Nash Stuart: Taxation (Budget Measures) Bill — In Committee 
Text is incorporated into the Bound Volume 
Nash Stuart: Taxation (Budget Measures) Bill — In Committee 
[Sitting date: 20 May 2010. Volume:663;Page:11158. Text is incorporated into the Bound Volume.] 
STUART NASH (Labour) 
: 
 My colleagues have let me speak because I wanted to continue on this theme that I talked about before because I think it is quite an important piece of legislation. As I mentioned I agree with the Minister of Finance on this and I was explaining what used to happen. If people paid their marginal tax rate at 38 percent they could channel money through a trust and the final rate on a trust was 33 percent. But the dividends or the disbursements from the trust were not counted as income and as someone said there are trusts sprouting up like rabbits in Southland; I think John Shewan said that. People were setting up trading trusts that owned the companies so they were paying a company tax rate. They were paying themselves about $70000 or $69995 just below the top marginal tax rate and then that dividend from the company went into a trust and they were paying money from the trust disbursing it at 33 percent—that is how they were avoiding tax. That is why it is very important to align the top marginal tax rate with the trust rate. 
I do not agree personally with dropping the top marginal rate down to meet the trust rate; one could have increased the trust rate to meet the top marginal rate. The difference with a company for example is that one does not need to have a trust to run a company. People were setting up trusts to avoid tax. There are a whole lot of reasons why people have trusts and I know that the vast majority of members on this side of the Chamber have trusts but the reason a lot of Kiwis have trusts is to protect their assets not to run income through them. But the difference with a company is that dividends that were paid from a company were paid at its marginal tax rate so it was harder to avoid. This will still create an avoidance industry as Metiria Turei has pointed out because if there is a differential it will still create an avoidance industry. But it will not be nearly as high as it was under the trust rate. This is something we would have changed there is no doubt about that. So I support the Minister on this change. 
The Inland Revenue Department also estimated that about 9800 Kiwis were channelling their income through a trust and therefore saying it was not a part of their income and claiming Working for Families. The cost of this was about $57 million. Here is a story. I have a very good friend whom I talked about yesterday who is one of New Zealand’s top entrepreneurs. He went to his accountant who said to him that he was paying too much money in tax and the accountant would channel his income through his trust and he would claim Working for Families for him. This guy is worth about $80 million or $100 million and he threw up his hands and said that Working for Families was not for him and that it was put there for the 335000 Kiwis who actually need that extra money. He said that he was not prepared to do that at all. 
Unfortunately I showed my indignation too early so I could not get the name of this accountant. But although the Inland Revenue Department estimates the number is 9800 people this accountant had told my friend that most of his clients do this so I suspect the figure was a lot higher. I suspect we did not know the half of it. This is why I support this clause in terms of allowing the Inland Revenue Department to get rid of the avoidance industry around restructuring things through trusts. 
Let me talk to Part 2. Am I right in saying that the Minister in the chair the Hon Peter Dunne was the person who set up the Families Commission? 
Hon Ruth Dyson 
: Say that again. 
STUART NASH 
: Did Peter Dunne set up the Families Commission? He did. We have an ex - Families Commissioner in our caucus Rajen Prasad and the thing that astounds me is that Part 2 also takes away the automatic indexing of Working for Families to inflation. That is astounding. I ask the Minister to stand up and tell us his logic behind that. I ask him to stand up and take a call because he set up the Families Commission and Part 2 means it is not now automatically indexed to inflation. It is at the will of the Government. So if inflation which is running at 5.9 percent—that is the Government figure—does not get indexed that means there are a whole lot of Kiwi families who could really miss out. Working for Families was set up because the previous Labour Government understood how hard it was for families to re-engage in the workforce. Kids cost money; we absolutely love them dearly but they cost money.