Tax Relief For Middle New Zealand

25 June 2005 - 11:30 - John Key Finance

Mike Williams was right all along.

There was a deep, dark secret in the Budget.

It was Labour letting their guard down to show mainstream New Zealanders just how out of touch they are.

Labour's blatant display of arrogance was the deep dark secret in the Budget.

'Is that it?' asked The Dominion Post headline the next morning. 'We Want Tax Cuts Now' - answered another.

What that tells us is one thing - New Zealanders have had enough.

They are saying it is their right to keep more of what they earn every week; they are saying they deserve to keep a share from the upside of a buoyant economy, and they are saying they want to lead a life free of state dependence - where they are trusted to make their own spending and saving decisions.

Labour's message to working New Zealanders was that there will be only a minor inflation adjustment to tax thresholds, but not until 2008 - and you can forget about any compensation for the six years from 1999 until 2005.

And after 2008 there will be nothing more until a similarly small adjustment in 2011.

And that's it.

Labour's vision for taxpayers is two minor threshold adjustments in 12 years.

Their vision is that the Government takes all the gains from growth, and working families just have to tighten their belts - or drop their incomes and let other taxpayers pick up the tab through the Working For Families welfare payments.

Well, that's not much of a vision is it?

For those who Labour deem 'rich' - those earning $60,000 - the deep dark secret amounts to just $10.27 a week. And by the time they get it they will have paid for it three times over.

Labour have taken, are taking, and will continue to take working New Zealanders for granted.

Labour have squandered hundreds of millions of taxpayer dollars on pet projects and passing fancies, and in the process they have built fresh obstacles to growth. And those obstacles are why income growth under Labour has been so low, falling ever further behind Australia.

Labour has made its priorities clear.

And Kiwis are telling them their priorities are wrong.

They were wrong when they forced more families into state dependence through the flagship Working For Families package instead of reducing their taxes.

And they were wrong when they ratified the Kyoto Protocol ahead of our major trading partners, and for no meaningful environmental effect.

This Labour Government is saying that it's okay for a billion people living in China to use power fuelled by coal labelled "Made in New Zealand" - but it's not okay for us to do the same without paying an extra carbon tax.

Under Labour, our superannuitants will be forced to fork out even more to heat their homes.

This is another insult from a government that introduced a sherry tax 18 months ago and tried to claim it was all about teenage binge drinking!

Well, we now know that the Kyoto calculation was a major blunder. They knew about it before the Budget, but it wasn't highlighted there. Maybe they thought it was just a billion dollars - who would notice?

Well, all New Zealanders will notice it when their costs rise. Petrol will go up. Power will go up. Many manufactured goods will also carry a Kyoto premium.

The estimates that Labour put on the table before its most recent Kyoto blunder showed that every household would be paying an extra $200 a year.

But those numbers are wildly askew.

That will double, if not quadruple. A major accountancy firm estimates the Kyoto blunder will cost each household $900 per year. And it's simply not necessary, or fair - and it won't help the environment.

Labour have been ratcheting up taxes at every turn. About 30 increases in taxes and levies over the past six years at the last count. In spite of huge surpluses, Labour have never missed a chance to put up taxes.

Michael Cullen - or as we call him the 'Wastemaster-General' - buried another gem in his recent Budget flop.

A new capital gains tax on foreign shares held by New Zealand residents.

What logic can there be to introduce a capital gains tax, particularly on Australian shares, at a time when we are proposing a single economic market with Australia?

We should be reducing the roadblocks between us, not erecting new ones.

Why put a capital gains tax on when we want people to save for a secure retirement, and international diversification enhances the security of a portfolio?

Why tax savings more when you want to encourage savings?

Why is it okay for the government, through the New Zealand Superfund, to invest offshore to gain portfolio diversification, but when it comes to your own money there is a new tax to be paid?

The only group getting ahead under Labour is the Government and its army of bureaucrats writing reports for each other, assessments of those reports, and assessments of the assessments.

And then they end up organising inquiries into what went wrong.

A perfect example is NCEA.

And how is all this funded?

Your tax - and the numbers are eye-popping.

Tax revenue has grown enormously over the past six years - up an extra $55 billion.

They've hoarded back-to-back surpluses of more than $7 billion. Even after paying for the day-to-day running of the operating and capital budget there is still $2.4 billion cash left in the kitty.

The tragedy of this scenario is that instead of using this powerful growth in tax revenue to fund a reduction in future tax rates and to add strength to the public sector, the majority has been squandered on low-value schemes and in building an overweight core state sector.

Unlike Labour, we will take a more disciplined approach.

As our tax revenue grows, we won't hog the lot to fund a growing empire.

Rather, as Ireland and others have done, we will use a portion of the growth in revenue to fund an ongoing campaign of lowering taxes. Over time, New Zealand will become more competitive, with a low tax regime that is fair but sufficient to fund a strong public sector.

If you have ever wondered why Labour won't lower taxes, the answer is simple - it's ideology, pure and simple.

This Labour Government regards itself as having the first claim on your earnings.

Helen Clark - the Prime Moneywaster - and her sidekick, the Wastemaster-General - love spending taxpayer money - your money.

Dr Cullen claims taxes don't influence the behaviour of companies or workers. He argues that taxes play no significant part in influencing the desire to work hard, take risks or acquire new skills. And he asserts that taxes have no impact on economic growth.

Common sense tells you that is wrong. History and experience tells you that is wrong. Economic theory and a mass of evidence confirms that it is wrong.

The fact is, Labour are all over the shop when it comes to incentives.

They didn't think they mattered when they eased access to some benefits - and then they were surprised when the numbers on those benefits exploded.

They don't think the incentive to make a quick buck is behind the numerous rorts in the tertiary education sector.

But then when it suits them, they do think incentives matter.

The Prime Moneywaster thinks they are pretty important when there are subsidies to be handed out to carefully selected businesses; she thinks they are hugely important when there are photo-opportunities for her and her Cabinet.

And Labour thinks incentives matter when it comes to taxing cigarettes and alcohol, or fatty foods, or fossil fuels.

But, strangely, when it comes to all the things that are important for growth, the things that are important in boosting the living standards of New Zealanders, that other strange personality kicks in.

Suddenly, taxing savings, taxing investment, taxing risk-taking and entrepreneurship - all that doesn't matter.

That is why Labour don't understand why 600 kiwis leave this country for Australia each week.

And most don't return.

Labour don't understand this because they are focussed not on aspiration and ways to 'grow the cake', but on political expediency, redistribution, and getting by.

We have to do better than just 'get by'.

I cannot stress today how dangerous this directionless drift is.

We'll work harder if we're valued. We'll produce more if our work is rewarded, and we'll be more prepared to take a risk if there's a pay-off at the end of the day.

Labour's tax-and-spend philosophy runs counter to these values.

Last year's flagship Working for Families policy is a case in point.

This is an overly complicated system that robs Peter to pay Paul.

Which, to a point, is fine if Paul has run into some bad luck and needs help.

The worst thing is that we are now robbing Peter to pay Peter. Labour taxes you as hard as it thinks it can get away with, then returns most but not all of it to your other pocket.

In the meantime you find you are paying for a number of bureaucrats to administer it all, and some expensive advertising which suggests that all that cash was somehow related to the generosity and foresight of Labour. Yeah right, as they say.

It's a third-rate model dreamt up by a true third-wayer, Smarmy Steve Maharey, as his close friend and colleague, John Tamihere, refers to him. And with friends like that . . . .

But we shouldn't forget that a significant part of Working for Families was simply restoring the real value of family support payments. Labour allowed family support payments to erode in value from their 1999 levels. That has been well documented - and by the political Left!

Families on the gradually rising average wage got hammered.

Sound familiar? That is also what has happened to most wage and salary earners. Recall how the so-called 5% of taxpayers who would be affected by the 39% rate rose steadily to be 22% of all full-time workers.

So, Labour allowed family support to erode in value, allowed more people to move into higher tax brackets, and raked in the revenue to build their election war chest.

And then the big catch-up came last year, just one year out from an election, complete with massively expensive taxpayer funded advertising to claim the credit.

There is something wrong when we tax families to the limit, and beyond, and then have an expensive bureaucracy to channel the money back to them again.

Clearly, some people have such low incomes that they pay little tax anyway.

But under the extending tentacles of Working for Families, coupled with Labour's determination not to reduce taxes, middle income New Zealanders are being turned into beneficiaries.

One of my goals in government will be to fix that. To free New Zealanders from being dependent on benefits which are largely just returning them their own money.

National wants Kiwis to get ahead further and faster and under their own steam.

The lack of reward for effort is one of the single biggest reasons that 600 people this week will get on a plane and jet off to Australia, most never to return.

Our best exports shouldn't be people.

And that's why lowering the tax burden on working Kiwis is one of our primary goals.

In New Zealand today, 11% of all taxpayers pay half of all the personal tax collected. All they can look forward to under Labour is more of the same.

In the process, Labour is killing off the goose that laid its golden egg. But now that egg's all over their faces and the gaggle is migrating to Australia.

We simply cannot afford to keep bleeding our best and brightest overseas. They're the very people we need.

We need the doctors and the nurses. We need experienced police and we need good teachers. We need skilled plumbers, builders and electricians too.

Labour keeps telling us that we're training more of them - but then Helen Clark and Michael Cullen keep waving hundreds of them goodbye at the airports every week.

It's little wonder that New Zealanders have such a good reputation for hard work overseas - when so much of our talent ends up working there.

National will make sure workers - those who are driving the economy and paying for the Government's enormous surpluses - we will ensure all workers keep more of what they earn.

Michael Cullen - the Wastemaster-General - spent much of his budget lecturing working New Zealanders that if they had jam today there would be only crumbs tomorrow.

The tragedy of this fable is that there is jam today, and it's been spread very thickly ‑ only problem is it's on the government's toast. And when it comes to the poor old worker, under Labour he or she will have to wait three years for the crumbs.

It's not good enough. Working New Zealanders deserve better and we will fix that.

Delegates, as Labour is discovering at its peril, we live in a global village. We simply can't put up a fence around us and pretend the rest of the world doesn't exist.

And that's why we must look beyond personal tax rates and at corporate tax as well.

Six years ago our company rate was the same as it is today, 33%

Back then the average company tax rate in the 30 countries that form the OCED was 35.1%.

But now the rest of the world is moving ahead without us. That average rate has dropped more than 5% from 35.1% to 30% and there are signs it will continue falling.

Labour doesn't think it matters, but the company tax rate is like a global billboard - it sends a powerful message about how keen countries are to attract foreign capital.

Let's face facts - those investing the billions of dollars in international capital that we need are a lot of things, but patriotic isn't one of them. Our economy desperately needs foreign capital to grow and remain competitive.

We need it for our factories, for our industries and ultimately we need it for the investment that will lift New Zealand incomes.

When Australia's headline corporate rate is 30%, and when many of our OECD cousins are undercutting that, it's not hard to see why New Zealand is not getting a look in.

Since the release of his Budget, the Wastemaster-General has become more and more extreme in the claims he has made about an alternative approach to managing our economy.

His assertions are not factually correct and, worse, they paint the picture of an ever-more desperate Finance Minister who, after a six-year addiction to big government spending, is in a permanent state of denial ‑ as if he is marooned on desert island and no one has told him the war is over.

I want to put some of those myths to rest.

National will not undertake some reckless slash and burn exercise, leading to front-line police, nurses and teachers sacrificed in the quest for a tax cut.

It is an absurd suggestion from Labour - the sort of cheap political allegation which reveals nothing more than the blind panic of Ministers who sense their time is up.

What we are going to cut - and I can absolutely promise you this - is waste. We will slash and burn it.

I am confident that all Kiwis will appreciate a Government that doesn't waste their money, and focuses on achieving value for taxpayer money.

We also will not embark on any sort of poorly considered 'borrow and hope' programme. We will not risk future generations by funding operating expenditure out of debt, but nor will we sit back when our infrastructure is crumbling.

National will be careful, conservative caretakers of our economy.

But we make no apologies for challenging government spending which has seen the core state sector, in other words the bureaucrats, growing like topsy.

It's reached the stage where the amount of commercial office space they hire in downtown Wellington has gone from more than 360,000 sq metres five years ago to 500,000 sq metres today.

Finally, I want to deal with the last Labour myth - the bizarre claim that our tax plan will drive up mortgage rates.

This is one of Cullen's more preposterous claims, and especially ludicrous coming from a Finance Minister who has overseen seven interest rates hikes in the past 15 months.

He presides over the highest interest rates in the developed world and, as numerous reports from Treasury and external economists continue to tell him, it's his own programmes of spending that are adding to our inflation pressures.

We are fortunate indeed to have a Leader like Don Brash.

Our leader has played an integral part in the construction of our tax and fiscal plan and has carefully considered the implications it will have on inflation.

Don, as Reserve Bank Governor, spent 14 years getting inflation out of our system - that is why we have enjoyed low inflation and low interest rates for so long. He is not about to become Prime Minister to reverse those hard won gains.

I believe New Zealand will find it refreshing to have a government that focuses on the delivery of front-line services, where the investment is sorely needed.

An overwhelming number of New Zealanders are now saying that for all the extra money spent on health and education during Labour's six years, there has been no improvement in service.

An overwhelming number of taxpayers are reaching the same conclusions that we have - that this Labour Government is too preoccupied with state control, too prepared to put its bureaucracy ahead of mainstream Kiwis.

Here's a good example. A little school in my electorate recently told me it has an annual operating budget of $71,000.

In the past six months the Ministry of Education has added $7,000 of additional compliance costs. That's 10% of their budget gone thanks to the stroke of a bureaucrat's pen in Wellington.

That money was for teachers and kids. Under National that's where we want it to go.

We just don't have enough money as a country to waste it on an endlessly growing PC compliance regime that's crippling the place.

The worst thing is that this is a story that is being repeated up and down the country, in every sector, on an almost daily basis.

Ask the front-line police, ask the hospital staff, ask the staff at our schools.

Delegates, I came back to this country because I believe in New Zealand and New Zealanders, and to part of a government that makes a real difference to the everyday lives of mainstream Kiwis. A government that knows the value of a dollar and works hard to make sure every cent is invested wisely.

I want to be part of a Don Brash-led government that is ambitious for our future; that has a plan for tomorrow and is proud of where it stands in the world.

The core of that Government is here at this conference today.

ENDS

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