KAPITI BUSINESS FORUM

SOUTHWARDS CAR MUSEUM COMPLEX
PARAPARAUMU

Chairman Alan Milne, Mayor Brett Ambler, Westpac Trust regional manager Pat Waite, ladies and gentlemen.

This is an important day.

A day to be etched in New Zealand political history - for from today, at one second past midnight - the surtax on superannuation was abolished.

The political infamy of the surtax is known to all of you, but the reality is that New Zealand First has succeeded where other political parties in Government failed.

This tax has a sad past.

It has been a most atrocious piece of public policy. There is nothing more contradictory than a surcharge - an increased tax - being applied to those people who have already saved for their retirement.

This tax was selective, it was ageist, in fact a "form of fiscal euthanasia", it attacked the very people who had done much to avoid being a burden on the State.

And it gave out all the wrong signals, that the reward for being careful, for putting something away for later in life, was punishment - an increased tax.

So to recap. You worked hard, you earn't more and back then, you got taxed more, and then you got taxed on income from savings, all of which you thought was fair enough.

But you never thought you would be taxed more at the very time you needed it, in your retirement.

Labour was barely in power 1984 when it reneged on a commitment and introduced the surtax.

It was a typical, deceitful way of trying to avoid accusations that it was breaking a promise not to change National Super.

Instead of changing National Super, Labour chose to tax the other income that superannuatants may have had.

There have been claims and counter claims, political sleight of hand and straight out political double talk on this issue over the past 13 years.

In 1990, for instance, Dr Cullen, the then Labour Social Welfare Minister, said it would be grotesque to abolish the surtax.

And the Labour Prime Minister Geoffrey Palmer argued that the surtax was a measure of social justice.

(Insert 1, which reads: In 1990, Labour Prime Minister Geoffrey Palmer argued that the surtax was a measure of social justice.)

Then in 1993 Michael Cullen claimed he had always stood out against the introduction of the policy and in 1996 he took another tack when he said the super surtax should be replaced with a new tax rate of 39 cents in the dollar on income over $60,000.

Dr Cullen has also claimed that the surtax had only meant to be a temporary fiscal measure.

How is that for consistency!

No wonder superannuitants were so angry in the run up to the last general election.

The surtax could have been scrapped nearly six years ago if National had stuck to its election campaign promise.

(Insert 2 reads: In 1990 Jim Bolger said the surcharge was iniquitous. He gave a solemn promise the surcharge would go. But for six subsequent Budgets, National retained the punitive tax.)

But then they broke their promise to abolish it, and indeed went further in reverse by introducing a new asset-testing and income-testing regime for good measure.

You may remember that the Finance Minister at the time was Ruth Richardson, the same person who is now fronting for ACT in the Taranaki/King Country by-election

.....that same person who produced the "Mother of all Budgets."

Not bad for somebody living in a $900 a week taxpayer supplied house in Wellington at the time, who traveled overseas on business by Concord, and who asked for taxpayers' assistance with a $20,000 addition to her South Island home so she could meet there with her constituents.

Scrapping the surtax has been a touch stone for New Zealand First. We promised we would rid it from the statute books, and today we deliver on our commitment.

We are against discriminatory taxes - against discrimination generally - and against double taxing to boost Government coffers. But most important of all, we are determined to do the decent thing for the senior citizens of our country - those people who have worked hard over the years to put away a little nest egg for their retirement.

(Insert 3: behind me is a graph of the amount of surcharge collected.)

As you will see, since the surtax was introduced in the 1985/86 income year, it is estimated that close to $3.5 billion has been collected.

The impost of surtax reached an all time high in 1989/90 when Labour was in Government.

(Insert 4 shows the annualised number of superannuitants affected.)

That?s when 34.7% of superannuitants were subject to the threshold. A grand total of 171,000 superannuitants were clobbered by this punitive tax at that time.

A total of $314 million dollars went into the Government coffers as Labour set other record highs in operating deficits, inflation and interest rates.

The run up to the last election is history now, but New Zealand First was instrumental in achieving a substantial rise in the exemption thresholds for the 1997/98 financial year.

In short, political strategists were losing their nerves. They would not repeal the tax, they would just reduce the number paying it.

(Insert 5: as you can see from the graph, there was a sharp drop off in numbers from 1996.)

That is a long way from 171,000 lumbered with the surtax in 1989, and of course from today the figure becomes zero.

As of today, around 70,000 superannuitants will be better off by an average of $55 per week.

It will mean a significant lift in disposable income in areas such as Kapiti - where about 27% of the population are aged 63 and over.

It will also mean a significant lift in my own home town of Tauranga, which we like to think is the retirement centre of New Zealand!

But it is money that should not have been taken from those in their golden years in the first place.

Savings are essential to security, whether you are young or old.

Savings are the source of both retirement funds, and of the capital necessary for economic and social advancement.

Last year New Zealand adults averaged savings of $250 each or $800 million in total.

A lot of attention has been given recently to the current account deficit, which equates to around 7.7% as a proportion of GDP. This is too high, but not as bad as the 9% achieved in 1984/86 under Labour.

While the outlook is for a further deterioration in the short-term, it is expected to steadily improve over the next two years.

There is no doubt that if New Zealanders increased their level of domestic savings, then the current account deficit would be dramatically reduced.

As I noted in a speech last Sunday, one of the reasons we have a current account deficit is the amount of profits going offshore from foreign owned companies operating in New Zealand.

That is a situation I inherited when I became the Treasurer 15 months ago, and that is why the Government is not selling any more strategic assets.

Doing what is right, being consistent, being fair and being accountable are key issues for New Zealand First.

Two days ago I had the privilege to announce on behalf of the Coalition Government that full war pensions would be at last paid to those New Zealand veterans who took part in the British hydrogen bomb testing programme at Malden and Christmas Island in 1957 and 1958.

They were sailors on the frigates HMNZS Pukaki and HMNZS Rotoiti.

Those sailors, some as young as 17 were exposed to nuclear fall out whilst observing detonations, and it was long since time that we recognised the risks they were forced to take while serving their country.

Two months ago we were approached by the veterans seeking relief.

That recognition this week will mean much to the dignity and pride of those men and their families now suffering ill health. But it means something more, it means their country is prepared at last to own up to its responsibilities.

A Treasurer should be for the people - for the many not the few. Being a "People's Treasurer" is just as important as overseeing an economy that is well managed, for running an economy is about people, not blind ideology.

Doing right and being fair is behind the decision on Operation Grapple and the nuclear veterans. Doing whats right and being fair is behind the decision to repeal the surtax from today.

Being fair is behind the announcement we made last night to establish a committee of experts to look into tax compliance.

The committee will be chaired by retired Court of Appeal judge the Rt Hon Ian McKay.

Other members are Dr Tony Molloy, QC, a leading New Zealand barrister specialising in tax law, Professor John Prebble, Professor of Law at Victoria University in Wellington, and John Waugh, a chartered accountant in sole practice.

They have been charged with making recommendations to improve tax laws and policy and above all, to ensure compliance.

Specifically, it has been asked to focus on policy recommendations aimed at:

reducing compliance costs
making tax laws more coherent and understandable, and
to keep the tax system robust against avoidance and evasion.
They will report to Government by December 21 this year.

You will all be aware, I have a continuing interest in tax avoidance and evasion through the Winebox. To me, as I am sure it is to you all here today, tax needs to be fair and reasonable.

We should all be paying our taxes. And that includes all sections of society, from the black marketeer to those substantial companies who think tax is voluntary.

If we all pay our fair share, then we all stand to pay less.

Over the past few days there has been considerable talk about confidence in the market place, whether the crisis in Asia is going to have a greater or lesser impact on our economy, and what the outlook is.

It is difficult to foretell the future and if we could with any great certainty, then I am sure we would all be the better for it.

However, there are some facts we do know, and that is:

inflation is steady and consistently well within the Government's inflation target of 0 - 3%
we are on track to meet our surplus forecasts - let me emphasise this - that we are talking surpluses, not deficits, despite developments in Asia,
and our exchange rates are now at export sympathetic levels.
We should remind ourselves that there are few countries in the world with such enviable records.

Two days ago we announced that the Budget will be presented on May 14.

A great deal of effort has already gone into its preparation and all of the major decisions have been made.

It will be a significant Budget and parts very significant. It will position the economy well to withstand external shocks and position our nation generally for the run up to the 21st Century.

We will not shy away from tough decisions, but I am confident New Zealanders will see it as fair and reasonable and a Budget correctly set for a better future.

A future we will have worked for and because we will have worked for it, we will have earned it.