Question for Oral Answer - Bracket Creep

Delivered by ACT Leader David Seymour. March 19, 2015
Video is available here.

DAVID SEYMOUR (Leader—ACT) to the Minister of Finance: In light of his statement in the House on 11 March that low inflation “makes it more challenging for the Government because higher inflation pushes up the tax base and enables us to collect more tax in a growing economy”, does he agree that this phenomenon of fiscal drag is just another description for an increase in effective tax rates?

Hon STEVEN JOYCE (Associate Minister of Finance) on behalf of the Minister of Finance: As the Minister said at the time, New Zealand is in the unusual situation of having solid economic growth but also historically low levels of inflation. This is, of course, good for households because it means their cost of living is increasing at a very low rate, but it is a challenge for Government revenue.

Hon David Parker: This is just a speech, which doesn’t address the question.

Hon STEVEN JOYCE: Just take your time, Mr Parker.

Hon David Parker: Unless the country goes bankrupt.

Hon STEVEN JOYCE: Shh, take a breath, David. Low inflation—

Mr SPEAKER: Order! Listen. The constant barrage coming from my left is not acceptable—

Hon David Parker: Point of order—

Mr SPEAKER: Order! I am on my feet. If the member wants to take the opportunity to ask a supplementary question, he will have his chance. But to engage with the Minister while he is attempting to answer the question is distracting, certainly to me and to the House, and in itself it is disorderly.

Hon David Parker: I raise a point of order, Mr Speaker. I would ask you to enforce the Standing Orders and to expect Ministers to address questions, rather than—

Mr SPEAKER: Order! The member will resume his seat. He will be having a very early departure from the House if he carries on like that. The answer was being given. It was being interjected on from the member, so that was—[Interruption] Order! If there is one more outburst from the Hon David Parker, he will be leaving the Chamber this question time. If there is constant interjection coming from the left of the House and the Minister is responding to that, that is not helpful, but the initial cause of the problem is the interjections from the Hon David Parker. Steven Joyce, if he could complete his answer.

Hon STEVEN JOYCE: Thank you, Mr Speaker. As I was saying, low inflation reduces Government revenue in part because of less fiscal drag, as the member knows. In times of high inflation—for example, as recently as 2008—fiscal drag was very significantly important and was an effective tax increase. In times of very low inflation, as we are experiencing at the moment, there is, in fact, a lack of fiscal drag that is noted. Despite pressures on its revenues, this Government’s management of expenditure remains disciplined, and we are on track to surplus.

David Seymour: Is a time of low inflation when fiscal drag provides little additional revenue, as the Minister has noted, not the perfect time to introduce greater transparency into the nation’s tax system by indexing tax thresholds for income to inflation?

Hon STEVEN JOYCE: In regard to income tax and indexation reducing tax rates, we have been very clear that that was something we would consider from 1 April 2017 if economic and fiscal conditions allowed. Any tax reduction would be modest and focused on *low and middle income earners. We do have the concern that the member outlines, which is if wages are rising, people can be taxed more. So we are interested in doing that. Would we do it in terms of an indexation? That is something that we would address at the time, once we were confident we had the room to do so.

David Seymour: Given the Minister’s ambivalence about indexation, is he aware that since 2010 the lack of indexation of income tax thresholds to inflation has cost the average earning household $1,036?

Hon STEVEN JOYCE: I do not have those exact figures to hand but, of course, there are a number of other considerations in terms of household incomes. For example, we have had very significant ACC reductions over the period. The income tax reductions in 2010 reduced income tax revenue by around $600 million over 3 years, and that broadly offset the estimated fiscal drag effects. On top of that, of course, households benefit because inflation is lower and that, of course, means that their costs of living increases are lower, which means that most households will be better off under the fiscal arrangements that this Government is progressing than we have seen from previous Governments.

David Seymour: I seek leave to table a document prepared by the Parliamentary Library for the ACT Party, detailing the cost to households from the lack of—

Mr SPEAKER: It has been described. I will put the leave. Leave is sought to table that information. Is there any objection? There is none. It can be tabled.

Debate on Budget Policy Statement

Delivered by ACT Leader David Seymour. 11 March, 2015
Video of the speech can be viewed here.

A few weeks ago I attended a citizenship ceremony in Auckland. I could talk about all of the facts and figures of the Budget Policy Statement and about the projections for our economy, and all of them are very good, but the most sincere endorsement of where this country is headed I saw in 431 souls from 57 different countries who were making the ultimate endorsement of New Zealand by taking on New Zealand citizenship and throwing their lot in with the good ship Aotearoa.

It is amazing that one of the things that we hear the most complaint about from some people around the House is actually one of the most positive things we have going for us—that is, people voting with their feet and increasingly coming to New Zealand. This is the result of the terrible Rogernomics experiment of the last 30 years: more and more people want to come and live more and more prosperous lives in the most beautiful country on earth.

It has been interesting to see the debate around this Budget Policy Statement unfold because the Opposition members are really in a bind. They want to criticise the Government for certain things but those things are also exactly the things that they would do so much more of.

Take, for example, the criticism we heard of child support legislation—or, at least, the implementation of it by the Inland Revenue Department. Of course, what they are not saying is that for every little bit of difficulty we have had introducing that law, it would have been infinitely more complex and difficult to have a tax-free threshold, to have a capital gains tax, to start having supermarkets dividing up their floor space to decide which parts were GST-claimable and which parts were not—all of which were promised by the Opposition during the election. Today they come and criticise the Inland Revenue Department for not implementing relatively simple child support legislation, but how much worse would it have been had they had their way at the election? Well, they did not.

Another example is watching the indignation of a certain member about Solid Energy. He can criticise and criticise Solid Energy and its performance as much as he likes, but he forgets that, as he does this, he indicts the very ownership model that his party defends and says it would like to expand—

Hon Clayton Cosgrove: No, just your incompetence—your Government’s incompetence.

DAVID SEYMOUR: The conceited answer from the member, who has identified himself now, is that there is nothing wrong with the policy or the model; it is just that it would work better if good people like him were running it. I believe that is a fatal conceit and the truth is that what is missing from this Budget Policy Statement—

Hon Clayton Cosgrove: I raise a point of order, Mr Speaker. I seek leave to table a time line, which is not publicly available, detailing in excess of—

The ASSISTANT SPEAKER (Hon Trevor Mallard): The member will resume his seat. It is not appropriate to interrupt a member’s speech in order to seek to table a document.

DAVID SEYMOUR: The truth is that this Government should actually be going further in the opposite direction to the one he would advocate. There is never a right time to sell a business with an uncertain future and the best time to sell is at any time—actually now. This is not a business that the Government should be in and there are a number of other State-owned enterprise businesses that the Government should be getting out of.

Opposition members all tell us about the revenue stream that the taxpayer gets from these assets but they never talk about the risk. Well, the Government should not be in the business of accepting the risks inherent in commercial enterprises.

Another thing that is missing, I am afraid to say, is actually tax reform. I had somebody come to see me in my electorate office just the other day and it brought home the practicalities of having a number of different punitive tax rates. Every year—we heard this morning—$750 million gets left on the table by people paying too much tax and I found out that about just $8 million of that is low-income people getting their cheques from the Auckland Energy Consumer Trust, withheld at the top rate when they should be paying a lower rate.

If this Government really believes in success, really believes in meritocracy, and really believes in a practical and easily applied tax system, then what it should be doing is moving top tax rates that have minimal fiscal impact but send a message to every New Zealander that “Your efforts do not really make a difference and if they do, we are going to take, not just more money in proportion to what you earn, but more of it off you.”

What I will finally close on is to say that what is really missing from this Budget Policy Statement is not a forecast for this year or next, but where we will be in decades to come if we do not adjust our long-term settings for policies such as superannuation affected by demographic change. I look forward to talking to more and more members around the House about what exactly we can do about that. Thank you.

Free Press 23/03/2015

Stealth Taxes in the Spotlight
It’s been five long years since National’s tax cuts, and it feels like the taxman’s grip is tightening. There’s a reason: bracket creep. Inflation means our earnings go up on paper, pushing us into higher tax brackets whether we have any real increase in spending power or not. ACT Leader David Seymour has revealed research showing an extra $1036 has been taken per average household through bracket creep since 2010. We think that if the government wants to tax us more, it should do so openly. Indexing tax brackets to inflation would end stealth tax increases.

Charter Schools a US Success
Critics of Partnership Schools say charters are failing in the US. They point to a 2009 Stanford University study with ambiguous results. Since then, Stanford has updated its findings. Successful education techniques have proliferated. Effective schools have grown while ineffective ones have closed. Charters now outperform public schools across the board. Recent news from Massachusetts shows students are learning four times faster in charters than in public school students for reading, and six times faster for maths. And the biggest beneficiaries have been children living in poverty. Free Press is quietly confident that Partnership Schools will help address New Zealand’s educational inequality.

A Funny Thing about the Critics
For Partnership School critics, failure is doing no better on average than public schools. This means no better on measurable features of schools. They put no weight at all on other factors, like parental choice of education style, school culture, the standards set, and so forth.  That speaks volumes.

Fireplaces and Emissions
A few months ago, a report on New Zealand’s air quality was released by the Secretary for the Environment and the Government Statistician. And on 5 March, Parliament’s Commissioner for the Environment released an informative commentary on this report. The paper is technical but, in summary, we seem to be applying the wrong air quality standard. Because Auckland is coastal, a major proportion of measured particulates come from sea spray, which is not a concern at all. The Auckland Council has a misplaced obsession with eliminating the remaining domestic open fireplaces in Auckland ‑ they would be better to focus on diesel vehicle emissions.

Auckland Convention Centre
It’s no secret that ACT doesn’t like the convention centre deal. The government shouldn’t be involved in what amounts to crony capitalism. But that doesn’t mean that just because New Zealand First rocks up with a private member’s bill to cancel the deal, breaking existing contracts with all manner of unforeseeable consequences, that we would support them. The public rightly dislikes the sense of a tail wagging the dog. We respect the proportionality of Parliament. The convention centre deal was made in the previous term of government, and would have to change dramatically before a Party with just one MP could justify torpedoing it at this stage.

We are under no illusion that ACT might pick up another seat this weekend!  Our focus is building our profile for 2017. It looks like a close race in Northland, even though the self-styled force for the north looks to be degrading even faster than Cyclone Pam as it reached New Zealand.  Loyal ACT supporters have indicated that, in order to preserve ACT’s leverage in Parliament and in the hope of getting some job-creating RMA reform, they will probably give their vote to the National candidate this time round. We have no problem with that – we will be after their vote in 2017.

Time to end stealth tax increases

ACT Leader David Seymour has today called for an end to the stealth increase of tax rates through bracket creep.

“Each year, inflation pushes a larger proportion of New Zealanders’ incomes into higher tax brackets, regardless of whether they’ve had an increase in real earnings,” said Mr Seymour.

“Tax brackets should be adjusted for inflation.

“Even with low inflation this stealth tax of ‘bracket creep’ means that the average household is $1036 worse off since the tax changes of October 2010. An individual taxpayer on the average income is $648 worse off.

Mr Seymour’s focus on bracket creep comes after the Minister of Finance stated low inflation ‘makes it more challenging for the Government because higher inflation pushes up the tax base and enables us to collect more tax in a growing economy’.

“If the government wants to increase taxes, it should do so openly. This is a basic principle of transparency, and honesty in taxation.

“I propose tying tax brackets to the Consumer Price Index, meaning tax brackets would rise with inflation, stopping stealth tax increases and ensuring government revenue collection is open and transparent.

“The best time to act is now – current low inflation means a switch to inflation adjusted tax brackets would have relatively little effect on government forecasts.”

Time to cap rate rises in Northland and beyond

Massive rate increases will not happen anywhere under ACT, said Northland candidate Robin Grieve today.

Grieve was responding to the announcement by the Whangarei District Council that ratepayers could face increases of over 9% for one year and further ongoing increases of 2% above inflation, as reported in the Northern Advocate

"These increases are outrageous. The power to levy rates is an extraordinary power we give to councils and it must not be abused," said Mr Grieve.

"The best way to protect ratepayers from rate abuse by councils is to fetter council powers. ACT campaigned at the last election on limiting the ability of councils to increase rates by more than the rate of inflation. As an MP, I would will introduce a private members bill to do that.

"This will place the same expansionary limits on council that all individuals and businesses live with.

"The Whangarei District Council has suggested the rate increase as one option, with reduced services another. The best option, which is to improve efficiency, was not considered by the Council.

"Efficient local governance will only be achieved by limiting the powers of councils to continually levy us with higher and higher rates."

Free Press 16/03/2015

A Good Keen Man
Robin Grieve continues to get rave reviews around Northland.  He has the best one-liners of any candidate.  Free Press followed him around Mangawhai on Sunday where he pointed out that shooting oneself in the foot would not send much of a message.  We understand loyal ACT voters may vote strategically for the National candidate, but Robin’s campaign shows ACT is strong. 

Resource Management or Revenue Gathering?
Radio New Zealand reports on an Ashburton farmer fined $10,000 for removing thorny Matagouri bushes from his land without council permission.  Matagouri is hardly threatened and is considered a nuisance by many farmers.  Why this madness? Perhaps it is because, by applying the Resource Management Act in this way, the local council has generated revenue from this minor slip-up.  Is it any wonder council bureaucrats rarely voice support for RMA reform?

Green Chaos
When Richard Prebble stepped down as ACT leader, four out of eight caucus members stood to replace him.  Chris Trotter said at the time this was symbolic of ACT’s hyper individualism and disunity.  Three out of six male Green MPs now think they would be the best co-leader, with another challenger from outside caucus.

Green Party X Factor
Last week the Reserve Bank delivered its March 2015 Monetary Policy Statement, leaving the cash rate (the OCR) at 3.5%.  It was big news.  During The Nation’s panel on TV3 over the weekend, one of the Green Party co-leadership candidates was asked what the OCR was. He hazarded a guess of 7.8%.  Oh well, maybe this level of complacency about the central bank shows the Bank is doing a good job.

Independent Central Banks are Important
You really notice central banks when the politicians take them over.  Remember Zimbabwe’s hyper-inflation? Eventually the locals started using US and South African currency. The Reserve Bank of Zimbabwe (RBZ) is now buying back and cancelling the old currency, as it establishes a new currency pegged to the US dollar.  According to its recent monetary policy statement the RBZ will be demonetizing old banknotes at a rate of Z$35 quadrillion to US$1. The highest denomination note ever printed by the RBZ is the $100 trillion note, now worth US$0.03.

More Green X Factor
Part of the job description for an MP, you would think, is keeping up with the general macro trends in New Zealand – and this is all the more important for those who fancy themselves leadership material. On The Nation’s panel one MP was asked the growth rate of the economy, answering 0.25%. A miserable quarter of a percent! Trying to talk the economy down maybe? A guess of around 3% would have been reasonable. Another Green MP took a stab at the inflation rate, suggesting 2%, rather than the recent actual annual rate of 0.8%. There were other amusing moments from The Nation’s panel we could mention – but we don’t do bullying on our show.

One of the finest tweets during The Nation's panel performance was this from @kominsens: “When it comes to stats and measurement the Greens will use the 500 year old Kauri formula”. Who needs accuracy when some numbers just sound good?

The Real Problem
Free Press recently saw the real difficulty that the Greens have, up close.  When the Finance and Expenditure Select Committee interrogated Transpower representatives, nearly all committee members took part in a sophisticated discussion about the future of the industry.  Once upon a time the Green member might have been the only one talking about solar panels, smart meters, distributed generation, electric cars, and so on but these are now mainstream issues.  If anything the Green member who, like her colleagues, is elected by an efficient campaigning machine more than personal merit, was a slouch in the discussion.  Without a clear and uniting raison d’etre, it is every man for himself.  Free Press predicts a turbulent term and further decline in the Greens’ vote share.

Good News
The latest ERO reports on Partnership Schools have been published… and they are excellent.  Critics of the schools put huge resources into making sure the media highlight every minor problem when in reality these schools are doing wonderful things for students who need this education choice.  Free Press won’t let the positive stories fall through the cracks.  Let’s celebrate these brave education innovators. 

Free Thoughts - Revealing moments: The Greens

The Greens are excited about the potential of solar power.  So am I.

The greater the potential of solar power and other non-fossil fuels, the less we need to worry about current projections on CO2 emissions and global warming.

Somehow it seems the Greens have not quite got their heads around this.

The issue of climate change animates the Green Party. I don’t entirely dismiss the concerns of the Greens on this issue, but do note that they invariably reach for the worst possible scenarios to make their case. There are many scenarios, with enormous uncertainty about probable outcomes.

As for solar power, a recent tweet from Gareth Hughes linked excitedly to a report that suggests solar will become the dominant electricity source around the world in the coming decades. The Deutsche Bank report he linked to argues that as solar becomes cost-effective versus conventional fuels it will eventually displace large amounts of fossil fuels.

The report suggests that by 2050 solar will represent 30% of energy markets.

I share the excitement about such developments. I have been following this issue with interest for some time.

For example, last year the International Energy Agency said that solar could be the top source of energy by 2050. Financial markets are focusing on this issue. Barclays Bank downgraded the corporate bonds of US electricity utilities in May last year because of concerns about the long term challenge of solar power to existing utility businesses.

So something significant is happening. There is undoubtedly a major energy transition ahead – the issue is just how many decades ahead that may be.

Given these trends, all the panic about rising CO2 levels through the second half of this century will have to be jettisoned.

All the IPCC projections for this century will be wrong. 

Not just a little bit wrong, but wildly wrong.

All the worries about extreme temperature rises due to sustained increases in CO2, on the usual “no technological change” assumption, will be beside the point.

As they often say in financial markets, the thing everybody gets wrong is underestimating technological change.

In short, if the Green Party excitement about solar is justified – and I hope it is – then rising CO2 levels through this century and consequential global warming is much less a concern than the Greens think.

You can’t have it both ways.

If so, once again human ingenuity, technological change and market mechanisms will have solved a pressing problem.

One final point. If solar power cell and battery storage costs continue to fall, the justifiable excitement about the future of solar does not mean we should start a wholesale shift to solar now.  That would be to waste money.  It just means that before too long most of us will be investing in solar for perfectly normal market reasons: it will be cheaper than the alternatives.


Peters' promise to upgrade rail everywhere except Northland

An upgrade of the Northern rail link was conspiciously missing from Winston Peters' 2014 election promises, ACT Northland candidate Robin Grieve has revealed today. 

"In a speech last year announcing New Zealand First's transport policy, Mr Peters promised rail upgrades to regions and cities all over the country, but nothing for Northland," said Mr Grieve.

"He totally forgot us. The Napier to Gisborne line was to be reopened, the Auckland suburban rail line to be electrified, Wellington to be extended to Levin and Wairarapa, and Canterbury upgraded. 

"Northland was truly forgotten by him and New Zealand First. Now he wants our vote, we in Northland are suddenly important to him. Presumably the people of Napier to Gisborne are not important anymore. 

"The rail link will come at the expense of the Puhoi to Wellsford motorway. It would be a poor substitute to a modern motorway which will cut travel time to Auckland, reduce the cost of goods transported in to our region and increase the value of goods we sell. 

"It is vital that the motorway go ahead and that the MP that represents our region has a genuine interest in us, instead of being someone who has forgotten us for thirty years and then makes promises he can't meet."

Winston Peters' original speech can be read here:

Free Thoughts - Revealing Moments: Labour

When a politician reaches for some information to score a point against political opponents, it pays to check for consistency with other policy positions.

A recent example from the Labour Party was revealing.

Labour members have been busy attempting to look furious that the government has not reduced ACC levy rates as much as possible. They think the government is playing politics on this issue.

Well what do they expect?

ACC is a government agency – of course it’s a political football. That’s what happens with government agencies.

Labour have treated ACC that way for years.

You shouldn’t be surprised when politicians set ACC levies for political reasons. If you don’t like that – and the ACT Party certainly does not - you shouldn’t have these organisations as government agencies.

Monetary policy was a political football until we took it away from politicians and gave the Reserve Bank independent powers.

The solution is for ACC to be forced to compete with other insurers. And then the smart thing to do would be to sell it.

Then prices will adjust according to market conditions, rather than according to the whims of the government of the day.

So, this is all politics as usual.

But the really interesting thing about the focus on ACC, is that the Labour Leader has been making ACT-style arguments about the costs of not reducing what is, in effect, a tax.

Might the Labour Party be getting rational at last about economics and about incentives?

Labour members have been arguing that the ACC levies are set too high, by up to $350 million a year.

Labour commissioned economic analysis from Infometrics. This analysis used Treasury’s Cost-Benefit Analysis Primer assessment of a deadweight cost of taxation of 20%. Using that estimate, and running the foregone income through input-output tables, produces an estimate of almost 700 jobs lost as a result of not cutting this levy/tax more than planned.

So Labour have now signed up to standard economic analysis acknowledging the substantial cost of taxation.  When you raise $100 additional revenue through taxation you better spend it wisely, because it has cost the economy (all of us) an extra $20 to raise it. If you only get $100 in value from the spending, you have wasted $20.

Remember this every time politicians advocate high taxes.

In fact, remember this when Labour advocate spending more – the tax burden is ultimately what government spends.

We all know how to multiply spending proposals by 0.2 to get an estimate of the deadweight costs of the policy.

Will Labour members continue with this commendable effort to apply economic analysis to their tax and spending proposals?

I suspect not. As Winston Churchill once remarked, men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing had happened.

Winston Peters powerless, allegations ludicrous

Winston Peters would be powerless as Northland MP
"Winston Peters is either lying or dreaming when he makes promises of rail upgrades and extensions," ACT Northland candidate Robin Grieve said today. 

Mr Peters is reported in the Northern Advocate as saying that the Northland MP he would have the numbers to deliver his promises. 

"If elected, Mr Peters' ability to deliver policy won't change. He will be able to do no more for Northland as its MP than he can do now as NZ First Leader. The only beneficiary will be his party, which will receive an extra list MP – from the other end of the country. National would still have the numbers to govern with ACT and its other support partners. 

"Even if Mr Peters did have the power, his policies would not come without cost. Last year he called the Roads of National Significance programme 'bloated and expensive' and 'massively extravagant' – a programme that includes the planned Puhoi-Wellsford motorway extension that Northland needs so desperately. He promised to transfer $300 million away from this programme to fund his rail bribe."

Allegations against ACT candidate are ludicrous
Allegations against ACT by independent Northland candidate Bruce Rogan were addressed as ludicrous by Robin Grieve today.

"It is disturbing that Mr Rogan has provided no corroborating evidence supporting the ludicrous allegation that ACT has been saying the people of Mangawhai cannot vote in the by-election," said Mr Grieve.

"We hope that this isn't an orchestrated attempt to attack ACT. Perhaps it is simply a miscommunication around the voting rights of Mr Peters, who is not able to vote for himself unless he changes his place of residence from St Mary's Bay, Auckland, to Northland.

"Mr Rogan has already effectively endorsed Mr Peters. He is prepared to sacrifice the future of Mangawhai by supporting a candidate who opposes the Puhoi to Wellsford motorway. 

"Mangawhai will boom and their rates issues will be resolved when that motorway is complete – unless, of course, Mr Peters wins the Northland by election."