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ACT's Richard Prebble - Budget 2004 Speech

Richard Prebble
Thursday 27 May 2004

We the ACT party urge Parliament to reject the Labour government’s budget.

We do this because we believe this budget will come to be seen as a turning point.

Where the New Zealand economy instead of taking the upward road to prosperity and growth turned away down the path of tax - spend - and bust.

The budget fails on a number of grounds.

It is unfair.

Socially it traps New Zealand into a low growth, low income, Third World future.

Economically it is unsound.

The budget is a return to the “tax, spend and bust” of the Muldoon years that eventually took this country to the edge of bankruptcy.

This budget won’t make us a Third World nation immediately, but over time, that will be the consequence.

It is a tax budget, not because of what it does, but because of what it does not do.
The budget does not repeal any of the stealth taxes that Labour has imposed; the biggest of which are the two increases in fuel taxes.

The most insidious tax is fiscal creep. The refusal of the Finance Minister to change the tax thresholds so inflation has pushed working people into higher tax brackets.

The 39-cent tax rate illustrates my point.
The Labour government was elected with the credit card promise of Helen Clark (with digitally perfect teeth) saying, and I quote, “There will be no rise in income tax for the 95 percent of taxpayers.

This year 20% of all full-time workers will pay the 39-cent tax rate.

In the year the Labour government came to power the total personal income tax raised was $15.8 billion a year. This year’s budget plans to raise $21.25 billion a year, an increase of more than $5 billion or a third.

All taxes from all sources have also risen by a third – that’s an extra $11 billion in tax – from $33 billion to $44 billion.

The Minister of Finance himself boasts that this is a spending budget. Tax, spend and bust.

There are, according to the Department of Statistics, 545,000 families with dependants. Around 150,000 of these families are benefit led families. That leaves around 400,000 working families.

The budget is unfair because although 300,000 families eventually benefit, only 150,000 of these are working families.

You don’t need to be an accountant to work out that the majority of working families, some 250,000 thousand families, get nothing from this budget.

Most households have no dependent children.
They are the bystanders in this budget

Their only role in this budget is to pay Labour's taxes so that this Government can bribe the electorate in the coming election.

There are around 1.5 million households in New Zealand. Around 1.2 million New Zealand households receive nothing from the budget. It is simply unfair.

Dr Cullen boasts in the budget “great care has been taken in assembling this package to identify any individual possible losers and to ensure there are none.” He can’t have looked hard. A family on $60,000 with one child gets nothing.

The Treasury says the average two parent working family with two children earns $72,000 a year. Under this budget the average New Zealand working family is the loser, they get nothing. Not this year, not next year. They have to wait for the election of ACT into government.

The budget discriminates against hard work and enterprise.

This is a welfare budget. Welfare WINZ – taxpayers lose. Welfare beneficiaries get an increase in April next year. Working families must wait until April 2006 – two years to get the new family tax credit.

This budget will have many unintended consequences in our society.

The unintended consequence of the family tax credits and the accommodation supplement is they will subsidise employers.
It will encourage employers to pay low wages. The government is subsidising a low-wage economy.

Another unintended consequence of this tax, spend and bust budget is that the government is encouraging low income families to have more children.

The budget discourages hard work because the effect of increasing your income is to lose valuable subsidies.

If you are poor, the way to increase your income is to have more children.

Why has Labour been so socially irresponsible? The reason is simple.

The government’s motivation is not future “directions” but future “elections”!

Labour's own polling shows that the new Maori party will devastate their electoral base.
Most Maori families will benefit and benefit substantially – if only because the average number of dependants in Maori families is higher.

But the average New Zealand family of European descent will receive nothing from this budget.

This budget will do nothing to stop the alarming trend of our most skilled New Zealanders migrating.

Already we know that 70% of the doctors graduating from Otago University this year will leave New Zealand. This budget will encourage that trend.

Economically this budget is unsound. It will not encourage investment, growth or jobs.
The Treasury’s own forecast of the effect of this budget is that future growth will slow from today’s 2 .8% to just 1.6% next year and 1.57% the year following.

Dr Cullen says there is no evidence that tax cuts promote prosperity.

He can produce no research to support his statements.

When Dr Cullen was out wooing the business community he promised that he would lower tax rates when "fiscal conditions permit".

He is wrong to say that tax cuts do not work, by claiming that when the top personal tax rate was reduced from 66 cents in the dollar to 33 cents, it did not produce an overnight economic boom.

The fact is – that tax cut did work. Despite moving from being the most regulated country in the OECD, and from a system of massive government subsidies, the New Zealand economy bounced back.

He knows that - because when he was a junior Finance Minister for the then Labour government I am sure he was astonished to discover we had collected as much income tax revenue from 33 cents in the dollar as we had collected from the 66 cent rate.

That is why Roger Douglas recommended the income tax rate be lowered to 24 cents.

Does the Treasury agree with Dr Cullen's analysis of the effect of tax cuts on the New Zealand economy over the last 20 years? We know the Treasury does not.

On 2nd April this year the Secretary of the Treasury John Whitehead released a paper “New Zealand income and growth: an analysis of performance and policy.”

The Treasury states, " Since the early 1990s, New Zealand’s average per capita GDP growth has increased relative to the OECD mean.”

The Treasury puts New Zealand's superior economic growth down to a range of policies including such things as labour market reform.

But they say this about tax: "A foundational principle for a taxation system that seeks to support economic growth is that it should be "broad based – low rate".

The Treasury, in paragraph 175 says, "…moving to a flat tax rate for both personal and corporate tax rates is likely to have the greatest impact on economic growth…".

Which is precisely the position that the ACT party has been advocating for a long time.

The McLeod Tax Review – set up by Dr Cullen to advise on taxation policy – concluded that a low flat rate of tax was the best option for New Zealand.

In this parliament, the ACT party has always been the voice of sound economics.

A $6 billion surplus represents a once-in-a-lifetime opportunity to put New Zealand on a growth path to be one of the most prosperous nations on earth.

Just consider this: Answers to written questions from Dr Cullen have stated that the cost of going to a flat rate of income tax of just 20 cents in the dollar for both companies and individuals would cost $5.45 billion a year.
That’s a figure that assumes no change in economic activity.

I am a director of a number of companies.

We look at investment opportunities and the rate of return after tax that takes into account the risks that are involved in any new project.

I'm looking at an export opportunity at the moment that, in the business plan, would pay for the total investment in just three years – and yet we are very reluctant to give it the green light.

A 20-cent flat tax rate would mean the project will pay for itself in less than two years and it would certainly go ahead.

There are thousands of projects of that sort on the board tables and kitchen tables of New Zealand, where most business decisions are made.

A 20-cent tax rate would result in thousands of business projects getting the green light.

Just as important, the New Zealand entrepreneurs who have been driven overseas by our high tax rates would be encouraged to return.

We could implement tomorrow a 20-cent tax rate without having cuts in investment anywhere.

But none of these figures take into account the dynamic effects.

Our New Zealand experience is that cutting the top tax rate from 66 to 33 cents resulted in more income tax revenue within two years.

I say to this house, if we reduce personal tax rates from 39 cents to 20 cents and the company tax rate to 20 cents, we would, within three years, receive the same tax revenue that we get today but New Zealand would be a fundamentally different country.

The real security for New Zealand families comes not from tax, spend and bust budgets but from the prosperity, hard work and enterprise of our people.

New Zealand did not need a tax and spend budget. No one has asked for a welfare WINZ – Taxpayer lose budget.

This is not a future directions package – but future elections’ bribes.

A $6 billion taxpayer surplus is a once-in-a-lifetime chance for a prosperity creating tax cut to put New Zealand back into the First world – where we belong.


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