scheme? National has said it would do that for the superannuation fund.
Dr Brash can save for himself. He does not understand why somebody who is on that extraordinary, generous
minimum wage of $9.50 an hour cannot save for his or her retirement as well. What would give under a National
Government when the National Government gives itself a tax cut, if National ever gets into power? It does not
add up, and National knows it.
The ASSISTANT SPEAKER (Hon Clem Simich): The question is that the amendment to the amendment to
the amendment be agreed to. This is the Rodney Hide amendment.

Hon Dr MICHAEL CULLEN (Minister of Finance) : I move, That the Appropriation (2005/06 Estimates) Bill be
now read a second time.
Budget 2005 is about securing the future. Securing the future for the nation as a whole and securing the future
for New Zealand families and New Zealanders individually.
The major features are:
the creation of KiwiSaver, a new work-based savings scheme
major changes to taxation, in particular tax cuts to encourage investment and savings and to assist small
business, in part paid for by the new carbon charge
significant additional spending to promote increased opportunities, particularly through education
large increases in spending to enhance security, through health spending, additional Police staff, a long-term
defence spending plan, funding for Working for Families and the Rates Rebates scheme and
further increases in spending to support economic growth.
The unifying theme connecting these elements is the fact that they are focussed on improving the long-term
economic and social health of New Zealand.
35
Madam Speaker, over the last five years New Zealand has experienced a period of sustained economic growth.
This has had major benefits.
The first has been significant employment and income growth. Between the March 2000 quarter and the March
2005 quarter some 260,000 more people have found employment in net terms. Of these 218,000 are full-time
and 42,000 part-time. This predominance of full-time job growth within the total picture contrasts markedly with
the experience of the previous ten years.
Income growth has also been strong. Real per capita incomes have risen 11 per cent since the March 2000
quarter. New Zealand’s relative slide in relation to the OECD average has ceased and begun to reverse. But
there is still a long way to go before we can claim to be back in the top half of the OECD in that respect.
The second benefit has been that prudent fiscal management has led to a significant lowering of the debt to
GDP ratios while enabling the rapid build up of assets in the New Zealand Superannuation Fund. As a nation,
we are far better placed to deal with the fiscal challenges of the coming demographic transition than we were
five years ago.
In this respect, we are not merely in the top half of the OECD but in the top handful of countries. Provided we
remain prudent and sensible, and avoid unnecessary politically driven bidding wars, this will stand us in
excellent stead over the next generation as many other rich nations struggle with high debt and unsustainable
policies.
Gross sovereign-issued debt has fallen from 35 per cent of GDP in June 1999 to an estimated 22.6 per cent at
the end of June this year. Alongside this, accumulated assets in the New Zealand Superannuation Fund will
stand at around $6.5 billion.
The New Zealand Government will, for the first time ever, move into a net positive financial asset position in
2006/07.
Despite this, the third benefit has been to allow for significant increases in investment in health and education,
providing for lower primary healthcare costs, more surgical procedures, more modest tertiary fees, and a less
onerous student loans system. Along with this have gone rises in the level of New Zealand Superannuation after
the cut of 1999 and the first stages of the Working for Families package, which is lifting substantially the
incomes of hundreds of thousands of low to middle income families.
Madam Speaker, it is the Labour-Progressive Government’s determination to maintain these gains into the long
term while dealing with a new range of challenges and opportunities which have come to the fore over the last
few years.
The expectation is that the economy will slow over the next two years to an annual growth rate of about 2½ per
cent. This will be due to a combination of the effects of capacity constraints, slowing net migration, the
dampening impact of higher interest rates on spending and a difficult external trading environment created, in
particular, by the strong New Zealand dollar.
The capacity constraints have led to the tightening of monetary policy as the Reserve Bank seeks to dampen
inflationary pressures. This has had the effect of placing further pressure on an already strong New Zealand
dollar, thus contributing to widening the current account deficit.
The primary reason for the strong Kiwi is, of course, the weak greenback. Large current account deficits in the
United States in combination with large and seemingly uncontrolled fiscal deficits have caused that. For the
second time in 25 years the United States has proved that tax cuts are not self-funding. If unaccompanied by
expenditure cuts they simply lead to burgeoning deficits and debt. There is a lesson for all of us in this.
Certainly this experience, and the tight capacity constraints in New Zealand, militate against large scale fiscal
expansion, whether by revenue reduction or larger expenditure increases than those planned in this budget.
That is particularly so if such reductions or increases are structural in nature and therefore continue to resonate
through the long-term fiscal forecasts. As always, too much jam now is likely to lead to only crumbs later.
36
These facts are emphasised by the fiscal and economic forecasts. The current account deficit is forecast to stay
well above 6 per cent of GDP over the next four years, though starting to contract towards the end of the period.
The fiscal position remains strong and gross debt is forecast to move to about 20 per cent of GDP by the end of
the forecast period. But then it remains around that figure over the ten year projection period beyond that.
The fiscal surpluses remain strong in the immediate term. The cash surplus for the current year is forecast to be
$2.4 billion. This reduces to a cash surplus of $30 million for 2005/06, but changes to an average cash deficit for
the following three years of about $1.9 billion a year.
In operating balance terms, this translates into an OBERAC of $7.4 billion or 4.9 per cent of GDP this year, $6.7
billion or 4.3 per cent of GDP next year, and an average of $4.8 billion or 2.9 per cent of GDP in the following
three years.
While in nominal terms this still sounds large, it is just sufficient to fund the contributions to the New Zealand
Superannuation Fund and other capital needs without a trend increase in the gross debt to GDP ratio.
Moreover, this is subject to the assumption that the growth in expenditure during both the forecast and
projection periods will be significantly less than it has been in both Budget 2004 and Budget 2005.
The fully implemented effect of both budgets averages about $3.1 billion a year (GST exclusive). (Members
should note that all figures in Budget 2005 are GST exclusive for the first time as a result of the new Public
Finance Act provisions). Last year’s spend included over $1 billion alone on the Working for Families package.
This year there are substantial one-off effects in terms of tax cuts for the business sector and for savings and
investment, as well as new policies such as KiwiSaver.
The message of Budget 2005 is that such large one-off packages will be rare over the foreseeable future unless
accompanied by expenditure cuts or efficiency gains elsewhere within the state sector.
Over the next three budgets the allowance for new spending has been set at $1.9 billion a year, thereafter
growing by inflation.
The government is aware that to achieve these targets will require careful prioritisation. Already, I have warned
Ministers and Departments, and the public, to moderate expectations in terms of expenditure increases next
year.
Madam Speaker, as I indicated earlier, we are forecasting substantial current account deficits over the next four
years. While a more realistic level of the New Zealand dollar will eventually bring that deficit back to more
comfortable levels, the fact remains we have run significant current account deficits for nearly all our history as a
nation.
That, and a range of other indices, point to a low level of household savings in New Zealand. We are left highly
dependent on foreign capital, which means a substantial proportion of our national income is reclaimed by
foreigners as theirs. Hence the fact that our Gross National Product is significantly less than our Gross
Domestic Product.
New Zealanders often bemoan the consequences of low saving, such as high levels of foreign ownership. But, if
we are to own, literally, more of our future we must lift our level of savings.
Three areas are of particular interest: saving for retirement, saving for home ownership, and saving for the costs
of one’s children’s tertiary education.
In approaching how best to lift, over time, our national performance with respect to these the Labour-
Progressive Government is motivated by considerations of equity, simplicity, and practicality. In addition, the
government wishes to maintain a voluntary approach. Finally, we are determined not to swap the current
situation of government saving and private dissaving into one of government dissaving and private saving. In
other words, the fiscal costs of any policy initiatives have to be moderate.
37
Consideration was given to whether an integrated savings scheme, combining all three elements, was possible.
In the end, it is considered that, while it is possible to combine retirement saving and first home deposit saving,
it is not desirable to integrate savings for tertiary education.
Expressions of interest have been sought for a tertiary education savings scheme with broad design
parameters.
With respect to retirement and first home deposit savings, the government has decided to begin with a broadly
based work-based savings scheme akin to that proposed by the group chaired by Peter Harris, which reported
last year. While many of the recommendations of the Harris committee have been amended in some detail, the
essential features of the proposal have survived intact.
The new KiwiSaver scheme is intended to begin operation on 1 April 2007.
KiwiSaver’s basic features are:
automatic enrolment in a savings scheme at the workplace for new employees aged 18-65, with the ability to opt
out
an upfront contribution by the government on joining, plus low management fees
a basic contribution rate of 4 per cent of income deducted through the tax system and
minimum compliance costs for employee and employer.
Apart from automatic enrolment, employees may become KiwiSavers at any time.
The new employee can opt out by notifying IRD between weeks two and four after starting a new job. In this
case IRD notifies the employer, otherwise deductions begin the next pay day after eight weeks with a new
employer.
Contributions will be at one of two levels. The standard rate will be set at 4 per cent of income, but the employee
can opt for a higher deduction rate of 8 per cent.
The government will support KiwiSavers in three ways.
Firstly, it will meet the costs of the administration through IRD.
Secondly, a $1,000 upfront contribution will be provided to each new KiwiSaver. This contribution will be
available to a member of an existing registered superannuation scheme that fully converts to a KiwiSaver
product.
Thirdly, the government will provide to savers in approved KiwiSaver products a fee subsidy at a capped level.
This level has yet to be finalised and will depend on consultation and negotiation with providers.
Normally, a KiwiSaver will have full access to their funds at age 65 or after five years in KiwiSaver, whichever is
the later. Hardship provisions allowing withdrawal are being developed and permanent emigration will also
trigger the ability to withdraw.
A KiwiSaver can elect to take a contribution holiday for up to five years, with contributions resuming unless a
further option to suspend is exercised.
The self-employed will be able to become KiwiSavers, selecting their own contribution rate and frequency of
contributions.
Employers will be able to make contributions on behalf of their KiwiSaver employees via Inland Revenue. This
means they can be made at the same time as employee contributions with minimum compliance costs. The
actual rate of employer contribution will be a matter of negotiation between employer and employee.
Employers will also be able to apply to the Government Actuary for an exemption to the automatic enrolment
provisions if they have a work-based superannuation scheme which meets a set of defined conditions.
38
There will be two types of KiwiSaver providers: default providers and other qualifying providers. All qualifying
providers will need to meet a set of minimum criteria.
If an employee does not pick a provider, he or she will be randomly allocated to a default provider. In addition to
having to meet the standard criteria, default providers will be selected through a competitive tender process
designed in part to negotiate lower fees.
IRD will hold initial contributions for eight weeks to allow time for the contributors to choose a provider. Small
balances will also be held until they accumulate to a minimum level to avoid costs to the providers. In both
cases interest at the IRD’s use of money interest rate will be paid on the balances.
The operating costs of KiwiSaver, including an education campaign to improve financial literacy, are estimated
at $90 million in 2006/07, $280 million in 2007/08, $143 million in 2008/09 and $154 million in 2009/10. This is
based on an assumption that the number of KiwiSavers will be around 265,000 by 1 July 2008 and around
415,000 by 1 July 2010.
KiwiSaver will be linked to a new scheme to assist modest to middle-income families with the deposit for a first
home. Those who are KiwiSavers for a minimum of three years will qualify for an additional subsidy of $1,000 a
year up to a maximum of five years at the time of purchase of their first home. They will be able to draw down all
of their accumulated savings as KiwiSavers except for the initial $1,000 upfront contribution. There will be
conditions in relation to the total household income of the applicants and the value of the house being
purchased.
The housing deposit subsidy will also be available to members of registered superannuation schemes if their
employer is exempt from the automatic enrolment provisions or if their scheme converts to a KiwiSaver product.
Preliminary estimates are that around 3,000 households a year will take advantage of this opportunity. The
estimated annual cost is up to $35 million.
Other measures to support home ownership include expanding the Mortgage Insurance Scheme introduced in
2003. Lenders other than Kiwibank will be able to participate. The eligibility caps on income will be increased by
$20,000 a year. By 2008/09 the Scheme is estimated to cost $22 million a year and the volume of loans covered
is expected to rise from less than 1,000 a year at present to some 5,000 loans a year.
The government will also fund a new home ownership education programme.
The Minister of Housing will announce further details of these first home purchase initiatives today.
Madam Speaker, the New Zealand Superannuation Fund, KiwiSaver, the encouragement for home ownership,
and the proposed tertiary education savings scheme are all part of the effort to lift our national savings rate.
The nature of the taxation on savings and investment also has a role to play in this respect. The government
does not support large-scale tax incentives to support savings. These are of dubious value and efficacy.
But the current tax regime for investments is very complex and can lead to perverse incentives. It overtaxes
those on the lower statutory rate of tax, tends to advantage certain forms of offshore investment, and
distinguishes between various destinations for that investment. Equally, any attempt at reform is likely to have
controversial elements.
The changes I am foreshadowing this afternoon are designed to remove disincentives to save and invest,
remove elements of overtaxation, and lead to an outcome where investment is guided more by the returns on
the investment than by the tax opportunities presented.
With respect to the taxation of domestic investment two major changes will be legislated for. Under the first,
New Zealand-based collective investment vehicles will no longer be required to be taxed as entities. Rather they
will be able to elect to have the income earned by a fund regularly attributed to the individuals investing in it and
taxed at their marginal statutory rates.
As with the current regime for taxation on interest-bearing accounts, the investor will advise the fund of their
marginal rate. When income is earned, it will be credited to the account of the individual and the fund will
withhold tax from it at that marginal rate. This will be a final withholding tax so no tax return will be required.
39
Equivalence to the tax regime on interest and direct investment of shares will be achieved. And, as it is a final
withholding tax, the investment income will have no impact on family assistance, child support or student loan
repayments.
For those collective investment vehicles which elect into the new rules the overtaxation on those earning under
$38,000 a year is removed.
The estimated cost of this tax cut is $25 million.
At this stage the new rules are not compulsory, recognising that some collective investment vehicles would find
it hard to adopt the look-through rules. However, as the new elective rules bed in this issue will be kept under
review.
Under the new elective rules some taxpayers on the 39 cent marginal rate could pay more, depending on how
their financial affairs are arranged. But for many this will be more than offset by the second change to the
taxation rules on New Zealand domestic investment.
This involves the removal of the taxation on the gains made on the sale of domestic shares by collective
investment vehicles.
The estimated cost of this tax cut is about $100 million a year.
Reform of the taxation of offshore investment is more difficult. Under current rules, offshore share investment is
taxed differently depending on the country in which the investment is made. If direct investment is in what is
called a “grey list” country, it is excluded from the foreign investment fund rules. If it is not, then foreign
investment fund rules which tax accrued capital gains apply. The rules contain four methods for calculating
investment for a foreign investment fund.
Consideration was given for some time to the use of a version of the risk-free rate of return method with respect
to overseas investment by New Zealanders.
In the end this has not been adopted. The main issue is the complexity involved in applying such a mechanism.
The method is conceptually simple but quickly becomes complex in application, particularly for individual
investors where investments are made at different points in a year.
Moreover, the fundamental perception problem remains with respect to tax being applied even where losses
had been incurred.
Instead, it is proposed to issue a discussion document within the next few weeks proposing to apply an income
calculation method based on actual changes in value for investment funds, companies and individual investors.
Under the proposal, the grey list will be abolished for portfolio share investment. Collective investment vehicles
will be taxed on the basis of the change in their accrued value. This would make for clearer rules, but in practical
terms the results should be similar to the law as it currently applies for funds that are in the business of actively
trading shares.
For individual and other investors it is even more difficult to find an approach that is reasonable without
favouring direct offshore investment over investing in a fund. The approach being proposed is that individual
and other investors will also be taxed on the change in value of their overseas shares, but with an annual cap so
that tax is spread over a number of years to better reflect cash flow. The discussion document will propose a
threshold so that those with small holdings of foreign shares continue to be taxed just on dividends received.
This will lead to accusations of extending the capital gains tax regime at present implicit in taxation on non-grey
list investment. It is clear, however, that any reform of the current regime that does not penalise investment into
New Zealand shares will lead to some such outcome.
The choice then is between a complex regime which tends to favour investment going offshore or a simpler
regime which is more favourable to investment in New Zealand.
It is proposed that the new tax rules on investment come into force on 1 April 2007.
40
In Budget 2004, I announced that the government was reviewing the tax depreciation rules to see if there were
ways of reducing tax biases within the rules and to resolve practical problems with their operation. The first
series of changes resulting from that review have been introduced in a bill which is now before Parliament. I am
announcing the second set of proposed changes today.
Tax depreciation rates will be changed to reflect better how assets decline in value. Current rates are likely to
penalise investment in short-lived plant and equipment, which can create tax biases that distort the structure of
capital investment away from the best investment opportunities. To deal with these biases, depreciation rates
for short-lived plant and equipment will increase and depreciation rates on buildings will reduce.
The method for calculating tax depreciation rates has been revised. From the 2005/06 income year tax
depreciation rates will be worked out in one of two ways. For buildings the straight-line basis will be applied over
their economic lives to determine their depreciation rate, and a diminishing value equivalent of this straight line
rate will also be available. For plant and equipment the double declining balance method will apply. This means,
for example, an asset with a ten year economic life can be written off at a rate of 20 per cent diminishing value.
For equipment such as laptop computers the changes will result in a 25 per cent increase in the allowable
annual depreciation deduction, from 48 per cent to 60 per cent a year.
More neutral tax depreciation rules will mean that businesses have incentives to invest in assets that provide
the best commercial returns. The changes will help businesses make better decisions about capital
investments.
Secondly, to reduce some of the compliance costs to business from having to maintain fixed asset registers, the
low-value asset threshold will rise from $200 to $500. This change should reduce the number of assets that a
business must annually account for and will reduce the number of tax adjustments that it must make when the
asset is sold.
The new depreciation rules will apply to plant and equipment purchased on or after 1 April 2005 and to buildings
purchased from today.
The increase to the low-value asset write-off threshold takes effect from purchases made after today.
Budget 2005 also contains a number of tax measures to improve New Zealand’s access to worldwide labour,
skills, and capital.
The first of these will reduce tax costs related to international recruitment to New Zealand. A temporary tax
exemption of five years on foreign income will be made available to people who come to work here, whether
they are foreigners or New Zealanders who have been non-resident for tax purposes for ten years. People who
are not in employment will receive the same exemption for three years.
Tax on offshore income is an important issue for highly skilled people who are in demand internationally and for
the businesses that recruit them from overseas. The new exemption will thus remove a tax barrier to New
Zealand gaining the skilled people it needs.
Updated tax rules for securities lending will make New Zealand more attractive for international investment.
Existing rules have acted as a barrier to the development of a securities lending market here. Qualifying
transactions will now be treated on their economic substance rather than legal form.
As I announced last week, Budget 2005 will also give companies that bring in new equity investors better
access to tax deductions for R&D expenditure. This will cater for the growth cycle of technology companies by
allowing R&D deductions to be matched with income from that expenditure.
Proposals are also being developed to change the tax treatment of employee share options. The aim is to
remove some of the obstacles created by the tax system to businesses which offer share options to their
employees. A paper setting out proposals will be released for public consultation later this year.
I have already announced other major changes with respect to taxation. These related in particular to tax
simplification and reforms to Fringe Benefit Tax.
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The simplification proposals involve the alignment of payment dates for provisional tax and GST, allowing
businesses to elect to base provisional tax payments on GST turnover, and a subsidy to payroll agents for
meeting PAYE–related compliance costs imposed on small employers.
These measures will lead to an ongoing cost of about $115 million a year.
With respect to Fringe Benefit Tax, the valuation rate for motor vehicles will be cut. Taxpayers will also be able
to elect to calculate motor vehicle FBT on a vehicle’s tax book value as an alternative to using the cost price.
At the same time, the thresholds applying to unclassified fringe benefits will be raised. In the case of an
employer the rise will be from $450 a quarter to $15,000 a year.
Similarly, the private use of employer owned or leased business tools will be exempted from FBT where
provided primarily for business purposes and where they cost less than $5,000 each.
Other changes include resolving problems with foreign superannuation schemes, removing unintended tax
consequences from unbundling payouts from cooperatives, and aligning the tax treatment of investments into
foreign hybrid vehicles with the treatment of investment into other foreign companies.
Finally, a discussion document will be released later this year on the tax treatment of limited partnerships.
This tax package, with its focus on savings and investment, has an estimated cost of $466 million in its first full
year. These are only part of the tax cuts incorporated into this year’s budget.
Consideration has also been given to changes in the personal tax system. As I have said many times, there is
no evidence our rates are especially high by international standards once a comparison is made including all
taxes and compulsory levies for social security and other purposes.
Moreover, even small changes in rates or thresholds have large revenue consequences. But in one area a
strong case has been made for change, not least by the United Future Party.
That is in relation to the movement of the three main personal tax thresholds to match inflation as is done with
excise duty on petrol, tobacco, and alcohol.
The Labour-Progressive Government, therefore, has decided to adjust the thresholds every three years.
Because of the complexity of personal tax changes compared with excise duty, annual changes were rejected.
The gain to most individuals would be very small in relation to the administrative costs.
Also, because tax threshold changes need to be announced well in advance of implementation there would be a
very significant lag between the last available CPI figure and the commencement of changes on the subsequent
1 April.
Therefore, it has been decided to adjust each three years by using the mid-point of the Reserve Bank’s Policy
Targets Agreement inflation band. This equates to a 6.12 per cent movement in the thresholds every three
years.
This means that at the time of the first triennial adjustment, 1 April 2008, the $9,500 threshold will move to
$10,081, the $38,000 threshold to $40,324 and the $60,000 threshold to $63,672.
Taken together, all the tax cuts I have announced today will cost $229 million in 2005/06, $319 million in
2006/07, $535 million in 2007/08, and $776 million in 2008/09, or about $1.86 billion over the forecast period.
Additionally, in delaying provisional tax payment dates in 2007/08 to 2008/09 there is a delay of $760 million in
tax revenues.
These revenue losses will be partially offset by the revenue from the new carbon charge which will come into
effect on 1 April 2007. As already announced this will be set at $15 per tonne of CO2 equivalent. The gross
revenue is estimated at $528 million in the first full year but this will be offset by rebates which will reduce the
estimated net annual income to $322 million. Thus in the forecast period tax cuts of $1.86 billion will be offset by
about $720 million of net carbon charge revenue.
42
Madam Speaker, KiwiSaver and the very significant changes to business and investment taxation contained in
this year’s budget are a key part of the government’s strategy to lift investment and make doing business easier.
Lifting our long-term rate of sustainable growth remains a key priority for action. Budget 2005 contributes further
to this key objective in a number of ways.
Further investment in the budget builds on the Growth and Innovation Framework. Over the forecast period the
following additional resources are being supplied:
$31 million to increase the gains from international economic partnerships
$49 million to implement the government’s digital strategy
$72 million to increase support for business research and development
$118 million to further increase capability in the public science system
$24 million to strengthen the regulatory environment by providing additional funding to the Commerce
Commission, Securities Commission and the Takeovers Panel
$9 million to boost New Zealand as a tourist destination and
$45 million to expand Modern Apprenticeships and Industry Training and provide foundation learning,
specifically literacy and numeracy through the Industry Training Fund.
Infrastructure spending also receives a large boost in Budget 2005. All the increase in excise duty that came
into force on 1 April is going into the Land Transport Fund.
This means that the resources available to the Fund will rise from $1.54 billion in 2004/05 to $1.75 billion in
2005/06.
In addition, I am announcing today that in the three years to 30 June 2009, a further $100 million a year will be
provided to the National Land Transport Fund. This additional $300 million will enable planning to proceed for a
higher rate of roading construction than would otherwise have occurred.
This means the total available to the Land Transport Fund over the coming four years is over $8.4 billion.
Madam Speaker, the largest amount of support this or any New Zealand Government gives to the business
sector is through Vote Education.
Budget 2005 is marked by two key features in that respect. The first is substantial further investment in both
basic and high level skills. The second is determination to drive towards a higher level of quality and relevance
in our post-compulsory sector.
In this year’s budget we build on our commitment to deliver an education system that is founded on quality and
relevance, and aimed at lifting education standards across the board. Our investment reflects our determination
to increase participation in quality education, and to reduce the underachievement that characterises some
sectors of New Zealand.
We are increasing our investment in early childhood education by $152 million over four years, as we continue
to deliver on our commitment to make early childhood education more affordable, more accessible and of the
best quality possible for all New Zealand families.
Research shows intensive and regular quality early childhood education has long-term educational benefits, and
our government is determined to ensure these benefits are available to every single young New Zealander.
New Zealand’s schooling system is internationally respected. On average New Zealand students do very well by
world standards and our top students are amongst the best in the world.
The government is working with teachers to ensure good teachers are rewarded for their excellent work through
higher salaries, better conditions, professional development and clear career paths.
43
Our commitment to more and better paid teachers in our schools continues with a total investment of $1.43
billion since Budget 2004. This includes $476 million in this year’s Budget for teacher pay settlements and $91.3
million to provide an estimated extra 421 teachers (FTTEs) for secondary, area and middle schools.
This brings a total of 3,040 extra teachers (FTTEs) over and above those required for roll growth, based on the
recommendations of the School Staffing Review Group of 2001.
The government continues to adjust school operational funding each year.
Between 1999 and 2006 $241 million will have been added to schools’ operational funding. That is a nominal
increase of 39.6 per cent over seven years, or almost 15 per cent over and above the level of inflation.
This budget also focuses on student outcomes and progress through the provision of high quality assessment
tools and professional development to help teachers and schools monitor their students’ progress.
We are investing $30.2 million over four years in ICT. Specifically another 20 ICT professional development
clusters will be added to the already 80 successful clusters throughout New Zealand. The rollout of laptops to
every teacher in New Zealand in a state or integrated school will be completed.
Developing an internet version of the Assessment Tools for Teaching and Learning (asTTle) means teachers
and parents can get more detailed and up-to-date information about children’s learning.
Special education funding has increased from $245 million in 1999 to $413 million in this budget.
Additional funding this year will provide for:
increasing the numbers of students eligible for Supplementary Learning Support from 1,000 to 1,500
increased funding for teacher aides and
more support for assessing learning needs.
The tertiary package announced today provides additional funding of $296.7 million over the next four years to
support the ongoing development of quality and relevant tertiary education.
In previous budgets, we have focused on putting in place the tertiary education system reforms. In Budget 2005
we are consolidating this work by investing in improvements to the quality and relevance of teaching, learning
and research in New Zealand.
In addition to the industry training funding I have already referred to, the major areas of increase will be:
an additional $75.5 million over four years to increase the Performance-Based Research Fund
higher funding rates for technical and scientific subject areas including science, trades, technical subjects,
agriculture and horticulture
$57 million over four years for improved support for tertiary students, including increasing the medical trainee
intern grant by $10,000 a year and establishing a Bonded Merit Scholarship programme.
Madam Speaker, if education lies at the heart of the government’s aspirations for opportunity, spending on
health represents both opportunity and security.
Budget 2005 commits additional resources to health which will total over $1.09 billion a year by 2008/09. A good
part of this reflects meeting in full the costs of maintaining real, population-adjusted spending for the health and
disability sector.
This year’s health package also provides for:
funding for the establishment of the Cancer Control Council
the roll out of the Primary Health Care Strategy to people aged 18-24, thus reducing first contact fees and
pharmaceutical co-payments
44
a standard national travel and accommodation policy for those who have high costs from travelling to treatment
centres
further funding for the National Immunisation Register
the extension of free breast screening to women aged 45-49 and 65-69
the changes that come into effect on 1 July as the first large step on the way to abolishing asset testing for
those assessed as in need of older people’s long-term residential care
contributing towards the cost of the nurses’ pay settlement
increased funding for disability support and aged care services
funding the increased uptake of the Primary Health Care Strategy
continued progress on doubling the number of hip and major joint operations
increasing cataract interventions by 50 per cent
additional funding to continue the roll out of the Mental Health Blueprint and
a range of Progressive Party initiatives which have already been announced.
Much of this increase in funding will be spent on New Zealand’s senior citizens. They will also be the largest
beneficiaries from the changes to the Rates Rebates scheme already announced by the Prime Minister which
will see over 150,000 superannuitant households benefit by up to $500 a year from 1 July 2006.
Madam Speaker, security has many aspects, from health to law and order to defence.
Since 1999, this government has placed great importance on making communities safer and helping people feel
more secure in their homes. To that end it has made proper resourcing of Police a priority.
The Police operational budget has increased substantially every year since 1999, with a consequential rise in
Police numbers and resources. This in turn has seen the crime rate reduce by 12.4 per cent between the
calendar years 1999 and 2004, the Police resolution rate rise from 38.9 per cent to 44.6 per cent and the road
toll fall to levels not seen since the 1960s.
We will maintain this successful strategy for making our communities safer. The Police Vote will increase by
$73.6 million to a record high of $1.03 billion.
The budget will provide for another around 245 sworn and non-sworn Police staff. For the first time in our
history, Police staff in New Zealand will number over 10,000.
The government will add $156.5 million in new baseline funding to the Ministry of Justice over the next four
years. The additional budget will ensure the Ministry is well equipped to manage its growing workload and
deliver more effective and efficient services to court users and the judiciary.
The increases follow a review of baseline funding which found the Ministry needed additional resources
following several years of significant reform work and change within the justice area.
From the middle of 2006 we will, for the first time since 1987, lift the limits on income and capital which allow
access to legal aid. Furthermore, the eligibility tests will be adjusted from time to time meaning that in future
access to legal aid will be protected from inflation.
The final key areas of security are border security and defence.
Over the next four years (2005-2009) the government will spend an additional $13.3 million on enhanced border
and security measures to improve the integrity of New Zealand’s borders and immigration systems, and protect
New Zealand staff overseas.
45
This enhanced border security will help protect New Zealand’s access to classified information from peer
countries; and contribute to fairer labour market conditions for New Zealand workers by ensuring wages and
conditions are not undercut by illegal workers.
The Defence Sustainability Initiative will provide an additional $4.6 billion over the next 10 years to restore and
develop the resources of the New Zealand Defence Force and the Ministry of Defence and will align long-term
personnel recruitment, training, development and resources with the Defence capital acquisition programme.
This long-term strategic funding initiative follows a systematic approach by this government to restore the
capability of our Defence Force, which was left to run down during the 1990s, resulting in ageing equipment and
infrastructure and personnel shortages.
Budget 2005 reflects the aims of the government's housing strategy, which promotes the importance of quality,
sustainable housing for all New Zealanders.
State housing is central to meeting the housing needs of those requiring direct assistance and will remain at the
core of government assistance. An additional $134 million over the next four years will be invested as we
continue to build our stock of state houses.
The Rural Housing, Healthy Housing and Community Renewal programmes will receive a further $33 million
over the next three years to continue their work of providing better and healthier homes in areas of greatest
need.
Madam Speaker, this year sees the continued roll-out of the Working for Families package, with over 260,000
low to middle income families becoming eligible for targeted assistance. In addition we are seeing progress on a
major reform of the benefit system, with a drive towards a single core benefit and a more tailored service for
beneficiaries.
An investment of $149 million over four years in this year's budget complements the aims of these key platforms
of the social development agenda.
To support the Working for Families package, programmes that give parents and children a better start will
receive a $47 million boost.
To enhance the choices parents have to participate in the labour market, we will also invest $55 million over the
next four years in Out of School Care and Recreation, childcare and related initiatives. These initiatives will help
to meet the demands of a growing labour market, as well as boost the incomes of Kiwi families looking to build
their stake in a growing economy.
Filling the jobs in a growing economy is also a key focus of our welfare reforms. The reforms take place in a
context of record low unemployment and growing skill and labour shortages.
To provide opportunities for more people to enter the workforce an additional $47 million will be invested over
the next four years in work-focussed programmes for beneficiaries. This includes a focus on long-term
unemployed and a new service to support more sickness and invalids beneficiaries into work.
Madam Speaker, New Zealanders responded magnificently to the needs of those affected by the Boxing Day
tsunami. The government responded in like manner.
The result was to see a temporary lift in our overseas aid budget to 0.27 per cent of Gross National Income.
Budget 2005 provides for the overseas aid allocation to increase by $59.4 million this coming year compared
with Budget 2004’s initial estimates.
This will maintain spending at the 0.27 per cent level. It will be maintained at that level in 2006/07 and increased
to 0.28 per cent in 2007/08.
This adds up to the most significant increases in overseas development assistance in recent decades. The
primary focus will be on our Pacific backyard where the developmental needs are very large. But bilateral
programmes with Indonesia and Vietnam will also be significantly strengthened.
46
Madam Speaker, individual ministers will be making a range of statements on specific initiatives which include
too much detail to be covered this afternoon.
As I said in introducing Budget 2005, its focus is on the long term, not the next four months or even the next four
years. That is shown by the key initiatives which:
lock in funding for New Zealand Superannuation
begin to address the task of lifting our savings rate as both individuals and a nation
introduce significant business tax cuts and structural changes to drive stronger investment
look to enhance our capacity to perform as good and responsible international citizens
accelerate further support for business development
strengthen our public health system
enhance the capacity and effectiveness of our education system and
support families in practical and effective ways rather than by mere rhetorical flourishes.
Madam Speaker, Budget 2005 completes a second cycle of budgets that I have had the honour to present on
behalf of two Labour-led Governments. They have consciously been pragmatic documents designed to build a
stronger fiscal position, lift economic growth and increase social cohesion. On a base of stability and security,
typified by the New Zealand Superannuation Fund, we are building a nation we can be proud of.
We also seek to build a superstructure on that base of innovation and responsiveness to change which makes it
exciting to be a New Zealander.
We look to the future, both short and long term, with that pride and sense of excitement. We have achieved
much in terms of strong government finances, record low unemployment, and economic growth. But the building
of a better future is by definition, a task which is never completed.
We look forward with relish to continuing that never ending task.
 Debate interrupted.
Cullen, Michael: Appropriation (2004/05 Estimates) Bill — Third Reading, Imprest Supply
Debate: 24-Aug-2004 - Volume: Session1;Volume619;Week65
now read a third time and the Imprest Supply (Second for 2004/05) Bill be now read a second time. These two
questions involve the final stage of the Budget debate—the third reading—and the second reading of the
Imprest Supply Bill, which is normally moved in concurrence with it at this stage to provide for expenditure
through to the end of the financial year, including expenditure in advance of appropriation, and to incur
expenses and liabilities in advance of appropriation.
There is a spectre haunting the Leader of the Opposition, and that spectre is the fact that the New Zealand
economy is going very well and is in good heart. When one has committed one’s professional life to being “Dr
Misery Guts”, it is difficult indeed to respond to almost untrammelled, consistent economic success.
Madam DEPUTY SPEAKER: No. The member should refer to other members by their correct names.
Hon Dr MICHAEL CULLEN: Ah! Oh, right.
Madam DEPUTY SPEAKER: The member knows he must call members by their correct names, and not by a
name that is derogatory.
47
Hon Dr MICHAEL CULLEN: Dr Brash—the appropriately named Dr Brash in this case—has spent his life being
miserable about the economy and now is faced with an economy that is out-performing not merely his
expectations but—I have to be fair—even the Government’s expectations.
The problems we face are those created by growth and success, not the problems of misery, failure, and social
division, such as those of the 1990s. Firstly, we have had strong growth, making us one of the key successful
economies in the OECD over the last 4 years. When could we have said that for 4 years in a row in some
decades in New Zealand’s economic history? Not since the early 1970s. Secondly, we have low unemployment.
Our unemployment rate is now the second lowest in the OECD, though, to be fair, the National Party caucus is
not counted in the figures. Thirdly, there is moderate inflation, which is securely within the 2 to 3 percent band.
Fourthly, we have growing household incomes, particularly because of the growing levels of employment. For
the first time in our history, more than 2 million New Zealanders are employed, and they are looking forward to
the implementation of the Working for Families package, which will deliver massive gains to 60 percent of all
New Zealand families with children. But, of course, those at the top end will miss out, and that will cause terrible
problems for those members opposite. Indeed, 60 percent of that money will go on families who are in
employment—not that Dr Lockwood Smith would know anything about families; whether they are in employment
or out of employment.
The social report released only a couple of days ago shows that New Zealand is in the top half of the OECD for
the majority of the key social indicators that count. What is important to people is the life they are enjoying, not
some abstract measure of per capita gross domestic product (GDP). We are catching up in terms of per capita
GDP. We are catching up on the rest of the world, particularly on the rest of the countries in the OECD. For the
first time in a very, very long time our economy, on a per capita basis, is growing faster than most other
developed economies. We are on a roll.
But then we had Dr Brash appear and, for about the third time, he has unburdened himself of his strange views
in an Australian financial magazine. He seems to scurry across to Australia to write his little bits and pieces,
hoping they do not get noticed back home in New Zealand. Previously—and I will say this quite carefully—he
appeared to be the Rip Van Winkle of New Zealand politics. Having spent four decades asleep, he woke up to
find that the natives were getting restless, and he had some trouble understanding the changes that had
occurred in New Zealand society in the interim. But now he has become the Cassandra-like figure, going
around, as one of the cartoonists said, with billboards plastered with “The End is Nigh” on back and front. The
end must be nigh, according to him, because life is getting better under a centre-left Government and that
simply cannot be true, according to Dr Brash—it may be what is happening, but it cannot be allowed to happen.
We have seen all the newspaper headlines and comments: “Bumbling Brash loses plot”, said the Otago Daily
Times, as it tracked his movements around the country. Fran O’Sullivan—no great friend of the left, let it be
said—saw “no road map for the future” in Dr Brash’s comments. According to John Armstrong, Don Brash’s
comments “not only bordered on the ridiculous, it was silly politics to boot”. And, of course, we had the Dominion
Post stating that what Dr Brash said was “simply wrong”.
So what do we see? First of all, according to Dr Brash, we are becoming a Pacific State country in terms of our
economy, despite the fact that our GDP per capita is 10 to 30 times that of the Pacific States. But Dr Brash is
just about ready to put on his lava lava and throw in the future, as far as the New Zealand economy is
concerned. Secondly, he says that Australia is doing better than New Zealand. Well, let us have some facts.
Fact: between 2000 and 2004, Australia’s economy grew 3.1 percent per annum on average; ours grew 3.5
percent on average. Fact: Australia’s inflation rate averaged 3.6 percent; ours averaged 2.5 percent. Fact:
Australia’s unemployment rate averaged 6.3 percent; ours averaged 5.1 percent. We are going to hell in a
handcart, according to Dr Brash, but it is certainly a Rolls-Royce handcart as far as most New Zealanders are
concerned. With regard to GDP per capita, Dr Brash says we are going backwards. Well, here are some good
figures. He used to like figures in the old days, when he took some notice of them. In 1990, when the National
Government took office, Australia’s GDP per capita was 39 percent higher than ours. By 2000 Australia’s GDP
per capita was 47 percent higher than ours. We went backwards from 1990 to 2000 in terms of per capita GDP.
By 2003 Australia was 30 percent ahead of New Zealand.
Hon Member: Oh, come on!
48
Hon Dr MICHAEL CULLEN: “Oh, come on”—yes! Of course, he said “30 percent” and he was right, but what
he did not say was that it was 47 percent when we became the Government. He left all of that out because it
does not matter. Although Australia is seen as being the most successful developed economy in recent years,
we beat it on every major economic figure in that period of time. Yet again, we are carrying on doing that, and
yet again we are beating them in the individual pursuit event.
Of course, in 2000 Dr Brash was not worried about Australia and New Zealand growing differentially. Then,
when he was the Governor of the Reserve Bank and supposed to do something about economic growth, he
said that whether the growth rate was differential was neither good nor bad; it just meant New Zealand was
different in some respects. Why does he see Australia as the model? Is it because of its higher tax rates? Is it
because of its higher public liability insurance? Is it because of more regulated labour markets? Is it because
Australians have longer holidays and shorter working years? Is it because Australians have higher welfare
dependency? Is it because Australia has more active business-support funding? Is it because it has a higher
level of economic regulation and economic nationalism than New Zealand has?
What is it that Don Brash wants to do? He wants to take a holiday—yours! He has suggested dropping all
benefits to the able-bodied. He has promoted raising the age of eligibility for New Zealand superannuation. On
many occasions, he has lamented the absence of a capital gains tax and has supported removing local control
of resource planning issues. None of that will address New Zealand’s comparative performance. He says: “Woe
is us! We’re behind Australia, so what we have to do is adopt policies that are even more different from
Australia’s than they are now.” Now that is pretty illogical.
I invite Dr Brash, having returned from his unsuccessful provincial tour of the last year or so, to stand up to
address Parliament, to stop attacking his country when he is overseas, and to tell us what a National
Government would do, apart from the failed policies of the early 1990s that were designed to impoverish New
Zealanders and drive social wedges between us.

now read a second time.
Budget 2004 is the fifth budget I have had the honour of presenting to Parliament for its consideration. This
continuity of fiscal management has allowed a consistency of approach which today’s budget reinforces.
Throughout those five budgets there have been six themes: predictable, stable, and prudent management
building fiscal strength for the long term; expanding the role of government in supporting economic
development; rebuilding capacity in the core state sector; strengthening social provision, in particular in health,
education, and housing; maintaining the revenue base while progressively simplifying the tax system; and
providing greater security and opportunity, especially for low to middle income New Zealanders.
All five budgets have been prepared against a background of international economic uncertainty. From the tail
end of the Asian financial crisis the story has been one of uncertainty driven by international terrorism, war,
actual or feared disease outbreaks, economic stagnation, and uncertain progress on international trade
liberalisation. To describe the government as somehow lucky over the last four and a half years is to take a view
of the world which penetrates barely beyond our own shores.
This uncertainty to some extent continues. Events in the Middle East point to continued conflict. Most of the
major European countries show only limited signs of economic recovery. Terrorism seems to be spreading
rather than being contained.
Against this, the United States economy is growing strongly, the Japanese economy is looking more vigorous
than at any time for well over a decade, the Australian economy continues to move at a reasonable pace, and
China’s growth remains very high.
49
Over the next year, assuming no serious worsening of the international situation, this growth in our major
economic partners should assist to begin rebalancing the New Zealand economy. Over the last year, economic
growth has been substantially higher than forecast in Budget 2003, largely driven by the domestic sector. The
strong New Zealand dollar – the mirror image of the effect of the large American double deficits on the
greenback – has placed pressure on the exporting sector, to the considerable concern of the government and
exporters.
This pressure has now partially abated. With strengthening external markets, strong commodity prices, sound
fiscal management at home, more flexible monetary policy, and some weakening in domestic pressures, growth
will, after continuing to moderate over the next year or so, then begin to pick up in a more balanced fashion.
Budget 2004 forecasts growth for the year to March 2005 of 2.8 per cent, falling slightly further to 2.5 per cent
for the year ended March 2006. Growth will then pick up to 3.4 per cent for the following year. From that point
on, the forecasts return to Treasury’s current assumption of medium term growth of 3 per cent. By the end of the
period the current account deficit is forecast to improve, having peaked at just over 6 per cent of GDP.
It is interesting to note that the forward fiscal forecasts for Budget 2004 are similar to those in last year’s budget,
though the outturn has been substantially better.
That has been a feature of this government’s fiscal and economic management. We have consistently
outperformed our own forecasts. Over the last three years we have also outperformed most of the rest of the
developed world. In 2003 New Zealand’s economy grew by 3.5 per cent compared with the average of 2.2 per
cent for the OECD as a whole. This success by New Zealand businesses, New Zealand workers, and the New
Zealand government needs to be celebrated, especially given the tendency in some quarters to be in a
permanent Cassandra-like mode, predicting gloom and doom amidst the evidence of success. This has been a
conflict between practice and outdated theory – and the former is clearly proving a superior guide to
performance.
There are extreme ideologues who, in order to feel comfortable, need to see policies that make most people
miserable. The government has been guided by the belief that economic progress cannot be achieved by the
waging of near permanent war on the hopes and aspirations of most New Zealanders.
The fact is that the government can point to considerable success in its economic programme. This can be
measured not just in crude Gross Domestic Product terms but also in those indices that measure the outcomes
of economic policy which contribute to wellbeing. New Zealanders rightly believe that success is defined as
much by quality of life, a better environment, and more effective health and education services as by narrowly
defined economic performance.
Mr Speaker, Budget 2004 continues the six themes I referred to earlier. The significant change this year is that
our outstanding success in providing predictable, stable, and prudent fiscal management means that we are
able, over the next three years, to commit very substantial additional resources to enhancing security and
opportunity, especially through the Working for Families package being announced today.
The key fiscal objective we set for ourselves early in our first term was to keep gross sovereign-issued debt
below 30 per cent of GDP on average over the economic cycle. When we took office it was in fact 33.7 per cent
of GDP. By the end of this fiscal year on 30 June it is expected to have fallen to 24.7 per cent.
This overachievement is in part a consequence of growth being consistently better than forecast. Under these
circumstances the government has demonstrated the discipline to bank the surpluses for the future. This has
been against a strange coalition of forces calling for substantial tax cuts and/or expenditure increases at the
expense of future generations.
Given this achievement, the government is now in a position to redefine its long term debt objective to express
its continued commitment to prudent fiscal management. The new long term objective will be to manage total
debt at prudent levels, with gross sovereign-issued debt as a percentage of GDP slowly reducing over the
longer term and passing through 20 per cent of GDP before 2015.
50
Over the next three years, largely as a consequence of the investment in the Working for Families package, the
gross sovereign-issued debt to GDP ratio will decline more slowly. At 30 June 2005 it is forecast to be 22.6 per
cent of GDP. But thereafter the rate of decline slows so that, at 30 June 2008, it is forecast to reach 21.8 per
cent of GDP. In nominal terms, gross sovereign-issued debt will rise by $2.3 billion over the forecast horizon (30
June 2004 to 30 June 2008). This emphasises there is very little room, on the basis of these forecasts, for any
further substantial fiscal loosening.
Two things flow from this. The first is that any such loosening – whether by way of tax cuts or by way of
expenditure increases – would place significant pressure on monetary policy with the likelihood of higher
interest rates.
The second is that if such increases are to be avoided then substantial reductions in revenue over the forecast
horizon would need to be matched by substantial reductions in expenditure. As a number of countries, notably
the United States, have demonstrated more than once in the last twenty years, there is no such thing as a free
lunch in fiscal policy.
This relative tightness around fiscal options over the next three years may seem to be at odds with the forecast
surpluses. For the current 2003/04 year the operating balance is forecast to be $5.9 billion or 4.3 per cent of
GDP. Looking forward, the forecast surpluses for 2004/05 are $5.7 billion, 2005/06 $5.0 billion, 2006/07 $5.1
billion, and $5.4 billion for 2007/08, an average of 3.4 per cent of GDP.
These are, as I said, just sufficient to reduce the gross debt to GDP ratio from 24.7 per cent as at 30 June 2004
to 21.8 per cent at the end of the forecast period on 30 June 2008.
This small reduction can be reconciled with the large forecast operating surpluses through a clearer
understanding of how these surpluses are calculated and what other elements have to be accommodated
before calculating the gross debt outcome.
The primary element that has to be allowed for is capital expenditure which is not financed off departmental
balance sheets. This includes two especially large elements which under standard accounting rules are treated
as capital expenditure: transfers to the New Zealand Superannuation Fund and student loans. On top of these
are very substantial capital expenditures in Defence, Health, Corrections, and Education.
Other significant elements include equity injections to Crown entities. In years of slower growth in particular, as
over the next two years, there is no reason why all of these injections, or advances for student loans, should
necessarily be funded out of current operating revenue so that the small rise in nominal gross debt is not of
concern to the government. But it would be most unwise to fund the bulk of such expenditure from borrowing,
particularly as we approach the beginnings of the demographic transition.
Mr Speaker, the increases in spending committed to in Budget 2004 are significantly higher than in previous
years. New operating spending totals around $2.4 billion in 2004/05, rising to $3.8 billion in 2007/08, with the
increase largely reflecting the phasing in of the Working for Families initiatives. As we have achieved significant
policy goals in Budget 2004 prudent management at this stage would suggest that new operating spending in
next year’s budget should be limited to around $1.8 billion and to $1.6 billion in each of the following two years.
These figures represent the forecast headroom at this point for additional new spending. This does not include
the great bulk of ongoing expenditure built in to baselines. Total core Crown operating spending for the current
year is forecast to be $42.2 billion or 30.6 per cent of GDP. By 2007/08 this will rise to $52.7 billion or 31.6 per
cent of GDP.
A key element of capital expenditure are the transfers into the New Zealand Superannuation Fund. Next year,
2004/05, the transfers into the Fund will be $2.1 billion and at 30 June 2005 the Fund is forecast to total some
$6.3 billion. By the end of the forecast horizon, 30 June 2008, the Fund is forecast to total $15.5 billion. By that
stage I anticipate that the success of the Fund and its key role in securing the future of an adequate level of
New Zealand Superannuation will be sufficiently clear that even my political opponents are likely to refer to it by
its proper name.
51
The Fund Guardians effectively took over control of the Fund on 30 September last year. They adopted a policy
of moving from a cash portfolio to a fully invested portfolio by the end of this financial year. During the first
period of investment they easily exceeded their target rate of return.
One of the criticisms of the Fund that has been made is that, at peak, it will only pay for a small proportion of
New Zealand Superannuation. In fact, the latest estimates indicate that the relevant figure is 36 per cent. If we
applied that figure to the current married couple rate of New Zealand Superannuation, that would equate to
$138 per week. It is clear that large numbers of superannuitants would be faced with severe poverty if their
current superannuation were lowered by that amount. Thus those who call for the abolition of the Fund need to
be clear how the fiscal hole in the long term is to be filled. Certainly any alternative proposal which uses the
Fund’s assets to reduce taxes or increase expenditure has little or no fiscal credibility, in either the short or long
term.
The growth of the New Zealand Superannuation Fund means that net debt including the Fund assets is forecast
to be down to 8.7 per cent of GDP by 30 June this year. By the end of the forecast period, this will fall to zero,
highlighting the fact that financial assets will equal gross debt. This is, in many respects, as important a
measure of the overall fiscal strength of the New Zealand government as gross debt.
Mr Speaker, Budget 2004 contributes further to the government’s role in supporting economic development.
$500 million over four years of additional spending has been devoted to specifically economic development
initiatives.
We are increasingly a confident and dynamic people. We want to see New Zealanders being the best they can
be. Our policies are about encouraging more of the smart, creative thinking and the innovation that are so much
part of the Kiwi approach.
We enjoy a unique and enviable lifestyle. A well-managed economy underpins that. We have invested in ideas,
people, and networks.
The more we are linked into the rest of the world, the more we will prosper. We need deeper and richer links
with other countries. The pursuit of a single market with Australia is part of that. So is the pursuit of a free trade
agreement with China.
Such deeper and richer links will help us find more buyers for our products and increase the value and quality of
our exports. They will bring in more offshore investment, knowledge, and expertise to help our companies grow.
They will help us develop smarter ideas, improve our education system, and fill gaps in our workforce.
Budget 2004 provides $35 million over four years to enable New Zealand Trade and Enterprise to provide
assistance to exporters to find markets and strategic partners.
There is also funding of $26 million over four years for sector focussed development and funding of $42.6
million over four years to fund more offshore companies to partner growing New Zealand companies by
deepening Investment New Zealand’s offshore representation and expanding the Strategic Investment Fund.
Additional assistance of $40 million over four years will be provided to the education sector to develop stronger
relationships offshore, both to protect and to promote New Zealand education and to give our system the
benefits of greater international input.
Funding is provided for New Zealand to participate in the massive 2005 Aichi Trade Expo with associated
funding to help us develop commercial and other opportunities in Japan that will arise during the six month long
Expo.
Innovation is a key part of the government’s economic drive. It is clear that increasingly many of our new
business products, and processes will arise as a result of links between researchers and industries, firms, and
individuals.
Budget 2004 provides extra money to promote industry/research collaboration and linkages across disciplines;
to promote increased international collaboration amongst scientists; to support the foundations for future
52
innovation in core industries; and to improve the flow of knowledge and ideas between firms and research
institutes.
There is an increase of funding of $212 million for the Research, Science and Technology system over the next
four years. Just over $50 million is allocated in 2004/05.
The largest increase in funding goes to Research for Industry, which rises by $17.3 million in 2004/05 and $19.2
million in each of the following three years.
The most important barriers to higher rates of sustainable growth relate to skills and productivity. While there
are signs of longer term increases in labour productivity growth it remains a key factor placing a ceiling on our
ability to grow faster.
The government is providing practical support to improve workplace productivity. The Workplace Productivity
Group – which arose from a tripartite initiative between government, Business New Zealand, and the Council of
Trade Unions – has now been set up. In addition, there are three specific initiatives in Budget 2004.
The first is direct assistance to small and medium sized enterprises to help them self-manage workplace
employment issues and health and safety, following a successful pilot last year in three communities.
The second is a linked employer-employee database to provide new and improved statistical information to
assist business planning. Stage one was released in October last year and funding is now provided for stages
two to four.
The third is a contingency fund to assist workers and businesses to promote and share good practice workplace
relations and productivity examples.
In the post-school environment the rapid expansion of industry training continues. Funding is provided for both
an increase in the average industry training subsidy and a further 500 Modern Apprenticeship places by June
2006.
The ability of migrants with skills to match better the needs of the New Zealand labour market will be enhanced
with increased English language training and more focussed career services.
Employers’ ability to find staff to fill their skills gaps will be assisted through targeting marketing and promotion
about work opportunities in New Zealand to suitable prospective migrants and through linking employers and
prospective employees through a new talent database on the Internet.
Over the last four years the government has moved progressively to improve its capacity to deliver a range of
assistance to the business sector. In my first budget funding of $68 million was provided for Trade New Zealand
and $36 million for Industry New Zealand. Support for New Zealand Trade and Enterprise in 2004/05 will be
$216 million, an increase of over 100 per cent, and further substantial increases will be considered in the
context of Budget 2005.
Other major initiatives to underpin improved economic performance in order to achieve the government’s social
and economic goals are occurring outside of the context of Budget 2004. These include a review of the
Resource Management Act, the development of a package to promote exploration for oil and gas, the
finalisation of the structure of the electricity market, and consideration of further mechanisms to support both
new businesses and the growth of existing businesses. Announcements on many of these will be made over the
next few months.
Mr Speaker, Budget 2004 continues the rebuilding of capacity in the core state sector. The most affected
agencies are the Ministry of Foreign Affairs and Trade, the Department of Child, Youth and Family Services,
and Corrections.
This continues the work the government has engaged in to restore realistic baselines for departments. Looking
forward, we wish to explore ways where such baselines can continue to be realistic over the long term while still
maintaining pressure on departments to make the most efficient and effective use of public resources.
53
For Budget 2004, an output pricing review has led to an increase in Corrections funding of $30 million for the
coming year, rising to $40 million in out years.
The Ministry of Foreign Affairs and Trade has an increase of $19 million for 2004/05, rising to $28 million in out
years. The baseline review of the Department of Child, Youth and Family Services sees a lift of up to $61 million
in 2004/05, rising to a maximum of $66 million in out years. Overall operating funding for Child, Youth and
Family Services has risen from $231 million in 1999/2000 to $477 million for 2004/05, an increase of 106 per
cent.
Defence, Revenue, and Customs also receive substantial baseline increases, with the Defence increase being
mainly due to addressing regular force pay relativity and Air Force staffing levels.
Mr Speaker, a Labour/Progressive government will always seek to place great emphasis on strengthening
social provision, especially in health, education, and housing.
Health operating spending continues to grow at well in excess of the rate of government spending in general.
Total operating expenditure for 2004/05 is $9.4 billion, compared with $8.6 billion in the current year.
Budget 2004’s health package makes a further substantial advance towards the government’s goals for a fair,
comprehensive, and efficient health system. District Health Boards will continue to move towards their
Population Based Funding share.
From the public’s perspective the most important advances will again be in primary health care. Funding is
provided for the Care Plus programme for high users of primary health services. From 1 July lower cost primary
care visits and $3 prescription charges will apply to all over 65 year olds enrolled in any Primary Health
Organisation. Already, 3.1 million people are enrolled in PHOs.
Specific funding will be provided to increase the numbers of major joint replacements in order to reduce waiting
lists for orthopaedic surgery. Fully implemented, the new programme, which doubles the current number of
publicly funded operations, will cost up to $70 million a year.
One element of health spending will peak in 2004/05 and then decline. That is the funding for meningococcal
vaccination, which from 2005/06 onwards will move on to a steady state path.
Two existing programmes will continue to be implemented. The extensive programme to upgrade and rebuild
public hospital facilities will move forward, with projects currently underway or planned extending from Kaitaia to
Invercargill.
The Mental Health Blueprint will also advance another stage. Over the four years an extra $250 million will be
spent in this area.
Housing spending will be further boosted in 2004/05. Apart from the housing aspects of the Working for
Families package, further injections are made to Housing New Zealand Corporation (HNZC).
Total capital injections for housing activities in 2004/05 are $232 million. This combined with HNZC funding will
enable an overall increase in housing stock of 1,054, the modernisation of 728 units, the reconfiguration of a
further 20, improvements to 108 properties through the Healthy Housing programme, and continuing
refurbishment of former Auckland City Council units. Total expenditure on housing is estimated to be in excess
of $1.5 billion, with around half of this spent on the Accommodation Supplement. By 30 June 2005 it is
anticipated that the total housing stock held by HNZC will be 66,314 houses. This compares with 61,512 at 30
June 1999, with plans at that date to shed a further 19,200 houses, according to the Housing New Zealand
Asset Management Plan.
The Budget 2004 education package includes a new funding and regulatory system for early childhood
education; further investment in quality teaching and additional resources for schools; additional funding for
tertiary education institutions to implement the fee/course costs maxima out to 2007; increased funding rates for
industry training; and a package of student support initiatives incorporating an increase to the student allowance
parental income thresholds.
54
Budget 2004 sees a significant additional investment of $2 billion operating spending in education over the next
four years, bringing the total annual operating expenditure to $9.2 billion by 2007/08. This continues this
government’s commitment to lift education standards so that all young New Zealanders get the chance to aim
high and succeed.
The many initiatives include increased operational funding for schools, as well as increased funding to support
secondary qualifications. Significant investment in modernising schools is occurring to provide a better equipped
learning environment.
The most important part of Budget 2004 for education is major new investment in early childhood education
through the provision of free early childhood education and increased funding to support quality early childhood
education services.
This will help give our children a crucial head start to go on and do well later in life. The government is
committed to ensuring that every single child, regardless of background, is given the chance to reach his or her
full potential.
Over four years the government will inject an extra $365 million into early childhood education. Compared with
government spending in 1999, by 2007/08 the Labour-Progressive government will have increased spending in
this most crucial area of education by 79 per cent.
From 1 July 2007, three and four year olds will be entitled to 20 hours free early childhood education per week.
Other initiatives in theWorking for Families package will further encourage and support participation, thus
making it easier for parents to return to the paid workforce.
The additional spending also supports the implementation of the Strategic Plan for Early Childhood Education,
which is designed to lift the quality of staff and, therefore, the education provided.
This budget fulfils an important aspect of our election promises to tertiary students. From the beginning of 2005
we will for the first time in thirteen years lift the ceiling on parental income that allows students under 25 to
qualify for an allowance. An allowance will be available to any eligible student whose parents earn less than
$62,148.
Furthermore, the eligibility test will be adjusted annually by the rate of inflation. This means we will not get back
into the situation we inherited, where eligibility rates were slowly eaten away by inflation over time.
We have also needed to change some of the other eligibility rules to comply with the New Zealand Bill of Rights
Act.
This budget also sees another year of significant investment to support the government’s youth transitions goal
that, by 2007, all 15 to 19 year olds will be engaged in appropriate education, training, work, or other options
that will lead to long-term economic independence and wellbeing.
Central to the $57 million package in this area is the formation of a Youth Transitions Service to improve the co-
ordination of post-school local support services for at risk young people. The Service will roll out into 14 priority
areas over three years, with a focus on at-risk 15 to 17 year olds.
Alongside this, Budget 2004 provides pilot funding to 75 schools for senior school students to prepare learning
and career plans, increasing funding for the hugely successful Gateway programme to expand to decile 6
schools by 2008, and additional funding for STAR.
In Budget 2003 tertiary education funding rate increases were announced for the 2004/06 triennium. This year,
ahead of the implementation of the Funding Category Review, the government has agreed to a further one-off
increase of 0.9 per cent for 2005 only, bringing the total increase for 2005 to 3.2 per cent.
In the area of industry training, funding rates will be lifted over the period 2005/07 as part of the move towards a
single funding rate for all Industry Training Organisations. This will entail an average funding rate increase of 7.7
per cent at a cost of $25 million over four years, and will ensure that ITOs covering 71 per cent of trainees
receive an increased funding rate.
55
Mr Speaker, Budget 2004 provides the resources for the government to continue its programme of tax base
maintenance, tax reform, and examination of ways in which tax changes can contribute to economic growth.
A high priority for the government is to ensure that everyone pays his or her fair share of tax. Over the last year,
officials have been reviewing the tax laws applying to banks to determine whether they are sufficiently robust.
The stimulus for the review has been the fact that the strong upward trend in banks’ accounting profits has not
been matched by the growth in their taxable profits and hence tax paid.
Legislation to address any weaknesses in current tax rules applying to banks may be included in the taxation bill
introduced later this year. A consultative process involving the banking industry and tax practitioners is
underway.
The government is reviewing the tax depreciation rules to see if there are ways of reducing tax biases within the
rules and to resolve practical problems with their operation.
The current rules relating to deductions for depreciation of assets were introduced in the early 1990s. I am
concerned that they may be biased against investment in assets that have shorter lives, so the review is
concentrating on that area.
An officials’ paper will be released shortly. The paper will also discuss whether the current depreciation rate for
buildings is appropriate, and the growing practice of recharacterising rental houses into components to take
advantage of high depreciation rates. Officials will report to the government in time for proposals to be included
in the taxation bill later this year.
The current rules for taxing savings, both in the domestic and international context, are complex, inconsistent,
and potentially unfair. Such an environment is not conducive to savings.
Working closely with the savings industry is an important next step towards the objective of improving
significantly the tax rules around saving. Last year, at the request of the industry, officials and industry
representatives began the process by considering a risk-free rate of return method of taxation as one possible
approach.
The government will be working with the private sector to develop this broad proposal, as well as consider other
options to reduce the many boundaries that are created by the current domestic and international tax rules for
savings.
In December last year the Periodic Report Group indicated that there is value in promoting greater use of work-
based savings schemes as a way for New Zealanders to save.
We have already announced the establishment of the new public service superannuation scheme but there is
more to do. The government has recently established a Savings Product Working Group that will report by the
end of August on ways to overcome barriers that might be inhibiting the use of work-based schemes. It is my
desire to reach a point where all employers offer access to such a scheme.
Much is still made by some of the central importance of lowering the headline corporate tax rate. At 33 per cent
New Zealand’s rate is scarcely out of line with the OECD average of 32.3 per cent.
It is true that in New Zealand company tax receipts are a somewhat higher proportion of total tax revenue at
11.3 per cent, compared with the OECD average of 9.4 per cent. The difference is less marked if based upon
proportion of GDP at 3.8 per cent versus the OECD average of 3.5 per cent. However, the often quoted
comparison, Australia, is even higher at 14.9 per cent of total tax and 4.5 per cent of GDP.
That is despite the fact that Australia, like much of the rest of the OECD, also has substantial payroll taxes and
a general capital gains tax. Thus when companies retain profits that normally leads to capital gains on shares.
These gains are taxed in most countries but not New Zealand. This substantially reduces the effective overall
tax rate on business in New Zealand compared with Australia and other countries.
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Moreover, New Zealand’s lower top tax rate than most OECD countries and its imputation system (which not all
countries share) mean that the effective top tax rate of 39 per cent on dividends paid to shareholders compares
with 48.5 per cent in Australia, an OECD average of 50.7 per cent, and a United States figure of 70.3 per cent.
These facts make it impossible to substantiate the view that the corporate sector is overall more highly taxed in
New Zealand than elsewhere in the developed world. In fact the reverse is clearly the case. It can also be
argued that the mix of tax on the corporate sector is more economically efficient than in the great majority of the
developed world.
If, however, the peak business organisations and others wish to argue that the key objective is to achieve a
substantial lowering in the headline rate, since they argue this is all that counts in terms of international
perception, then it is incumbent on them to accept a trade-off in terms of suggesting other elements which are
near-universal elsewhere.
This will mean that the proponents of lowering the headline rate will need to decide whether in fact such a trade-
off outweighs the undoubted loss of efficiency and clarity in the system. I remain extremely sceptical that this is
so.
Certainly the logic would suggest that small, marginal changes in the company tax rate will make little or no
difference. Perhaps the best solution is a combined effort to promote the very real advantages of the overall
New Zealand structure compared with countries such as Australia, which still leaves room for argument as to
the virtue of lower tax rates as long as it is accepted that means lower expenditure, including in those areas
crucial to business success.
Mr Speaker, the fundamental purpose of the tax system is to raise, in the fairest and most efficient manner
possible, the revenue to meet the government’s spending programmes. From time to time the opportunity arises
for an initiative beyond the scale of the usual annual spending initiatives.
Thanks to the combined effects of the government’s fiscal prudence and New Zealand’s economic success
such an opportunity is now available. Even so, the fiscal headroom available in 2004/05 is limited and
the Working for Families package is phased in over three fiscal years.
The government’s Working for Families programme makes tangible our commitment to ensuring that economic
growth is pursued for its capacity to provide greater security and opportunity for all. It means greater ability to
participate in the New Zealand lifestyle for many who find that difficult.
Working for Families has three key aims:
to make work pay by ensuring that people are better off by being in work and are rewarded for their work effort
to ensure income adequacy, with a focus on low to middle income families with dependent children, to address
issues of poverty, especially child poverty, and
to support people into work by ensuring people get the assistance they should to support them into, and to
remain in, work.
These objectives are achieved in a number of stages, beginning in October this year and concluding on 1 April
2007.
Nearly 300,000 households will receive direct assistance by 1 April 2007. Over 60 per cent of families with
dependent children will benefit from the combination of increases to Family Support, a new In-Work Payment,
the increase in Family Tax Credit and changes to abatement rates and thresholds. The average gain for these
families is $66 per week. Households in the $25,000 to $45,000 a year income range will benefit on average by
around $100 a week.
The estimated cost of the package, including implementation costs, will be $221 million in 2004/05, $664 million
in 2005/06, $900 million in 2006/07, and $1.1 billion in 2007/08 and out years.
Working for Families is an expensive package because, unlike the efforts of the government in the early 1990s,
it does not seek to make those on modest incomes feel better off by pushing those below them further into
57
poverty. Using a poverty value measure of 60 per cent of median household income there is expected to be a
30 per cent reduction in child poverty by 2007/08. Using a 50 per cent measure, the expected reduction is 70
per cent.
Let us consider a few cases. First, a family with two children on a single modest wage of $30,000 a year will be
better off, due to the family assistance measures alone, by $40 a week from 1 April 2005, nearly $95 a week
from 1 April 2006, and nearly $115 a week from 1 April 2007.
These figures exclude gains from changes to Childcare Assistance and the Accommodation Supplement. These
will increase the gains for many substantially.
Or take the case of a couple with two children, working 60 hours per week between them, earning $37,500 per
year and paying $69 a week in childcare costs.
From 4 October they are $42 a week better off because of childcare changes. This rises to $82 a week from 1
April 2005, $88 a week from 3 October 2005, $143 a week from 1 April 2006, and $163 a week on 1 April 2007.
A couple with four children in central Auckland with a gross rental of $350 per week and a low single wage of
$12 per hour will benefit by $10 per week on 1 October 2004 because of changes to the Accommodation
Supplement. Their gains will increase to $93 a week from 1 April next year, $124 per week from 1 April 2006,
and $164 a week from 1 April 2007.
A good example of how the package works is to compare two sole parents, living in Christchurch, each with two
children under 16, paying $200 a week in rent but with one on the Domestic Purposes Benefit and the other in
paid employment earning $30,000 a year with one child in fulltime childcare.
By the end of the package’s introduction, the beneficiary family will be better off by nearly $37 a week. But the
working mother and her children will be better off by nearly $129 a week. The rewards for paid employment are
increased by over $90 a week.
A final good example would be a family with four young children on a single income of $55,000 a year. Such a
middle income family will be much better off. From 1 April 2005 they will get an extra $70 a week, rising to
nearly $110 a week on 1 April 2006, and nearly $150 a week on 1 April 2007.
It is interesting to compare the gains for this family with other options which have been suggested. A 20 per cent
flat rate of tax, at a fiscal cost of somewhere around $5.5 billion a year, would deliver a gain of just $39 a week.
On the other hand, the Minister of Finance, with no dependent children, would gain over $600 a week.
A universal family benefit of $15 a week for the first child and $10 a week for each subsequent child would
deliver $45 a week, much less than the Working for Families package, and with no increased rewards for
employment.
These very substantial increases in the incomes of ordinary New Zealanders in the Working for
Families package are achieved by the following:
an increase in the Family Support rates of $25 per week for the first child and $15 per week for each
subsequent child from 1 April 2005
an increase to $27,500 a year of family income from 1 April 2006 in the threshold at which Family Support starts
to abate and the replacement of the two abatement rates with a single rate of 30 cents in the dollar
a further increase in Family Support rates of $10 per week per child from 1 April 2007
the introduction from 1 April 2006 of an In-Work Payment for families with dependent children of $60 per week
plus an additional $15 per week for the fourth and each subsequent child. The Child Tax Credit will be abolished
subject to certain grandparenting provisions
eligibility for the In-Work Payment will extend to those in receipt of New Zealand Superannuation or Veterans’
Pension with dependent children who meet the work hours requirement and those on accident compensation
who would have met the same requirements
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the rates and thresholds for Family Support and thresholds for Childcare Assistance will be adjusted regularly
from 1 April 2008. Each adjustment will occur on any 1 April after the cumulative CPI increase has reached 5
per cent
Childcare Assistance thresholds will be increased by about 50 per cent on 4 October 2004
Out of School Care and Recreation Subsidy rates will on the same date increase to match Childcare Subsidy
rates
all Childcare Assistance rates will increase by 10 per cent on 4 October 2004 and a further 10 per cent on 3
October 2005. These increases will be in addition to annual 1 April adjustments in line with the CPI
the removal of the abatement of Accommodation Supplement for beneficiaries on the first $80 of non-benefit
gross income from 1 October 2004 and greater access to Accommodation Supplement for non-beneficiaries
the creation of a new Accommodation Supplement area on 1 April 2005 with various increases in the maxima
payable, and
increases in Orphan’s Benefit, Unsupported Child’s Benefit, and Foster Care Allowance from 1 April 2005.
There are a large number of detailed changes associated with these moves. These include significant
simplification of the benefit system by shifting the child component of main working age benefits into Family
Support and stricter controls on hardship assistance. A major publicity campaign will be undertaken to ensure
people are aware of their entitlements.
Mr Speaker, this is the largest single package of changes to the benefit system and assistance for families since
the benefit cuts of 1991. I am grateful for the support committed to the package by United Future which will
ensure nearly 300,000 families are better off.
This government was not elected to slash the incomes of the poor, any more than any previous New Zealand
government in living memory actually was. But, unlike our predecessors, we intend to act according to the
expectations of the public in that regard.
Great care has been taken in assembling this package to identify any possible individual losers and to ensure
there are none. For many on benefits with children the total increases in income due to the various measures
taken will easily exceed the size of the benefit cuts that occurred in 1991.
But for those in employment, the gains are very much more substantial and extend well up the income range. In
particular, the incentives for moving from benefit into employment are significantly increased.
That is particularly so with the introduction of the new In-Work Payment on 1 April 2006 which will also, for the
great majority of families, be simpler to understand and administer than the current Child Tax Credit.
Budget 2004 makes work pay. It builds further on our previous work in building the skills we need for a
successful, dynamic economy. It provides further assistance to New Zealand businesses. It puts in place
processes to assist in lifting productivity and savings. It boosts research, science, and technology. It reduces the
costs of tertiary education. It builds a stronger primary health care system and addresses particular needs in
terms of orthopaedic surgery. It salts further money away for the future to ensure the baby boomer generation
can have a decent retirement.
And it does so while maintaining our reputation for fiscal prudence and for steady, predictable management.
Mr Speaker, Budget 2004 delivers on the programmes and promises taken to the people in 2002. It is not a
budget for the few or for vested interests. It is a budget for the many and especially for those for whom a
Labour-Progressive government is the best hope for the future.
 Debate interrupted.
Prebble, Richard: Questions for Oral Answer — Questions to Ministers: 25-May-2004 -

59
10. Hon RICHARD PREBBLE (Leader—ACT) to the Minister of Finance: Does he stand by his reported
comments in the Dominion Post on Friday, 21 May ruling out cuts to the top rate of personal tax rates;if so, why
is he ignoring advice from the Treasury report, New Zealand Economic Growth:An Analysis of Performance and
Policy, April 2004, that found “A foundational principle for a taxation system that seeks to support economic
growth is that it should be ‘broad based - low rate’ ”?
Hon Dr MICHAEL CULLEN (Minister of Finance) : Yes, New Zealand’s tax system is broad based—low rate
by international comparison, as John Shewan pointed out at the weekend. The Treasury report, in my view, is
overly optimistic about the impact of tax rates on sustainable economic growth.
Hon Richard Prebble: How does the Minister square his claim that New Zealand already has a broad based -
low rate with the same report’s statement on page 53 that “moving to a flat tax rate for both personal and
corporate tax rates is likely to have the greatest impact on economic growth, as it conforms most closely to the
BBLR principle.”?
Hon Dr MICHAEL CULLEN: I notice that even the Treasury report admitted there was little empirical evidence
for this assertion; it was mainly based on theory. If one looks around the world, the United States, for example,
has a much more steeply progressive tax rate system than New Zealand, and the tax rate on dividend payments
is over 70 percent.
Clayton Cosgrove: Has he seen any recent comparisons of the tax burden in Australia and New Zealand?
Hon Dr MICHAEL CULLEN: Yes. The same newspaper article that quoted John Shewan ran a table showing
that a person on $80,000 a year in Australia is liable for $8,807 more in tax than someone on the same income
in New Zealand. If he or she sold their house, they would incur stamp duty of $40,000, which does not exist in
New Zealand. Nevertheless, Australia has generally had a higher growth rate than New Zealand over the last 10
years.
John Key: Why does the Minister rule out reductions in taxes on the basis of available cash, when he knows
one of two things, or both things—firstly, that a huge amount of the surplus available cash is actually being used
to fund capital items that will have a long-term benefit to all New Zealanders, and, secondly, the correct net
worth of a country is far more accurately measured by the net debt to gross domestic product ratio, not an
increase in nominal growth?
Hon Dr MICHAEL CULLEN: I am happy to get a briefing for the member as to why Treasury places greater
stress on the gross debt figure as the anchor, rather than net debt. If the member is now saying that National
would borrow all the money to pay for, for example, new equipment for the Army, Air Force, and Navy; every
new bit of hospital building; every new school; every other bit of capital equipment; every advance to a Crown
entity; every advance to a State-owned enterprise; plus the student loan transfers; plus the Superannuation
Fund, then it has gone even pottier than I thought it had gone over recent times.
Hon Richard Prebble: How can the Minister say to the House that there is no evidence that cutting the top
personal rate of tax would help economic growth, when he has received that recommendation from his own tax
review in 2001, when the OECD has made the same recommendation to him in 2002, and he has now had the
same recommendation given to him by his own Treasury advisers in April 2004?
Hon Dr MICHAEL CULLEN: A number of the same people, certainly including the OECD, have recommended
that a capital gains tax be introduced in New Zealand, including a tax on housing. I assume that is also part of
the recommendations that Opposition parties would accept.
Hon Richard Prebble: Point of order, Mr Speaker.
Mr SPEAKER: I think the member could perhaps develop his answer.
Hon Dr MICHAEL CULLEN: I am pointing out that recommendations have been made. We do not have to
accept those recommendations. It is a matter of blind faith for some that lowering the top tax rate will increase
growth. In 1988 we lowered it from 45 to 33 percent, and the company tax rate from 48 to 33 percent. The
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promised nirvana did not arrive over the next 4 or 5 years. We had the lowest record of economic growth over a
5-year period that we had had since the early 1930s.

2. Hon RICHARD PREBBLE (Leader—ACT) to the Minister of Finance: Does he recall telling the Asia
Society in Hong Kong that the Government would reduce the 33c company tax rate when “fiscal conditions
permit”; if so, how many billions does the surplus need to be before “fiscal conditions permit” the desired
company tax cut?
Hon Dr MICHAEL CULLEN (Minister of Finance) : Yes. However, Budget forecasts will show that the
Government anticipates running only a very small cash surplus this year.
Judith Collins: Oh!
Hon Dr MICHAEL CULLEN: I am sorry to let the member down about that! Although gross debt to gross
domestic product is projected to continue to reduce slowly, nominal debt will actually rise, requiring a modest
borrowing programme over the next 3 years.
Hon Richard Prebble: When the Minister was quoted as saying that the Government plans to lower the 33c in
the dollar tax rate on business when the country’s coffers are healthy enough, did he also take into account that,
according to Treasury, it would cost only $420 million to reduce the company tax rate from 33c to 30c in the
dollar; and is it not a fact that he could do that, except that he wants to distribute hundreds of millions of dollars
to social welfare beneficiaries?
Hon Dr MICHAEL CULLEN: Apart from the fact that the member typically misquoted what I actually said in the
speech, which is not unanticipated from the member, in fact the member’s figures, I think, are a little under the
estimate. In any case, there are higher priorities for that. I emphasise that the Budget will show not billions of
dollars of spare cash hanging around but, in fact, a modest borrowing programme for the coming 3 years.
Hon Richard Prebble: The Minister has claimed that I misquoted his press statement. I seek the leave of the
House to table a press statement from the New Zealand Herald of 13 April, which I think will show that I quoted
him absolutely accurately.
Mr SPEAKER: Leave is sought to table that document. Is there any objection? There is.
Hon Dr MICHAEL CULLEN: I seek leave to table the actual speech, which shows exactly what I said.
 Document, by leave, laid on the Table of the House.

Clayton Cosgrove: Is the corporate tax rate in New Zealand high, by international standards?
Hon Dr MICHAEL CULLEN: No, at 33 percent it is just 0.7 percent above the OECD average. But New Zealand
has a clean tax system, by international comparison. There are no major payroll taxes and no overall capital
gains tax, and of course there is an imputation system, so the total tax impost on companies is likely to be
significantly lower than in many overseas jurisdictions, including Australia.
Hon David Carter: Is the Minister aware that since Labour became the Government, more than two-thirds of all
OECD countries have lowered their company tax rate by an average of more than 5 percent, and why does he
think they have done that?
Hon Dr MICHAEL CULLEN: Well, some have had right-wing Governments.
Rt Hon Winston Peters: Having regard to the Minister’s comment that the accounts will be in such a parlous
state that he will begin a nominal borrowing programme over the next 3 years, is this a case of a former Prime
Minister and Minister of Finance’s words coming back to him, when he said: “They can’t promise anything
because I’ve spent it all.”? Does he recall the aftermath of that, when the next election turned up in 1972?
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Hon Dr MICHAEL CULLEN: That particular Prime Minister was running, I think, an 8 percent of GDP cash
deficit in his last year as Minister of Finance. We will be running 7 percent, according to Mr Jones.
I think the member will find it is 7 percent on an accruals basis when recalculated, which is an 8 percent cash
deficit of GDP. We will be running a very small deficit, much of which will be used to finance such things as, for
example, student loan advances, which are an asset in terms of net debt.
Gerrard Eckhoff: Why should New Zealanders not believe that the real reason he cannot reduce company tax
is that it is all going into his welfare Budget next week?
Hon Dr MICHAEL CULLEN: The member is going to be terribly disappointed next week when he finds out how
much is going to families who are in employment, as opposed to those who are on welfare benefits.
Heather Roy: Is the Minister aware of the January 2004 KPMG survey that said of New Zealand: “The company
tax rate of 33c in the dollar is above the average for the OECD for Asia-Pacific countries, and even for Europe.”,
and that the KPMG survey has recorded a steady decline in average corporate tax rates across the OECD in
recent years from just under 37 percent in 1997 to 30 percent now, and will he act to address New Zealand’s
high company tax rate in next week’s Budget?
Hon Dr MICHAEL CULLEN: There were two parts to the question, and the answers are yes and no, for a very
simple reason. New Zealand has no substantial payroll tax, unlike Australia. It has no general capital gains tax,
unlike Australia. It has an imputation system on dividends, unlike the United States. In fact, if the member cares
to look at other developed countries she will find New Zealand has one of the lowest rates of tax in total on the
corporate sector, as a proportion of GDP. Even corporate tax in New Zealand, as a proportion of GDP, is lower
than in Australia.
Heather Roy: I seek the leave of the House to table the KPMG corporate tax rate survey of January 2004.
 Document, by leave, laid on the Table of the House.

5. Hon RICHARD PREBBLE (Leader—ACT) to the Minister of Finance: What would be the estimated
revenue reduction if the rate of income tax, including company tax, was cut to a top rate of 20c, and how does
that estimate compare to the expected operating surplus?
Hon Dr MICHAEL CULLEN (Minister of Finance) : The estimated cost given in written answer 5540 to the
member’s colleague Rodney Hide was about $5.5 billion a year. This is a very similar size to the projected
operating surplus for the current year, but that, of course, does not make provision for large elements of capital
expenditure.
Hon Richard Prebble: Is it not a fact that the Minister is actually saying to the House that he could reduce the
rate of income tax and company tax for everyone in the country to $5.48 billion, and that as the operating
surplus is $7.4 billion there would be a $2 billion surplus; surely the Minister can see that there is no better way
of helping working New Zealanders or small business than to reduce income tax in the Budget to 20c
immediately?
Hon Dr MICHAEL CULLEN: Now I know who wrote the New Zealand Herald editorial a couple of days ago.
The final operating surplus will not be $7.4 billion. As the member well knows, we have passed the provisional
tax payments, so tax revenue is high at this point compared with final revenue versus expenditure. Secondly, if
the member’s policy were followed, the Government would be running a cash deficit this year of over $5 billion.
Within 5 to 6 years that would lead to a doubling of the gross debt to gross domestic product (GDP) ratio, and all
that he did from 1984 onwards would become totally stupid because we would be back where we started.
Clayton Cosgrove: Is it possible to provide for current Government expenditure with a tax cut proposed of that
size?
62
Hon Dr MICHAEL CULLEN: No. As I said, it required borrowing something over $5 billion this year, or
equivalent cuts to spending on health, education, law and order, or other Government services. There is no
fiscal free lunch.
John Key: Does the Minister think New Zealand businesses would prefer a cut in the company tax rate, or more
corporate welfare of the sort handed out by Jim Anderton and Jim Sutton yesterday?
Hon Dr MICHAEL CULLEN: It depends which ones they were—the ones who got the corporate tax-rate cut or
the ones who got the assistance to expand. What is clear is that the taxation of the New Zealand corporate
sector as a whole is significantly lower, both as a proportion of revenue to the companies and as a proportion of
GDP, than in nearly all other Western countries. That is because we do not have a capital gains tax, we do not
have a classical system on corporate taxation, and we do not have payroll taxes.
Rodney Hide: In light of the Minister justifying putting up the top rate of tax to 39c to raise an extra $400 million
that he said his Government needed, in view of an operating surplus of $6 billion or $7 billion, why will he at
least not drop the top rate of tax down from 39c to 33c—or is this just another tax to spite the rich?
Hon Dr MICHAEL CULLEN: No, but the member’s bid for a tax cut of nearly $60 a week will be overtaken by a
Budget package that will give the couple in Waihi mentioned in the Sunday Star-Times a great deal more than
that.
Cullen, Michael: Income Tax Bill — Instruction to Committee, In Committee, Third

Reading: 30-Mar-2004 - Volume: Session1;Volume616;Week53
Hon Dr MICHAEL CULLEN (Minister of Revenue) : I want to respond to one or two of the matters raised. I
outline the fact, as Mr Carter will be aware—and I am very grateful to him, as one of my predecessors, for the
work that was started under the previous National Government in terms of this rewrite programme, and to Mr
Dunne, who was also a part of it—that there has been a very clear rule applied by successive Ministers that the
kinds of issues the member has raised are not dealt with in the rewrite programme. If we wait to try to deal with
every taxation issue that somebody wants to have addressed by way of legislation before we do a rewrite, we
will never do the rewrite. Indeed, a large part of Supplementary Order Paper 195 actually incorporates the last
taxation bill passed into the rewritten Income Tax Bill. The purpose of that is to make life easier for taxation
practitioners, who will have access to one up-to-date full version of the legislation.
I will just take up a couple of points that the member raised. On the last point, as I have said many times to
some leaders of business, if they want New Zealand to have a lower company tax rate—much lower than
Australia’s—they should give me the other parts of the Australian taxation system, which they do not want to
pay, either. For example, the Commonwealth of Australia has a 6 percent payroll tax. If we had a 6 percent
payroll tax in New Zealand, we could probably halve the company tax rate. If we also had the Australian state
payroll taxes, we could more than halve the company tax rate in New Zealand. That is without counting the
capital gains tax, the inheritance tax, and the various other taxes that Australian businesses have to pay directly
or indirectly. Of course, New Zealand business wants to just cherry-pick one little bit here, and leave all the
other bits off. The offer is open; it is on the table for New Zealand businesses. They can come and talk to the
Minister of Revenue, and if they want to have a really low company tax rate they have to give me the other bits
that are paid in Australia. I have to say that, in terms of tax design, they are not as good as our system is. The
design of our taxation is better than Australia’s in that respect. But if that is what is really important to
businesses—if that is the teddy bear they want to take to bed with them at night—then they have to give me the
little eyes and the funny nose to put on it as well, in order to make the thing up and make it look proper when
they go to bed with it.
I will also deal with the issue of films. I am not allowed to know the total tax deduction that the financers of the
film, not Mr Jackson, received. The financiers actually got the tax deduction, which is why Mr Jackson may well
not know the total value of it—it was not his company that received it. All I know is that when National
introduced legislation to remove that taxation loophole by grandparenting the existing provisions—it was then
amended by the select committee, of which I had the honour to be a member—the Inland Revenue Department
63
advised that the cost of the grandparenting provisions was between $300 and $400 million. The largest part of
that is almost certainly in relation to The Lord of the Rings. When I see the Oscars lined up, I see about $30
million for each of them. Will benefit? That film will not benefit from the taxation loophole, because it was wiped
out in 1999 by Mr Carter, myself, and various others. But will benefit from the Large Budget Screen Production
Grant Scheme, which is much easier to control than the taxation loophole, I must say, in terms of its cost.
Probably, without the Large Budget Screen Production Grant Scheme we would have without the ape, so to
speak, and without everybody else appearing within the film. [] The start will be the hard bit to do, really. I
suppose the BNZ building—“Darth Vader’s tower”—is the most appropriate place to do that in Wellington.
In terms of the banks, that matter is all under the existing law, and remedial measures are not, and should not
be, part of this bill. If we were to mix up remedial legislation, base protection legislation, and other changes with
the income tax rewrite, we would never get the income tax rewrite done.
Cullen, Michael: Financial Review Debate — Procedure, In Committee, Speaker Recalled,

In Committee: 23-Mar-2004 - Volume: Session1;Volume616;Week52
Hon Dr MICHAEL CULLEN (Minister of Finance) : I will deal briefly with some of the points that have been
raised. In response to Mr Copeland, no, the Government will not be removing GST on rates. I am afraid that
local authorities are strengthening the argument for GST being on rates by moving more and more towards
specific charges, rather than property-related rates as they used to have. I remind him that Mr Dunne probably
made the crucial swing vote to impose GST on rates in 1984-85 in a Labour caucus decision that had a margin
of one. I also point out to him that we would not be raising any capital for Air New Zealand by selling shares to
mum and dad shareholders. It is only if new shares are issued that new capital will be raised. Mixing up the
shareholders does not raise the capital for the company.
In response to Mr Donald, no, we are not imposing a capital gains tax. As for his response about playing on the
market, I come back to the essential point: if the member really believes that over the next 30 or 40 years all
international equities markets will collapse, then we can forget all our plans about anything over that period of
time. In relation to the New Zealand Superannuation Fund, contrary to what Ms Clifton said in the Listener some
2 or 3 weeks ago—I have no idea where she gets her information from on these kinds of matters—when she
said that we lost lots of money on the superannuation fund, in fact, in the first quarter that the superannuation
fund went to market last year, it significantly outperformed any benchmark measure that can be put forward. We
made money out of that deal. On the Government Superannuation Fund,we lost money on markets, as
everybody else did, including the member—except, of course, for that famously subsidised property scheme
that the Green Party runs as part of its so-called superannuation policy.
Now I will turn to Mr Key. He tells us that we do not know how to grow the economy. That is funny because in
the last year we outgrew Australia, the United States, Europe, and Japan. I ask him to name me any other year
when New Zealand has managed to do that in recent decades.
This country, under this Government, has been growing faster than the OECD average in almost every year it
has been in office. The member can do the cute sums about reaching the top half within the next period of time,
but I invite him to do the same sums on his own leader’s promise to pass Australia by 2010, given the rate of
economic growth in Australia, which was a lot more than 4 percent per capita growth—and he nods his head in
agreement. Australia has been outperforming the OECD almost every year for the last decade or more.
We also learnt about the National Party’s fiscal policy. On the one hand the National Party said, in response to
Mr Copeland, that one could not afford to take GST off local authority rates—$1 million amongst 253
authorities—but, on the other hand, on anything else one could spend what one liked. Mr Key’s policy is that
even when the economy is growing fast, one should still be borrowing to pay for tax cuts. At least it is no longer
tax cuts for the rich. It is only a year or two since Dr Brash told us that the key to growth was to lower the top tax
rate.
Dr Wayne Mapp: Yes.
64
Hon Dr MICHAEL CULLEN: “Yes.”, says Dr Mapp. Dr Brash said that unless the top tax rate is lowered, there
would be no growth, and last week he said: “Oh, wait, no cut in top tax rate; we’re going to cut the company tax
rate and the lower tax rate, even though we don’t believe that’s any good.”—indeed, even though National
believes that cutting the bottom tax rate will lower growth. That is the National Party’s view of economics, but,
because of the politics, Dr Brash said that National would not lower the top tax rate. So much for U-turns within
Parliament! At least when some of us change any position, we are in the Chamber to defend it. Dr Brash is a
phantom figure around this place these days. He is never here to tell us what the National view is.
Gerry Brownlee: He’s out there talking to the people.
Hon Dr MICHAEL CULLEN: He is out there talking to both people at once, we are told by the deputy leader of
the National Party—a man who is disappointed in life because he sits there with a dagger in his hand but never
has Dr Brash’s back next to him to stick it in. Probably why Dr Brash is never sitting there is that it would be far
too unsafe for him to do so with Mr Brownlee next to him pondering his own potential future.
This Government has got growth up to near-record levels in terms of comparison with other OECD countries,
unemployment is down to the lowest figure since 1987, we have strongly growing household income growth, we
have particularly large reductions in unemployment amongst Māori and Pacific peoples, and we have, still,
despite the problems of the dollar, high levels of consumer confidence. We are seeing a growing New Zealand
economy, a growing future for this country, and a strong, prudent fiscal management.
 Reports noted.
Cosgrove, Clayton: Questions for Oral Answer — Questions to Ministers,: 17-Feb-2004 -

3. CLAYTON COSGROVE (Labour—Waimakariri) to the Minister of Finance: Has he received any

suggestions regarding tax cuts?
Hon Dr MICHAEL CULLEN (Minister of Finance) : I receive suggestions regarding tax cuts very frequently
indeed, from many different people, usually of quite different types. The most recent of those was a suggestion
yesterday to set the company rate at 30 percent, and to lower both the 33 percent and 39 percent personal
rates to 30 percent. That came from Dr Brash, who said that it could be done because we ran a $6 billion
surplus last year.
Clayton Cosgrove: Is the $6 billion Budget surplus that was achieved last year available for spending?
Hon Dr MICHAEL CULLEN: No. As with everybody else’s income last year, I suspect we have spent it all in
one form or another. The $1.2 billion cash surplus was used to retire debt. For the current year, as a brief check
of the December Economic and Fiscal Update would show, Treasury is forecasting a cash deficit of $1.1 billion.
Finally, as the Leader of the Opposition ought to know, any excessive fiscal stimulus will only lead to higher
interest rates being imposed by the Reserve Bank, and to more pressure on the dollar.
John Key: Has the Minister noticed reports in the Australian Financial Review of Thursday, 12 February
outlining that the Australian Labor Party leader, Mark Latham, is considering reducing the top personal tax rate
in Australia from 47c to 35c in the dollar; if so, what does he consider will be the economic impact on New
Zealand when Australia has a lower top personal tax rate, a lower company tax rate, and a US free-trade
arrangement to boot?
Hon Dr MICHAEL CULLEN: Only somebody whose nose was rather close to Australia could possibly think that
it got a United States free-trade agreement—it was a trade agreement, not a free-trade agreement. When
Australia also abolishes its capital gains tax and payroll tax, and when it restores accelerated depreciation for
companies, then perhaps we may talk about comparability. The fact is that at the moment Australia has a higher
top tax rate, a payroll tax, a capital gains tax, and, generally speaking, Australians are more highly taxed than
most New Zealanders.
65
Peter Brown: Will the Minister give further consideration to adopting New Zealand First’s policy of gradually
transferring more of the petrol tax, which goes into the Crown account, into the National Land Transport Fund,
so that it can be invested in roading for safety purposes and for our economic well-being?
Hon Dr MICHAEL CULLEN: I am pleased to inform the member that we have already done that once, and we
are planning to do it again. That was part of the Auckland—and, indeed, the New Zealand—road transport
package announced just before Christmas.
John Key: I seek leave to table the Australian Financial Review of 12 February, outlining Latham’s new tax-cut
push.
Mr SPEAKER: Leave is sought to table that article. Is there any objection? There is.
Prebble, Richard: Questions for Oral Answer — Questions to Ministers: 02-Dec-2003 -

6. Hon RICHARD PREBBLE (Leader—ACT) to the Minister of Finance: What has been the response from
the Reserve Bank and the Treasury to his request for a report on ways to curb the rising dollar, and can he state
which specific options he sees as open to the Government to lower the New Zealand dollar?
Hon Dr MICHAEL CULLEN (Minister of Finance) : Work is being done, and no.
Hon Richard Prebble: Is the Minister concerned about the effect on his own credibility of his musing publicly
that he has options for lowering the dollar, when a recent survey of business leaders by the New Zealand
Herald states that 87 percent of them do not believe there is any method open to him, unless he is going to be
another Muldoon?
Hon Dr MICHAEL CULLEN: No.
Dr Don Brash: How does his reconcile his comment to The Economist magazine 2 months ago: “There are no
effective policy instruments” to address the high level of the New Zealand dollar, with his recent comment that
he is “not without options in this regard”?
Hon Dr MICHAEL CULLEN: Because it is always possible to come up with other policy instruments.
Rt Hon Winston Peters: Would the Minister admit that a dramatic cut in immigration is one of those policy
instruments, in respect of a reduction in inflation and therefore enabling the Reserve Bank governor to lower,
rather than increase, interest rates; and why is he not prepared to take some action, given the dramatic damage
done to so many New Zealand exporters in the last 2 years?
Hon Dr MICHAEL CULLEN: It is hard to see that a cut in New Zealand’s immigration will make the United
States dollar rise.
Rod Donald: Does the Minister agree that the value of the New Zealand dollar would drop if the Reserve Bank
lowered interest rates, but that it is unlikely to do so, because of the risk of further fuelling the property boom,
and would he consider introducing a capital gains tax on all but the family home in order to get the balance right
between speculative and productive investment, as well as getting the dollar down to sustainable levels?
Hon Dr MICHAEL CULLEN: On the last point no, and with the time taken to do it, by then probably the dollar
would be coming back down in any case. It would be a classic case probably of pro-cyclical policies and would
be counterproductive in terms of New Zealand’s general economic position. On the other matters, with regard to
the position we are in, I think the fundamental driver in the situation is the fall in the United States dollar. Clearly,
no policy instruments in New Zealand will have any effect on the United States dollar at all.
Dr Don Brash: Following Reserve Bank governor Alan Bollard’s comments last week: “There is no free lunch.”,
and that that there are “quite big problems around most forms of currency intervention”, can we conclude that he
would not take any of the unspecified options to curb the rise in the exchange rate, unless there is severe
disruption in the market; if not, why not?
66
Hon Dr MICHAEL CULLEN: I agree with Dr Bollard, as I very often do. There is no free lunch, and the lack of a
free lunch and the totally hands-off approach is the distress now being suffered by the tradable sector.
Rt Hon Winston Peters: Why is the Minister arguing now that the interest rate set by the Governor of the
Reserve Bank has no effect at all on the New Zealand currency?
Hon Dr MICHAEL CULLEN: I am not arguing that. But what I would argue—and I think our own experience
over the last nearly 20 years demonstrates—is that interest rate increases may, or may not, lead to a rise in the
New Zealand dollar, in the same way that interest rate falls may, or may not, lead to a fall in the New Zealand
dollar. It depends what the market perception is of the result of those movements in interest rates. If the
perception is that an increase in the level of interest rates makes us more attractive, then the New Zealand
dollar will rise. If the perception is that the economy is going to slow rapidly, then the economy could well fall as
a consequence.
Hon Richard Prebble: Why will the Minister of Finance not just admit to the House that any of the options that
could lower the dollar can only do so by doing great damage to the New Zealand economy—and that would be
a helpful statement—or, alternatively, that he does believe that he, and he alone, knows some options that will
do it, and given the damage that the rise of the dollar is doing to the export sector, does he not think he has an
obligation to this House to tell us what those options are, or admit that he has made a fool of himself?
Hon Dr MICHAEL CULLEN: I notice that many other countries similar to ourselves do intervene—notably
Australia. That has a modest moderating effect on their volatility, at best.
Dr Don Brash: A few moments ago the Minister seemed to imply that a hands-off approach on the currency
had significant disadvantages; can he give us advice on what precisely he has in mind as the alternative to that
hands-off approach?
Hon Dr MICHAEL CULLEN: No. What I said to the member is that there is no free lunch in any policy approach
in those areas. That is the hard truth about exchange rate movements.
Brash, Don: Questions for Oral Answer — Questions to Ministers: 30-Apr-2003 - Volume:
11. Dr DON BRASH (NZ National) to the Prime Minister: Did she tell delegates at the OECD forum on
economic growth yesterday that she disagrees with the OECD’s criticisms of her Government’s economic
policy; if not, why not?
Hon Dr MICHAEL CULLEN (Acting Prime Minister): No. Having read the speech, she was clearly far too busy
explaining the success of the present Government in controlling New Zealand’s economy, and also promoting
the issues of multilateral trade liberalisation, which are dear to the hearts of many of us in this House.
Dr Don Brash: Does the Prime Minister agree that it is ironic for her to be chairing an OECD meeting on
growth, when her own Government is actively pursuing economic policies that contrast with OECD advice on
how to increase economic growth?
Hon Dr MICHAEL CULLEN: Yes. I note the membership’s agreement with that advice, which includes reducing
benefits, increasing the age for the pension, introducing privatisation of education systems, and, indeed, the
introduction of a general capital gains tax specifically applied to housing.
David Cunliffe: What, in fact, did the OECD say about this Government’s economic policy in its most recent
2002 survey?
Hon Dr MICHAEL CULLEN: The OECD, which more precisely in this context is the bureaucracy in the OECD,
painted a positive fiscal picture and noted that our growth and innovation policy was in line with its growth work.
It certainly did advocate further privatisation, but that is not the policy of this Government. We do not receive our
policies on economics from the OECD, any more than our foreign policy is received from the State Department.
67
Dr Don Brash: Is the Prime Minister aware that the latest survey of New Zealand economic forecasters showed
a downward revision in their long-term forecasts for New Zealand’s economic growth, suggesting that the
profession has little faith in her Government’s pledge to lift long-term economic growth; if so, is that the reason
she has now abandoned her Government’s goal of lifting New Zealand’s performance into the top half of the
OECD within 10 years?
Hon Dr MICHAEL CULLEN: The latter is not a Government goal. In the case of the first part of the question, I
think that all economic forecasters are certainly lowering their short-term forecasts. I have to say that in a world
surrounded by uncertainty, following a drought, and with severe acute respiratory syndrome, economic growth
dropping in every other country, and an increase in the level of the New Zealand dollar, I would actually be on
the pessimistic side with regard to conditions for the next 6 months.
Cullen, Michael: Debate on Budget Policy Statement: 05-Mar-2003 - Volume:

Hon Dr MICHAEL CULLEN (Minister of Finance) : There is a wonderful Kiwi phrase: “Get a life!”, and that is
all I can say to that member. We are discussing a $40 billion-a-year Budget, the forecast for the next 3 years is
$120 billion - odd, and all he can do is fail to acknowledge a very simple fact that I told him yesterday—that is,
on 27 February 2002, in answer to an oral question from one of his own members—I think it might have been
him—I pointed out that there was no goal in terms of a specific date because of the advice we had had from
Treasury. So let us now pass on to some more important matters in life, because that was the speech of a dying
man—a man who has to take his shirt off in a crowd to get noticed.
This year’s Budget will be presented on—[Interruption] I say to Dr Lockwood Smith: “Please don’t take your shirt
off in front of me again. I still remember it from the mid-1980s!” This year’s Budget will be presented on 15 May.
It will be the fourth Budget that I have presented as Minister of Finance. The Budget will be presented within the
framework of higher living standards for all—which is what this debate is actually about, I say to Dr Lockwood
Smith—through growth and innovation. It is about supporting a productive and cohesive society. It is about
reducing crime and the impacts of crime. It is about investing for the future, and building infrastructure for New
Zealand. I congratulate the Finance and Expenditure Committee on the lucid nature of the report it presented on
the Budget Policy Statement. It incorporated a wide variety of views, and if one cared to read it I think one would
see that it was laid out in a way that led to some interesting thoughts about where New Zealand is going.
The forecast within the Budget Policy Statement shows a surplus for this year of some $2.5 billion—though it
seems now likely that that will be exceeded by the end of the year—and $3.8 billion for 2003-04. Those are very
substantial surpluses, even allowing for the transfers that have to be made into the New Zealand
Superannuation Fund over the coming 2 years. The Government is continuing to take a very cautious approach
about large ongoing expenditure or revenue reduction programmes that would affect that operating surplus. The
reasons for that should be clear to many. Firstly, and obviously, some economic slow-down in the rate of growth
is anticipated this year, as a result of international circumstances, the increase in the dollar, the drought we
have had on much of the East Coast, and a number of other factors. What is not clear is how much those
surpluses may reduce under those situations. Clearly, the Budget Policy Statement incorporates within its
forecast the assumption of a decline in the rate of growth over the coming year, but one of the things I have said
to this House on many occasions is that revenue continues to run well ahead of forecast, and that leads to some
concern and therefore some caution that, as economic growth slows, the slow-down in revenue could be higher
than is anticipated.
It is not desirable to spend surpluses before we are sure that they are structural and not simply cyclical. Both the
United States and the United Kingdom have made that fundamental mistake. Both countries are now reverting
to forecasts of long-term operating deficits—a situation that this country has taken many, many years to get out
of and one that we must not get back into because it is so hard to get out of. Plenty of people want to spend that
money in advance, not least most of the members of the National Party, who call for increased spending in
every area but for a reduction in the total. In the National Party, of course, the total is less than the sum of its
parts when it comes to fiscal provision.
68
The Government has a clear programme about how to expand economic growth and how to transform this
economy over time. It will take a long time to catch up to the top half of the OECD on economic measures,
though on many social measures we are already securely within the top half of the OECD. It is on the issues of
per capita gross domestic product (GDP) that we have fallen behind most obviously. The Government is
addressing issues of innovation, investment in research and development, the commercialisation of that
research and development, and the provision of venture capital funding. I expect to be making more
announcements over the coming year in terms of the tax issues surrounding some of those matters relating to
commercialisation of research and development.
We have a major reform programme in the area of tertiary education—the most significant reforms in tertiary
education for many, many decades. The fact that many people do not understand those changes well, does not
detract from the fact that they are enormously significant changes that are designed to shift the entire direction
of the tertiary education system over time. We are putting more resources into early childhood education, which
is crucial for addressing our real problem in education in New Zealand in terms of standards, which is our long
tail. We perform well in the middle, and we perform well at the top—we are in the top three or four of the OECD
in our achievements at those levels—but in the bottom areas we are worse than the bottom levels of many other
countries. That is not good enough, particularly because that tail tends to have brown faces rather than white.
So it is a social issue as much as an economic issue within New Zealand. We are addressing issues of
attracting investment by reforming the Government’s own agencies in that respect, and in the Budget I will begin
making announcements about how we are going to change the environment for savings. There is already before
the House legislation to assist infrastructure development in terms of roading.
The public has a right to ask what the alternative is. The alternative is not in fact New Zealand First. No—as I
said, three digits will become two by the time of the next election. The alternative is the blueprint—or the blue,
as we prefer to call it—put out by the National Party. It is a document with not a single target, not a single date,
and not a single detail about policy. It has nothing at all, except one clear statement: National is not going to
lower the company tax rate—which has been the central National Party policy for all the last 3½ years.
Suddenly it was denied. Unfortunately, National brought in a new person to go on the road to Damascus, and he
decided to have a revelation on the way, in that respect. What National has, of course, is a policy of reducing
the size of the Government, because we all know that countries with smaller Governments grow faster than
countries with bigger Governments. Does Dr Lockwood Smith not agree? He cannot answer that question, but it
was a pretty easy one—it was the first item of policy. If we look at the countries higher than us on the OECD,
almost every one, except about two, the United States and Australia, have bigger Governments as a percentage
of GDP than New Zealand does. They spend more on health, more on education, and far more on social
welfare than New Zealand does, and that is true of all the European countries that are above us on the OECD
tables. The evidence simply is not there.
National’s second policy is, of course, to reduce the burden of tax. But again, the fact is that our tax burden is
below the average of the OECD, and particularly below that of nearly all the countries above us in the OECD.
The countries that we have higher tax levels than, by and large, are the countries below us on the OECD
tables—such as Turkey and Mexico. The National Party’s models are Turkey and Mexico, and looking at them, I
can see why. It is always “tomorrow”, and it is always an early Christmas, as far as National is concerned. As
Ralph Waters, an Australian businessman, has pointed out, in Australia there are worse depreciation provisions,
there is a payroll tax, people have to pay for Medicare, there is a super tax, stamp duty, a capital gains tax, and
a land tax, none of which exists in the New Zealand tax system for companies. Then that National Party
document, in the most extraordinary statement I have seen for many years, states that National’s priority is to
lower the tax at the top end of the income system. It seems clear that if National could afford to do only one
thing in tax, it would lower the tax at the top end of the tax system, and do nothing for those at the bottom.
If we look at the reform programme of the last 20 years, what stands out? What stands out is the fact that this
country has seen the highest growth in inequality of any developed country. The bottom deciles all lost real
income between 1982 and 1998. The top decile gained 43 percent. If inequality is the engine of growth, we
should have been moving like an express train by the end of the 1990s. We were not. It is simply an excuse for
greed on the part of the National Party and its base support group. It has nothing to do with economic growth. It
is all about how they reward themselves and their mates. It is not about how to make an economy grow faster,
how to create a cohesive society, or how to create social capital, as Jim Bolger was once trying to create, within
69
this country. Then, to improve the education system, National is going to abolish zoning. I have just said that our
biggest problem is at the bottom end of the system—and very few primary schools have zoning. We have a fully
competitive system in the primary sector, where kids can move from school to school and do move from school
to school. Has that solved the problems of underachievement? No, it has not. Indeed, moving from school to
school too much is one of the causes of underachievement amongst New Zealanders, particularly low-income
New Zealanders, and it will continue. The National Party has no answers, no timetable, no solutions, and no
hope.
Hansard - Stage: DEBATE---GENERAL - 1 MAY 02 DEBATE---GENERAL

Main speaker - Hon. Dr MICHAEL CULLEN
DEBATE---GENERAL
Hon. Dr MICHAEL CULLEN (Treasurer): I move, That the House take note of miscellaneous business. A
week ago we thought we knew what the National Party's strategy was. It was to be led by the man who, if we
look at today's Evening Post, is clearly National's answer to mad Mike Tyson, and is trying to crawl back
towards the centre ground in politics. So he had the strategy of chucking out those in their 50s who are past
their use-by date, and bringing in young, rejuvenated, new faces to the National Party. Then we had the
announcement of policies that were no policy---a set of firm positions grounded in marshmallow. That was
summed up in ``life for a life'', which was actually for only two people a year, and not for everybody else who
might be involved.
This great strategy of regaining the centre, which Mrs Shipley so dramatically abandoned in the late 1990s,
was blown out of the water when the hastily departed Governor of the Reserve Bank announced that he would
be a National Party list candidate, rising to great heights---something he could not achieve as the candidate for
East Coast Bays in 1980, when he managed to get beaten by Gary Knapp. Being beaten by Gary Knapp is a
very low form of existence, indeed, I would have to say.
We had the announcement by Michelle Boag---the leather-trousered, front-zipped leader of the National Party,
outside Parliament---that this was the new aspect of rejuvenation of the National Party. The newest, freshest,
young face of the National Party's front bench, since Georgina Te Heuheu washed up there by some mistake, 3
or 4 years ago.
Dr Wayne Mapp greeted this new, huge, intellectual grunt to be added to the National Party. For a party,
which has been summarised in the person of Gerry Brownlee, so far, as all grunt and no intellect, I can
understand why he might say that. But from Dr Mapp, who thought that the late Queen Mum was married to
Edward VII, as evidenced in a newsletter that he put out to his constituents, this is possibly not a very high
accolade.
The most shocked person was David Carter, a man who looked forward to the shortest stay on the front
bench since Bob Simcock---and that was a fair sort of record for the National Party. The most worried person
was Bill English, because very quickly the Michelle Boag public relations machine started to go into overdrive,
spreading the story that Mr Brash was not just going to be the National Party spokesperson on finance after the
election, but he was being lined up for the big job. When Mr English was forced to fall on his gloves after the
election, Dr Brash was going to take over as leader of the National Party.
The real issue that the National Party now faces is to present its policy. Mr Prebble says that Dr Brash is more
an ACT person than a National person, and I think that is probably right---pretty far right one would have to say.
Dr Brash believes in more user-pays in health. Is that now the National Party's policy, more user-pays in health?
Dr Brash believes in slashing Government spending. Is that National Party policy---
Hon. Ken Shirley: Yes.
Hon. Dr MICHAEL CULLEN: ``Yes'', says Mr Shirley, that is Dr Brash's position. Dr Brash believes in
abolishing the minimum wage. Now, for a man who can earn $95,000 a year as a National Party list member,
and take an 80 percent pay cut to do that, it seems a bit rich to start talking about abolishing the minimum wage,
70
but Dr Brash has talked about that. He believes in a capital gains tax and a tax on housing. Dr Brash has always
been a firm supporter of a capital gains tax. Is that now National Party policy?
Is the National Party perhaps having some regrets about a brash little number being brought in in this fashion?
He believes in abolishing the unemployment benefit.
Hon. KEN SHIRLEY: Yes.
Hon. Dr MICHAEL CULLEN: And ``Yes'' says Mr Shirley, ``That's our policy too.'' At least we have
confirmation that it is ACT's policy to abolish the unemployment benefit, have a capital gains tax, abolish the
minimum wage, slash Government spending, and introduce more-user pays for health. Meanwhile, Mr Brownlee
reads the newspaper desperately, and is not sure whether it is upside down.
Finally, Dr Brash believes in no incentives for savings and the introduction of a mandatory savings regime, as
promoted by Mr Peters, and, indeed, Sir Roger Douglas. The two of them agree on that particular point, and,
again, the National Party has to decide whether that is its policy.
Dr Brash, I think, will be a great asset to Parliament, but an even greater asset to the Labour Party, and we
look forward to those debates in the future.
Hansard - Stage: IN COMMITTEE - 18 NOV 1998 TAXATION (TAX CREDITS, TRADING

STOCK, AND OTHER REMEDIAL MATTERS) BILL : In Committee
Hon. Dr MICHAEL CULLEN (Deputy Leader---NZ Labour): I am still trying to work out which clauses remain in
the Bill.
Rodney Hide: It doesn't matter.
Hon. Dr MICHAEL CULLEN: It does. It does not matter to ACT what clauses we pass, because it is getting
late at night and its consultancies are wrapped up for the evening, so why bother! It is time to go home, as far as
ACT is concerned. However, for the rest of us this is our main business. For most of us this is our main job, so
we will carry on here until 10 o'clock looking at the legislation. We cannot write off other things against our
parliamentary income.
Hon. Jim Sutton: 3A.
Hon. Dr MICHAEL CULLEN: ---3A is still there. Clauses 19 to 21---because 16, 17, and 18 all went various
ways. Clauses 24, 26B, 26C---we are meant to have those in, are we? Then we have 31. I just check that
clause 31 should be in the Bill? Clause 32.
Mark Peck: Probably should not have been.
Hon. Dr MICHAEL CULLEN: I am not sure about that. I think clauses 31 and 32 should be.
Mark Peck: It is still there.
Hon. Dr MICHAEL CULLEN: Is the member sure that clause 32 should be in the Bill---absolutely certain? Yes.
Clause 32 should still be in the Bill---parts of 33, and we have 34, is it, in there? Most of that is very much
technical legislation and very much minor, technical changes and tidying up in the legislation, rather than
anything of any great specific relevance.
The main thing that is left in, in terms of significance is, in fact, clause 4. That is the clause relating to colour of
right. This is the clause that basically says that if one has nicked it, one will still pay tax on it---to put it as crudely
as I can: ``CD 6... (1) The gross income of a person is deemed to include an amount equal to the market value
of property the possession or control of which that person obtained without colour of right.'' The Minister might
care to correct me on this, but does that mean that if the person retains that property without colour of right for a
second year, and there is a capital appreciation on the property, in fact a capital gains tax is payable on that
property, as a consequence?
71
Hon. David Carter: Oh, yes!
Hon. Dr MICHAEL CULLEN: Is it correct that we are introducing in this legislation under clause 4 a new
capital gains tax applying to criminals?
Hon. David Carter: No.
Hon. Jim Sutton: If it goes down in value?
Hon. Dr MICHAEL CULLEN: If it goes down in value, is it possible to make it tax deductible because there has
been a loss of value? Let us read it carefully: ``The gross income... is deemed to include an amount equal to the
market value of property the possession or control of which that person obtained without colour of right.'' Or
does one get taxed each year simply on the market value of the property? One would get taxed one year, the
next, and the next on the full market value of that property? Is this an attempt to sort of tax criminals out of
existence?
The really interesting thing is that when the veto was applied on Mr Peck's amendments we were told that the
fiscal impact of delaying this particular provision for one year was $25 million, which is quite a large sum of
money. This Government expects to collect some $25 million of tax revenue from, basically, stolen property in
the possession of people who should not have that stolen property.
The average crim, presumably, will not be paying at the 33c rate. I think we tend to assume that while they
may have a high income they are able to disguise most of it. Probably their taxable income is down under the
$38,000 mark so let us assume that the amount of tax rate is probably rather the 21c level than the 33c level.
That suggests that the Government is estimating that something over $100 million of this property will be
declared.
I want to know what kind of market research was undertaken by the Inland Revenue Department to establish
that there will be the willing declaration of $100 million of property held without colour of right by people who
should not have it. Did officers of the Inland Revenue Department go out and ring people up and say: ``Hello, I
am your friendly tax person and I am here to find out what you have in the house that you should not have
because you do not own it; and could you please tell us what the market value is because we are trying to work
out what we will tax you for it.''?
I would love to know where that figure of $25 million came from. It had a certain air of precision about it. It
might sound like a round number, 25, but because it is a taxation matter, it is quite a precise number. One
cannot derive that from something other than quite a concise number, somewhere at the other end, in terms of
the estimation of the marginal tax rate and therefore the total value of the property that has been held.
Also, members will want to know---perhaps some members more than others---whether any of this information
is still covered under general tax laws. In other words, the Inland Revenue Department of course cannot make
this information available to other people, either for a fee, or free.
Hansard - Stage: REPORT OF SELECT COMMITTEE - 29 SEP 1998 TAXATION

(SIMPLIFICATION AND OTHER REMEDIAL MATTERS) BILL : Consideration of Report of
Finance and Expenditure Committee
Hon. Dr MICHAEL CULLEN (Deputy Leader---NZ Labour): All I can say to Mr Ryall about that is: ``Madam, it
will not do to say it is just a little one.'' It certainly is a capital gains tax, and we will come back to that issue.
Hon. Tony Ryall: This is not.
Hon. Dr MICHAEL CULLEN: Oh, come, come. We will come back to that issue in a little while. First of all, I
congratulate the chair of the select committee on his elevation to the ministry. He is continuing a strong tradition
for the Finance and Expenditure Committee in recent years whereby the committee is a kind of railway station
for National Party members on the way to the executive. We saw Mr Ryall, Mr Simich, and Mr Carter moving on.
72
There is an unkind rumour that it was a typographical error and it was supposed to be John Carter who was put
into the ministry, not David Carter, but that could not be changed thereafter.
We are now in a somewhat odd situation where a member of the executive is chairing the Finance and
Expenditure Committee. I think that it is incumbent upon the Government to bring that situation to an end within
the very near future. There is no question that Belinda Vernon is panting at the leash waiting to be elevated to
the chair of the select committee in the hope that it may, in the next reshuffle during the next few weeks, move
her on into the executive in a last desperate attempt to save the Government.
Today we are going to take quite a long time to support the Government on the passage of the Taxation
(Simplification and Other Remedial Matters) Bill. That is because we are here to help. We are here to help the
Government. We know that it is not safe for Government members to go back to their electorate offices this
weekend. It is not safe for them to go back and face the wrath of the elderly and various others. We learnt only
today that National has got the thumbs down over its handling of the economy. Confidence in their handling of
economic problems is now 39 percent confident and 57 percent not confident. So even on what used to be their
one strong point, they are in deep trouble.
We think it is better that they should stay here today, working through the details of taxation legislation, rather
than risking life and limb back in their electorates. We think also that perhaps we should keep them here
tomorrow, Saturday, as well, in the hope that most of their constituents are true Sabbatarians and will not bother
them on Sundays. They can get a weekend off if we keep them here right the way through Saturday. As I was
saying, even in Opposition we are here to help. When we are in Government we will be here to help even more.
When we move on to the Bill itself, as Mr Ryall rightly said, the main part of the Bill is to simplify the tax
system, extending the non-filing threshold, and taking, hopefully, 1.2 million wage and salary earners out of
having to file an IR5 tax return. We support that, but we think it is pretty important not to get too carried away
about the benefits of this measure.
I think a couple of things need to be said about it. Firstly, there will be quite a significant number of people who
will still have to file returns of some form or another. Probably just about every member of this House will find
themselves still having to file a return in some form or another for a variety of reasons. Second, I think it is very
important not to confuse the reduction in costs to the Inland Revenue Department---which is another way of
saying a rather large number of job losses in the department---with the full reduction in compliance costs,
because the effect of the change is to shift some of those administrative costs from the Inland Revenue
Department on to the private sector.
There is no question that employers will have somewhat more requirements under this legislation than they
have at present. The nature of the electronic filing of monthly returns that are required will place some further
burdens upon many employers and will imply some increase in compliance costs for employers. The hope
obviously is that that is more than offset by the cost to the Inland Revenue Department, and in essence the
country is the net gainer out of that.
It is a process that has been going on for some years, of shifting governmental costs on to the private sector
and therefore pretending that we reduce State spending. What we have really done is to privatise State
spending. As far as the employer is concerned, the employer is still bearing the burdens of those costs whether
he or she was paying them by way of taxation or paying them by way of compliance costs to meet the
Government's requirements in that respect. Also in that light it would be helpful if the Government could
consider ways in which further simplification could occur in respect of those returns, in relation, say, to the
number of other Government payments due to the Government from employers---levies of various sorts---and
whether that could be coordinated with those monthly returns to try to simplify the process considerably and to
reduce those compliance costs.
Much of the so-called compliance cost reduction that has occurred in the last few years at the Inland Revenue
Department has been very, very much an increase in compliance costs for the private sector. This Bill tends to
continue that trend. On balance, it is a net gain, but we should not get carried away with what is claimed about
it.
Further than that, my understanding is that Mr Hide may move an amendment---
73
Trevor Mallard: He's gone overseas.
Hon. Dr MICHAEL CULLEN: He has gone overseas?
Trevor Mallard: He's coming back from Paris specially.
Hon. Dr MICHAEL CULLEN: Somebody in that sort of strange collection may not be doing their consultancies
today, since it is Friday and may be able to move the amendments that Mr Hide talked about, which were to
require a statement---
Hon. Richard Prebble: It's Tuesday.
Hon. Dr MICHAEL CULLEN: It is Tuesday for Mr Prebble and inside this House, but I have to tell him that for
the 95 percent-plus population that does not vote for ACT, it is Friday, 2 October. My understanding is that ACT
may be moving an amendment to require a statement to be issued to all income tax payers. If that is so, the
Labour Opposition will not support that amendment. That amendment would ruin a very large part of the
purpose of this legislation and substantially increase the compliance costs again back in the system with no net
gain at all. Every taxpayer has the right to ask for a statement from the Inland Revenue Department, but it
seems pretty pointless to send statements out that merely confirm that the right amount of tax has been paid.
In relation to the way the system is now structured under this Bill, in the great majority of cases the right
amount of tax should have been paid because of the way that the monthly returns will be occurring, and also
some other changes in respect of resident withholding tax, and so on, which should lead to much fewer overs
and unders in terms of taxation that has been paid at source. We do not see any point in destroying the
efficiency of the gains being made in this Bill by hundreds of thousands of rather useless bits of paper being
sent out to taxpayers at considerable cost to the Government and, therefore, at the end of the day a cost to
those taxpayers themselves.
The other question I have---and the one doubt that I have about this change---is the question of timing. The
reason we are doing this Bill under urgency is that the complexity of the changes administratively, particularly at
the employer level with small employers, requires a long lead time. The Inland Revenue Department is very
eager to get this Bill through this week to give it a long lead time into 1 April next year. The department is
concerned that if the Bill is not passed this week and we go past the adjournment into November, then that may
provide quite a squeeze on the timetable.
Trevor Mallard: With an election?
Hon. Dr MICHAEL CULLEN: No, it is nothing to do with an election. The Inland Revenue Department does not
worry about elections. It is slightly more worried about it than Treasury, which, of course, takes no notice of
elections at all. Treasury has exactly the same policy whatever the result of the election.
Trevor Mallard: No, I mean the timing factor if Parliament is prorogued.
Hon. Dr MICHAEL CULLEN: There is a possibility of proroguing so the Bill does not get through, and therefore
we run into next year for its passage. But I think that the Inland Revenue Department is not quite looking at it in
that way. It believes that if the Bill is not through until November that gives the department a pretty short time,
particularly if it squeezes up the pre-Christmas period for the distribution of information.
I have to raise one question with regard to that---that is, whether 1 April next year is the best date to make this
change. Given that the new system will be very heavily electronically computer-based, then it would seem that
there may be some doubt as to whether doing this during 1999 is a wise move, when there is a risk of systems
falling over on 1 January 2000. It might have been better to consider doing this on 1 April 2000, when we have
passed the Y2K sort of cut-off date and problem date and if we knew that that system would not fall over,
including, of course, the Inland Revenue Department's own system---but much more likely, on all research, the
system of medium-sized employers that seems to be the most vulnerable by and large to Y2K problems. We
can but hope that that will not be the case.
I now come to the ``GIF'' matter---the tax treatment of group investment funds. What this Bill provides for is
quite simple---it extends the capital gains tax, which at present applies to some funds, to other funds, and
74
basically we capture the passive funds by means of this legislation. Labour has no objection to that at all. It does
not make sense to have the structuring of investment funds determined by tax considerations by having some---
Hon. Richard Prebble: What's the member going to do---is he voting for it?
Hon. Dr MICHAEL CULLEN: I said that we would vote for that. If the member sort of cleaned things out a bit
he would know that I said that we would support that measure. We support consistent tax law that has evenness
across the board and does not apply different tax rules to some forms of investment from those applied to other
forms of investment. Mr Prebble used to believe that we should not actually drive investment decisions by
taxation. At the moment we are driving investment decisions by taxation. There has been a considerable
movement into investment funds that are untaxed and out of investment funds that are taxed---and naturally
enough, a human reaction to a possibility that has been opened up. We support that change. It makes sense.
But it is a capital gains tax.
Hansard - Stage: IN COMMITTEE - 29 SEP 1998 TAXATION (SIMPLIFICATION AND

OTHER REMEDIAL MATTERS) BILL : In Committee
Hon. Dr MICHAEL CULLEN (Deputy Leader---NZ Labour): I assume that the vote on Part 2 will be a
confidence vote because it involves some major taxation measures, including a new capital gains tax. It will
therefore be interesting to see how the ACT party votes in relation to this measure since it is the only party that
actually opposed clause 47 in the select committee. We will await with some interest what happens. We then
might have a repeat of what happened---a stunning repeat, possibly---before in relation to Part 1.
Part 2 incorporates a number of technical measures and a range of issues in terms of amendments to the
Income Tax Act. I want to light upon just two issues in this first speech. Firstly, clause 68 changes from 1 April
2000 the rate of tax that applies when people do not return their tax number for the purpose of taxation of their
interest payments. I say this because I am one of those people who will be affected by this change. In the past I
have not returned my tax number as a means of ensuring that I am taxed at 33c in the dollar on income that
ought to be taxed at 33c in the dollar. It has been a simple way of ensuring that there are no underpayments
during the year. In future, people will be taxed at 33c in the dollar if that is the appropriate marginal rate. If they
do not return their tax number, from 1 April 2000 they will be subject to a 45c in the dollar rate, which in effect
will, of course, mean a penalty, and an overpayment will occur as a consequence.
That is done deliberately because with the change in the income tax system that will come into force, we are
now trying to avoid the kinds of unders and overs that accumulated previously. We are trying to ensure that
taxation will occur at the correct marginal rate in respect of interest income.
The other clause of major interest in Part 2 is clause 47. Clause 47 is one of those wonderfully innocuous little
clauses that one gets in tax Bills that one cannot possibly understand unless one goes back to the principal Act.
It simply reads: `Ìn section HE 2 (3), in the definition of `designated sources',---(a) at the end of paragraph (a),
`; or' is replaced by `:'. (b) Paragraph (b) is repealed. (2) Subsection (1) applies on and after 1 April 1999.'' While
reading that somebody might think: ``Well, it all goes and a buyer comes in. Who worries about that? Something
disappears.'' It actually means that the taxation of group investment funds is significantly changed so that
passive investment funds will now be subject to taxation.
The existing tax law provides that passive investment funds are not taxed, but active investment funds are.
That has been a wonderful loophole to be exploited by the industry. The definition of passive investment fund is
one that can be applied quite broadly and, indeed, involves a great deal of activity, but activity, so to speak, at
arm's length in most cases. It does not require direct activity. The result has been that certain forms of income
have been subject to tax; related and very similar forms of income have not been related to tax. It could almost
get to the absurdity that if one decided deliberately to do certain things, that was subject to tax, but if one
decided not deliberately to do the same thing, then it was not subject to tax.
It is a capital gains tax. The Government has been trying to sort of dance on the head of a pin in this respect.
But the truth of the matter is that what is being taxed here is the capital gain on an investment fund.
75
That whole area of taxation law is really a matter of the definition of the boundary between income and capital.
The trend over many years now, particularly during the 1990s since the change of Government in 1990, has
been to redefine capital income as, in effect, ordinary income for taxation purposes. Therefore a creeping
process of capital gains tax has been introduced across some very broad forms of income.
The problem the Government has, for all its jumping up and down and dancing around, is that the more this is
done, the more it creates further anomalies in that some forms of capital income remain untaxed in that regard.
The question that I think has to be faced sooner or later is whether we have this creeping process, or whether
there is in fact some rational process to be applied in terms of taxation in this respect. There is little doubt that
we are still getting investment decisions driven by taxation as opposed to investment decisions driven by best
return. In the end, it is the latter that ought to be the determination, not the former.
Hansard - Stage: IN COMMITTEE - 29 SEP 1998 TAXATION (SIMPLIFICATION AND

OTHER REMEDIAL MATTERS) BILL : In Committee
Part 7. Amendment to Social Security Act 1964
Hon. Dr MICHAEL CULLEN (Deputy Leader---NZ Labour): I do not want to take a large amount of time of the
Committee. I have not had the chance to read the original section 82A, which I assume also relates to the duty
to provide tax file numbers in some form or another.
I want to raise a question of English. I am sorry to be a bit picky about this, but I often am picky when we get
to these stages of a Bill. In more recent times we have been trying to write legislation in what is called ``plain
English''---whatever that actually is---and we often seem to end up still writing a rather convoluted form of
English, or an English that is not the way it is usually spoken, which is what I understand plain English to be.
If we look at section 82A(1) in clause 82, we see that ``Director-General'' is crossed out, because there is no
such person any longer. The section states: ``The chief executive of the department for the time being
responsible for the administration of the Social Security Act 1964...'', which shows just how terribly, terribly
muddled we have now got in our administration of legislation. We cannot say ``Director-General of Social
Welfare'' any longer. We have this strange person, the chief executive, for the time being appointed to carry out
one of the most important Acts of Parliament.
Section 82A(1) continues: ``...may in writing request an applicant for a benefit or a beneficiary to provide
evidence, ...''. I want to read that again. I do not think that that is the way that almost any of us would write that
sentence if we were to start afresh: ``The chief executive''---cut out all the rest of it---``may in writing request an
applicant for a benefit or a beneficiary to provide evidence,...''.
We would normally say: ``... may in writing request that an applicant for a benefit or a beneficiary provide
evidence,..'. That is the way we would normally say it: ``.. may request that an applicant for a benefit or a
beneficiary provide evidence,...'', rather than the somewhat stranger construction that is in the Bill.
I accept my full responsibility for not having raised this point earlier. During the select committee we were so
taken with the idea of a special capital gains tax being provided on passive investment funds, and carried away
with the thought of income tax returns, IR5s, and all the rest of it, that some of those smaller matters slipped by
us at that stage. One of the advantages of having a very long Tuesday---stretching now for some 72 hours or
more---is that one can sometimes get the time in to do a good day's work, so to speak. It has been a good day's
work this Tuesday, but we can take the time to look at these kinds of matters and get them right.
I just gently suggest to the drafters and to the department that in future they might look at those sorts of
sentences. Perhaps they could just read them through and think very carefully: `Ìf I were writing that, is that the
way I would normally write it?''. I think probably in this case it is not the way one would normally write that
particular sentence. It is a more stilted construction to put it in the way it is, rather than the more free-flowing
construction ``... may request that an applicant for a benefit or a beneficiary provide evidence to the satisfaction
of the chief executive of the tax file number of the applicant or beneficiary''.
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I fully support this provision. No doubt some people might want to make this case into some kind of draconian
provision requiring people to provide their tax file numbers. Indeed, I confess to being one of the last
unliberated, non - politically correct, non - entirely human rights persons around the place who actually believe
that the tax file number should be the same as the income support or social security number that is being used.
I do not see this as an example of takeover by some Communist, Quaker, Puritan, Catholic, Jewish, Japanese
global conspiracy to impose world Government upon us, as about one-quarter of the somewhat stranger part of
the population who are on the Internet seem to on these sorts of matters. It just seems to me that it would be
very much easier if we had a single number for these purposes.
The very time that issue comes up we go into paroxysms in this country as though it will lead to some kind of
strange Communist, or some other form of takeover of our nationhood. We will all be requiring Viagara even to
wake up in the morning, and our entire national life will disintegrate as a consequence.
Hansard - Stage: SECOND READING - 23 JUN 1998 TAXATION (SIMPLIFICATION AND

OTHER REMEDIAL MATTERS) BILL : Second Reading
Hon. Dr MICHAEL CULLEN (Deputy Leader---NZ Labour): I have to say that I do not think that last point will
go down that brilliantly with the public. The notion that we are determining by this Bill that MPs are subject to
PAYE merely raises questions in people's minds as to whether we have not been subject to it so far, and, of
course, we have been. There is some legal doubt about that situation having arisen so, generously, in setting
aside all personal and private interests, we have decided that we should be subject to PAYE. I do not think that
the average person will see this as a huge sacrifice on our part. This of itself will not be sufficient to re-elect the
Government.
I also want to thank the Minister of Revenue for giving me an informal briefing over the telephone, at a point
where the telephones were not working by and large and his seemed to be, which I thought was rather
interesting. But I suppose that if nobody else's telephone was working and Mr Birch's was, that somehow sums
up a good deal about this Government.
I was somewhat surprised when I got back from Auckland late this afternoon to find that I would be speaking
on this Bill at 7.30 tonight, instead of sometime tomorrow morning, because poor old Mr Creech had, yet again,
sort of dropped the ball on the way. He is a kind of one-man English rugby team, all by himself. But never mind
about that.
We will be supporting this Bill, and we have one or two concerns that we want to explore through the select
committee.
Although I welcome the changes in respect of the IR5 returns, and accept that there will be a very significant
reduction in the number of returns, two things need to be said about that. The first concern is that this will not
have a great impact on all those people who are affected by various forms of family assistance measures---such
as, family support, the independent family tax credit, and so on. They will still need to make some form of
modified IR5 return. Possibly the publicity that came out a couple of days ago gave the impression to rather
more people than is the case that they will not be required to make some kind of return at the end of the tax
year.
The second concern we will want to explore very closely with the officials is the suggestion that while there is
a simplification for the ordinary taxpayer, which, after all, for most of us is a once-a-year event if we are not
provisional taxpayers, this change may lead to increased complexity for a number of businesses that are having
to make more frequent returns. It would not be a very effective swap, in terms of compliance costs, if we reduce
the cost to the Inland Revenue Department, but increase the compliance costs on business correspondingly. At
the end of the day, I cannot see that there is any great net gain to the economy out of that. I think we will want to
explore very carefully the issue of making sure that any increased requirements of business do not offset the
economic effects of a reduction in compliance costs for the individual taxpayer. We would want to work through
the details of that with some degree of care.
77
There are a number of other matters in the Bill of some significance and interest, some of which do not need
to detain us for too great a period. There are a range of amendments to the Income Tax Act and perhaps that
shows that some tax legislation is extraordinarily difficult to follow. Clause 47---I think I have the right one and
the Minister can correct me if I have it wrong---states: ``Group investment funds---(1) In section HE 2(3), in the
definition of `designated sources'---(a) At the end of paragraph (a), `; or' is replaced by `:'. (b) Paragraph (b) is
repealed. (2) Subsection (1) applies on and after 1 April 1999.'' That is actually a new form of capital gains tax.
One would be pretty hard put, when reading ``; or'' is replaced by ``:'' and paragraph (b) is repealed'', to work out
that what is involved is a new form of capital gains tax. Due to the change whereby investment by
superannuation funds is no longer subject to trust taxation, that is included in the Bill.
What has happened here is that the ability to use trust taxation for superannuation funds has created the
opportunity for a measure of tax avoidance by superannuation funds, in respect of the capital gains within the
fund. What the Minister of Revenue is rightly doing, in my view, by dipping his toe yet again into waters that the
National Party always says it does not swim in, is indicating that the Government will ensure that that little
loophole is closed and that the capital gains tax, which is the tax on investments by superannuation funds, is
applied.
I am always amused whenever the term ``capital gains tax'' is mentioned and there is a sort of vast gasp from
every member of the National Party, because every year that this National Government or coalition Government
has been in power, some new capital gains tax has been introduced.
Government Members: Don't believe that.
Hon. Dr MICHAEL CULLEN: Every year, some new capital gains tax has been introduced. The reason for
replacing ``; or'' with ``:'' in section HE 2(3) of the Income Tax Act, and repealing paragraph (b), is to introduce
another little capital gains tax. But Mr Birch, no doubt, always says in confession that it is only a little capital
gains tax, and therefore does not class as a very large sin, and the penance should not be too great in that
regard. But one notes that, somewhat tongue-in-cheek at the very least.
The other matter I want to come to was raised by my colleague in relation to new section 82A in clause 22. I
think we will want to give a lot of thought to that section and also the associated sections that relate to the
exchange of information between the Department of Social Welfare and the Inland Revenue Department. What
is occurring here in clause 22 is that the Bill is providing the facility for increased exchange of information
between the Department of Social Welfare and the Inland Revenue Department to ensure that beneficiaries are
able to provide correct tax file numbers so as to avoid the cessation of benefit payments. I agree with that. I
think that is good. I have never had the extreme nervousness about the exchange of information that some
people do. I have always had some difficulty following the somewhat, in my view, rather extreme civil liberties
arguments that suggest that exchanging information between Government departments is some sort of neo-
Soviet or Nazi-style activity. In my view, that is not so, as long as there are strict controls on what the exchange
of information is.
But when we get to new section 82A we see that it becomes pretty heavy if things do not work properly. I
understand what the Government is trying to do. The Government is trying to avoid a situation, which no doubt
occurs, where beneficiaries manage to avoid submitting their tax file number, and therefore manage to avoid
any checking up in terms of their eligibility for benefits, and therefore, in fact, are rorting the system. They are
managing to access benefits that they otherwise are not entitled to.
I might say in passing to the Minister that one area I think he will have to look at very soon is family trusts.
There is no question that family trusts are increasingly being used as a means of avoiding the income tests in
the social security system. In other words, they are being used as a means of rorting the social security system.
They are particularly bad because they are essentially a mechanism for the better off. What is happening
through the use of family trusts, in this respect, is that better-off people are able to access benefits, whereas
people on very modest incomes find themselves denied benefits because of other income that they may have. I
say to the Government, much as it may not like it because of perhaps its own constituency, that it will have to
address that issue sooner or later, because it is patently unfair to the kinds of people that we on this side of the
House certainly represent.
78
We find that the director-general really has no great discretion under new Section 82A, in that the director-
general will refuse benefits if a tax file number is not available, but it does not apply to a beneficiary who is
unable to provide satisfactory evidence within the time specified because of sickness, injury, or disability, I
simply say that we will have to make sure that there is a capacity for discretion in this regard. We all know there
is a whole group of people who will rort the system, given the opportunity. This is clearly one way in which the
system can be rorted. But there are also a lot of other people who are confused, who have difficulty with
administrative systems, who have difficulty with forms, and who, in some cases, are very suspicious of
Government agencies. Indeed, part of the reason that they are on a benefit may be because they are of the
nature of a person who is rather suspicious of almost any agency or other person. Those people may be in a
position where they will not file a tax file number. They will not reveal the information and we have to be very
careful before we cut off their benefits.
One of the reasons for making this change is that it is clear, but if we are not careful in these areas it can lead
to untoward consequences in other areas, which will end up being a cost to society and a cost to Government.
We have seen an awful lot of that over recent years, not just the last 8 years but going much further back in
terms of matters affecting those with mental disabilities who have inadequate community care and follow-up
support.
I simply say to the Minister that I think we ought to treat this area with some degree of caution before we
finalise the legislation.
Hansard - Stage: REPORT OF SELECT COMMITTEE - 19 JUN 1996 TAXATION (REMEDIAL

PROVISIONS) BILL---S.O.P. 199 : Referral to Finance and Expenditure Committee
Hon. Dr MICHAEL CULLEN (St Kilda): The Opposition supports the referral of this supplementary order
paper, and I look forward with great pleasure as Government members yet again try to explain how it is not
another form of capital gains tax.
Motion agreed to.
Hansard - Stage: SECOND READING - 16 MAR 1993 APPROPRIATION (FINANCIAL

REVIEW) BILL : Second Reading
Hon. Dr MICHAEL CULLEN (St. Kilda): It is just as well that the Minister's time was up at that point. One
expected the member for North Shore and the member for Tarawera to come in to launch a furious attack upon
their Minister of Finance.
The Minister's speech was quite extraordinary. We heard a pretty quotation from PDL Holdings Ltd---a firm
that is headed by a man who is so manically Tory that he funded the NewLabour Party to attack the Labour
Party. He was so obsessed with attacking the Labour Party that he funded the member for Sydenham to
undermine the Labour Party in Christchurch and elsewhere.
The other quotation was from an OECD report, which was prepared not merely in conjunction with Treasury
officials but by Treasury officials who were seconded to the OECD for that purpose. They were the prime
advisers on the presentation and preparation of the report. Lo and behold, the report concludes that Treasury
has done a good job! Would to God that we could all be our own judge and jury, as Treasury tends to be when it
comes to the OECD biennial report!
We heard from the Minister that price policy had been a success in the period under review. During that period
the Reserve Bank continued to overshoot on monetary policy. Instead of the inflation rate being 3.5 percent, as
79
it was meant to be, there was a 1.5 percent inflation rate. That overshooting cost thousands upon thousands of
jobs. Overshooting on monetary policy is just as serious as undershooting on monetary policy in terms of
targets. That would not happen under a Labour Government.
We also heard of the Minister's fiscal policy success. Has she forgotten the Budget that she presented---the
Budget that projected a deficit of $1.7 billion for 1991-92, of $600 billion for the next year, and of zero for the
year that is coming up? The outcomes have been a deficit of $2.7 billion, not $1.7 billion; of $3.2 billion, not $0.6
billion; and, probably, of $2.6 billion, not zero. That is the truth of the Minister's fiscal policy success.
Her export success is already turning dry upon her. The fact of the matter is that export volume growth has
now ceased. I do not think that Government members realise that. They should read the latest trade figures.
Export volume growth ceased at about the middle of 1992, and has not risen since then. What we had instead
was the usual attempt by the Minister of Finance to capture what the previous Government did and to claim
responsibility for it. The Public Finance Act 1989 and the State Sector Act have lead to better prediction and
control of Government spending, and to a number of other matters such as monetary policy and the Reserve
Bank of New Zealand Act.
Let us just remember which year we are talking about---the fiscal year 1991-92. What did that year begin
with? There was not a phrase in the Minister's speech that one might have expected to hear. What happened to
the ``mother of all Budgets''? That year started with the ``mother of all Budgets''---the July 1991 Budget that
ended in fiscal humiliation. In between was the most awful series of back-downs, U-turns, and incompetence
ever seen in any single year from a modern New Zealand Government. [Interruption.]
The year began with a promise that gave joy to the member for Hawke's Bay, who was trying to work out how
to swim back on board the ship even as early as that. The year began with a promise that the Budget would be
spine-tingling, and ended with a Government that was all tingle and no spine. That was the year that the
Government introduced hospital part-charges, which arose out of the 1991 Budget; the year that the
Government scrapped overnight the area health boards, which was an absolute contradiction of the National
Party's pre-election policy; and the year that the Government kept the surcharge, which was an absolute breach
of the promise that was made by the member for Hawke's Bay in direct mail to his constituents, of which I
happen to have a copy.
That was the year that the Government even made a liar out of Sir James Barnes, one of my predecessors in
the St. Kilda electorate, who was persuaded to sign and to send out a direct-mail letter promising to abolish the
surcharge. At the age of 80-odd years, for the first time in his life he was turned into a liar, and that was done by
the Minister of Finance.
That was the year that the Government introduced nine new taxes and increased a number of other taxes.
That was the year of failed performance, of broken promises, and of failing boastfully. Remember the ``mother
of all Budgets'' of 1991? That Budget was so modest. Remember what it stated? I quote from Hansard, Volume
517, at page 3255: `Ìt takes bold measures to change history. Tonight, we are producing a bold Budget.''. She
went on to say---
Michael Laws: Give us the Labour Party's policy.
Hon. Dr MICHAEL CULLEN: The member for Hawke's Bay, who is desperately still trying to swim back to the
ship, asks for the Labour Party's policy. To provide it would be out of order, because members are discussing
the Government's financial performance for 1991-92.
Let me give him one Labour Party policy. The Labour Party will not lie to the people about the surcharge,
about a cost of living increase for pensioners, about taxation, or about abolishing student fees, and it will not lie
to the people as a matter of course. Only those National Party candidates who lost in 1990 did that.
I cannot accuse any of the National Party members who won seats of lying. I can certainly say that a
remarkable number of National Party members forged a remarkable number of National Party signatures on a
remarkable number of direct-mail letters that promised to repeal the surcharge, that promised a guaranteed cost
of living increase, that promised to abolish student fees, that promised not to increase taxes, that promised to
halve unemployment, that promised to keep area health boards, and that promised to consult the people.
80
The spine-tingling ``mother of all Budgets'' of July 1991 broke every one of those promises.
Ian Peters: Why the change of heart?
Hon. Dr MICHAEL CULLEN: The member for Tongariro should remember that he is supposed to be
supporting his brother in attacking that Budget, not supporting the Minister of Finance by supporting what was
included within it.
What did that Budget actually state on Budget night? It stated: ``Tonight's announcements demonstrate our
resolve to control, reduce and eliminate the budget deficit over 3 years.''. By 10 December 1991 the Dominion
newspaper was running the headline: ``Budget target dumped''. That was the year of fiscal failure. The deficit
exploded from $1.27 billion to $2.6 billion by the end of the year.
Of course, the position was worse than that. According to that document---the financial statement that is the
actual subject of the debate, which was not referred to at all by the Minister of Finance---the operating balance
that New Zealand ran that financial year was minus $5186 million. That meant that the net worth of the Crown---
the net worth of the Government---was $5186 million less at the end of the year than it had been at the
beginning of the year.
At that time New Zealand had reached the point at which it was $10,000 million down the tubes. That had
taken 151 years. Within one year the Minister of Finance---the fiscal dominatrix who was going to introduce
discipline, who was going to balance the Budget, and who was going to restore credibility to the fiscal process---
had expanded the net debt of the Crown by 50 percent. It was all her own work. Yet today she continues to
claim fiscal success during that particular year.
The outcome for the New Zealand economy was disastrous, despite the fact that she had a number of one-off
lucky dips that, I suppose, explain her coming in under budget in relation to Government spending. They
included a change to the accident compensation payment date, which saved the Government $100 million; the
liabilities of the Government's superannuation fund being downgraded by $200 million, which was a change in
actuarial calculation and had nothing to do with expenditure control; and a lower than expected inflation rate,
which saved the Government $200 million---a total of $500 million of windfall gains to the Government accounts
during that year.
During that year public debt increased by $3.95 billion to a record $47.9 billion. So, by the end of the first full
year of management by the Minister of Finance, on top of private borrowing, every man, woman, and child in
this country owed $13,900---an increase of $1000 in just 1 year. It can no longer be blamed on inflation
because, we are told, inflation was under control. Nearly all of that increase was an increase in our
indebtedness in real terms.
So we have a situation in which this Government has abandoned the fiscal balance target. The Minister of
Finance has moved the target to three general elections out from this particular year---three general elections
into the future. She has already promised---thank God---to retire in 1996, but the public in the Selwyn electorate
will retire her in 1993, as she will lose to the Labour Party candidate at the end of this year. That is the truth of
her fiscal control.
Then I come to the great revenue issue. The Minister of Finance cannot make up her mind whether a drop in
revenue is an excuse for explaining the deficit or should be proclaimed as a success for Government policy. If
one asks the Minister of Finance why the deficit is higher than was projected, she says that that is because the
revenue has not come in because the recession is worse than was expected. If one asks her whether the
Government is achieving its targets, she says: ``Yes, we promised to reduce Government revenue as a
proportion of gross domestic product, and we are completing that promise.''. She had better make up her mind
what the story actually is.
The truth is that because of the benefit cuts, because of an excessively tight monetary policy, and because of
the signals that this Government sent, the economy shrank in 1991 to a large and quite unnecessary degree.
The result was that the revenue of the Crown fell away and the deficit expanded. Far from reducing the deficit,
the National Government's policy of slashing the incomes of the poor---[Interruption]---the Labour Government
had introduced family support, which had increased the incomes of low-income families---did not result in
81
reducing the deficit by anything like the same amount. She managed to prove that there is still life in the old
Keynesian dog, and now she is trying to prove that there is life in running a large deficit in terms of keeping the
economy moving.
But, of course, we well remember the Government's supposed commitment not to introduce new taxes. The
Prime Minister himself said that he could give a categorical assurance that there would be no new taxes. The
Minister of Finance still seems to believe that the Government has not introduced any new taxes. What is the
truth of the matter?
The new hospital bed tax is making everybody in the Government caucus sick, let alone half the country. The
Government caucus, given a free vote in conjunction with Labour Opposition members, would abolish hospital
part-charges at the drop of a motion. It is only to save the hides of Cabinet Ministers, especially the Minister of
Finance and the Minister of Health, that these stupid, inefficient hospital part-charges are kept in place.
There is a new accident compensation tax of 70c per $100, plus goods and services tax---let us not forget
that---a new tax of 20 percent on gaming machine profits; a new regional petrol tax; a new casino tax; a
proposed new tax on entertainment expenses; a new housie tax; a new capital gains tax; and increased taxes
on alcohol and tobacco.
The fact is that, largely in the year under review, this Government has increased the taxation of the people by
roughly $1000 million. It has found that that has not increased its net revenue by very much, either, because a
feature of this Government is the extraordinarily poor design of many of its taxation recommendations and the
implementation thereof. They are extraordinarily counter-productive in terms of the revenue that is actually
produced, and in many respects are likely to reduce economic activity, thereby reducing the revenue to the
Crown.
This Government has failed to learn the single most important lesson: the role of a New Zealand Government
is to expand the economy on a sustainable basis. This Government is living off the fat of the Labour
Government. This Government is living off the microeconomic reforms of the Labour Government---all those
reforms that members opposite, when in Opposition, voted against. I refer to the ports reform, the State Sector
Act, the Public Finance Act 1989, the Reserve Bank of New Zealand Act, and a whole series of legislative and
microeconomic reforms that made this country more competitive. What the Government does not know is where
to go from here.
Of course, the ultimate failure of the 1991 Budget was the issue of health reforms. Budget night was the night
of the announcement of the great overturning of the New Zealand health system. There were to be new regional
health authorities, new Crown health enterprises, efficiencies, no waiting-lists, and, of course, alternative health-
care plans that would introduce real competition into the New Zealand public health system.
What happened during that year was chaos and confusion. The Government discovered that its initial
proposals did not work and had to be modified substantially before they could be introduced. Its group 1, group
2, group 3 idea led it down the track of a smart card system and of highly sophisticated justifications for
specialist taxes on people according to their supposed income and not according to their actual needs or ability
to pay. The Government had to modify that proposal because it ended up with some extraordinary
inconsistencies and some extraordinary stupidities.
The Government found out that it could not implement alternative health-care plans rapidly, because they
were incredibly complex administratively. It found itself spending tens of millions dollars to implement changes
that nobody except itself wanted. Millions upon millions of dollars have been wasted on consultants, on
advisers, and on other matters relating to those changes. At the end of the day, not a single person will have the
operation that he or she needs as a consequence of those changes.
The Labour Party is happy to fight the coming election on the issue of health alone. Let the Minister of Health,
the Minister for Crown Health Enterprises, the Associate Ministers of Health, the Minister of Labour who is the
real Minister of Health, the Prime Minister who is the Minister in charge of the health reform unit, and all the
other Ministers who seem necessary for this Government to run health, front up together against the Opposition
spokesperson on health, and she will overcome them with extraordinary ease.
82
The final point is that the real agenda is still there. That mad system of competitive providers and competitive
purchasing within the health-care system is still there. The agenda is still being worked on; the stop-loss family
account system is still being worked on; and the alternative health-care plans are still being worked on. If a
National Government is re-elected, we can be sure of one thing: it will proceed with that folly. Thank God that a
National Government will not be re-elected, and the country will have a real public health system put back in
place.
Hansard - Stage: QUESTIONS ON NOTICE - 7 OCT 1992 Pre-election Statement---

Government Policy
Responding speaker - Rt. Hon. J. B. BOLGER
Question No - 1
QUESTIONS ON NOTICE
Pre-election Statement--Government Policy
1. Hon. Dr MICHAEL CULLEN (St. Kilda) to the Prime Minister: Does his pre-election statement: ``No, got no
new taxes, can you suggest one, I haven't got one?'' represent Government policy?
Rt. Hon. J. B. BOLGER (Prime Minister): In a television interview I was asked a question on taxation and I
answered as the member indicated. I stand by the statement.
Hon. Dr Michael Cullen: Is the Prime Minister telling us, therefore, that the ideas for the hospital bed tax, the
new accident compensation tax, the new tax on gaming machines, the new regional petrol tax, the new casino
tax, the new entertainment tax, the new housing tax, the new capital gains tax, and the increased taxes on
alcohol and tobacco were a mistake and that he was unaware of any plans for those at any stage during his
prime ministership?
Rt. Hon. J. B. BOLGER: The honourable gentleman needs a little education. He suggests that hospital part-
charges are a tax. On that same analogy, the part charge on doctors and pharmaceuticals is a tax. I suggest to
the honourable member that he be honest in the use of terms.
Mr SPEAKER: Order! I ask the Prime Minister to withdraw any insinuation that a member has not been
honest.
Rt. Hon. J. B. BOLGER: I withdraw.
Mr Max Bradford: What were the Government's pre-election manifesto commitments on taxation?
Rt. Hon. J. B. BOLGER: The Government's pre-election manifesto commitments were to reduce the
proportion of tax to gross domestic product, and it has achieved that; to remove some taxes that were impeding
growth, and it has done that. It also removed the taxes that the honourable member mentioned--that is, the
forestry tax and the land development tax, and that led to huge increases in forestry plantations. It also gave a
commitment not to introduce a capital gains tax nor to increase income tax or company tax, and to repeal gift
and estate duty.
83

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Contents

Hon Dr Nick Smith: Oh, a different test for companies.

Hon Dr MICHAEL CULLEN (Minister of Finance) : No.

Madam SPEAKER: Supplementary question, the Hon Bill English.

Hon Bill English: They did. They did.

Copeland, Gordon: Questions for Oral Answer — Questions to Ministers: 17-Oct-2006 -

Budget Debate 25 May 2006

Darren Hughes: What’s it been?

Paula Bennett: I said: “Gosh, you’re funny!”

Dr the Hon Lockwood Smith: You’re so arrogant.

Hon Dr MICHAEL CULLEN (Minister of Finance) : Yes.

John Key: I raise a point of order, Madam Speaker.

Gerry Brownlee: Why did the member vote for it?

Madam SPEAKER: That is not a point of order.

John Key: Absolute nonsense—$25 million if you’re lucky!

Jones, Shane: Questions for Oral Answer — Questions to Ministers: 15-Nov-2005 -

Shane Jones: Is the Government planning to introduce such a tax?

Parker, David: Questions for Oral Answer — Questions to Ministers: 26-Jul-2005 -

Gordon Copeland: I raise a point of order, Madam Speaker—

Gordon Copeland: I raise a point of order, Madam Speaker—

Madam SPEAKER: The Minister did address the question.

Supplementary Estimates — Imprest Supply Debate 14 June 2005

Hon Dr MICHAEL CULLEN (Minister of Finance) : Possibly, and therefore possibly.

Cullen, Michael: Budget Debate: 07-Jun-2005 - Volume: Session1;Volume626;Week91

The ASSISTANT SPEAKER (Hon Clem Simich): That is correct.

Cullen, Michael: Budget Statement — Budget Debate, Procedure: 19-May-2005 - Volume:

The major features are:

the creation of KiwiSaver, a new work-based savings scheme

significant additional spending to promote increased opportunities, particularly through education

further increases in spending to support economic growth.

The new KiwiSaver scheme is intended to begin operation on 1 April 2007.

KiwiSaver’s basic features are:

an upfront contribution by the government on joining, plus low management fees

minimum compliance costs for employee and employer.

The government will support KiwiSavers in three ways.

Firstly, it will meet the costs of the administration through IRD.

The estimated cost of this tax cut is $25 million.

$31 million to increase the gains from international economic partnerships

$49 million to implement the government’s digital strategy

$72 million to increase support for business research and development

$118 million to further increase capability in the public science system

$9 million to boost New Zealand as a tourist destination and

The government continues to adjust school operational funding each year.

Additional funding this year will provide for:

increased funding for teacher aides and

more support for assessing learning needs.

This year’s health package also provides for:

funding for the establishment of the Cancer Control Council

further funding for the National Immunisation Register

contributing towards the cost of the nurses’ pay settlement

increased funding for disability support and aged care services

funding the increased uptake of the Primary Health Care Strategy

increasing cataract interventions by 50 per cent

a range of Progressive Party initiatives which have already been announced.

lock in funding for New Zealand Superannuation

accelerate further support for business development

strengthen our public health system

enhance the capacity and effectiveness of our education system and

We look forward with relish to continuing that never ending task.

Hon Dr MICHAEL CULLEN: Ah! Oh, right.

Hon Member: Oh, come on!

Cullen, Michael: Budget Statement — Budget Debate, Procedure: 27-May-2004 - Volume:

Working for Families has three key aims:

Prebble, Richard: Questions for Oral Answer — Questions to Ministers: 25-May-2004 -

Hon Richard Prebble: Point of order, Mr Speaker.

Mr SPEAKER: I think the member could perhaps develop his answer.