Labour fights budget bill to the last clause

After a final assault by the Labour Party, Parliament has passed legislation giving effect to the budget's tax reforms.

The debate on the Taxation (Budget Measures) Bill began yesterday under urgency and ended just before 4pm today with a vote of 67-51 on its third reading.

Revenue Minister Peter Dunne told Parliament it was the most radical restructuring of the tax system since the 1980s.

It would help create a more balanced and rational tax system and was designed to strengthen growth and support productivity and investment.

"This legislation will give people greater incentives to work, to save and to invest," he said.

"It makes our tax system fairer, more coherent and with better integrity."

Labour's finance spokesman, David Cunliffe, said it was a budget of broken promises.

The Government had promised not to raise GST, it had promised to make everyone better off, and it had promised to protect frontline services, he said, and all those promises had been false.

"When the rosy glow of Beehive spin wears off, New Zealanders will know they've been swindled," he said.

"They were promised a step change, they got a step back to the failed policies of an old-fashioned National Party budget that rewards the rich at the expense of the poor, and the forgotten middle class is forgotten again."

Mr Cunliffe said inflation at 6 per cent, a consequence of the tax cuts, would wipe out any benefits for all those except the wealthy.

"Inflation will feed into mortgage rises and interest rate rises - if there's one sure way to kill of a recovery, it is to raise interest rates," he said.

Mr Cunliffe produced Treasury forecasts which showed the economy would grow at a higher than the previously forecast rate next year but in 2012 and 2013 it was projected to grow at less than the forecast rates.

"On Treasury's own figures, it fails. It takes New Zealand backwards. It doesn't leave New Zealanders better off," he said.

"And the middle class is being told not to be envious because the upper class deserves it."

Government MPs rejected his arguments and the bill went through with a solid majority.

The Maori Party cast a short vote of three in support, which caused Labour to question why two of its MPs weren't there.

There has been friction in the caucus because Hone Harawira doesn't support the increase in GST and said yesterday he wasn't going to be in Parliament for the vote. Another was away on official business, and co-leader Tariana Turia confirmed the party's position was to support the bill.

In other budget developments today:

* Prime Minister John Key said the increase in GST to 15 per cent would not have a substantial impact on inflation and would not cause a rise in interest rates which was likely to happen later this year anyway. The Reserve Bank would ignore it. "Australia has had six interest rate hikes since they have been coming out of the recession so if there are any interest rate hikes in the middle of the year (in New Zealand) it won't be as a result of the budget."

* Finance Minister Bill English told economists and business leaders the Government was tilting the economy so there were incentives for skilled people to stay in New Zealand, and for everyone to increase their savings. He said people shouldn't worry about how the budget affected rich people - which the Labour Party is playing on. "If you wanted to worry about top income earners, you would make a law saying no one could earn over $100,000."

* The Property Investors' Federation said rents could increase by 4.5 per cent to 6.5 per cent because of the changes to property taxation - about $24 a week for the average rental house.

* Mr English said parents might have to pay more for early childhood education but changes were necessary to avoid "drastic decisions" in the future. Estimates of the possible fee increase range from $25-$42 a week per child.

- NZPA