Dunne Peter: Taxation (Budget Measures) Bill — In Committee 
Text is incorporated into the Bound Volume 
Dunne Peter: Taxation (Budget Measures) Bill — In Committee 
[Sitting date: 20 May 2010. Volume:663;Page:11150. Text is incorporated into the Bound Volume.] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I take a brief call to respond to some of the points just made by the member who has resumed her seat Metiria Turei. She asked whether some dastardly plan was afoot to align the personal and corporate tax rates at 28c at some point in the future. I disillusion her by saying that there are no present plans to move in that direction. The Government’s medium-term intention remains the alignment of rates but frankly that will occur as fiscal circumstances permit. If one looks at the Budget tables and the Budget figures one sees that there will not be a rapid path in the direction that she fears and that others would welcome. 
I come to the real point that lies behind the issue. As the Tax Working Group disclosed the big issue was the discrepancy between the top personal rate and the trust rate because over the last decade since the Labour Government in 1999 hiked that top rate we have seen a massive explosion in the use of trusts. 
Moana Mackey 
: We campaigned on that and were honest about it. 
Hon PETER DUNNE 
: I acknowledge that Labour campaigned on it but it was the most stupid and inept tax decision made in the last decade. It has created a massive explosion in the use of trusts not for property protection reasons but for income sheltering reasons. That explosion has cost revenue and has cost the taxpayers of New Zealand around $300 million a year in revenue forgone. Over the period of the decade that was about $2.7 billion. If Metiria Turei wants to talk about having a tax-free threshold which is extremely expensive she should just bear in mind that she would have been able to achieve that had we not had that leakage over the last decade. The point that needs to be made is that by aligning the rates in terms of the trusts and the top personal rate as is set out in the Taxation (Budget Measures) Bill we will actually secure revenue for the future that can be used to give funding to some of the dreams that members might have. 
I will talk about the in-work tax credit. I am in the unusual position of having been part of the previous Government when the Working for Families scheme was being developed. One of the things that was critical there and members opposite have quite rightly campaigned on it was that that Government wanted a difference between the level of support provided to people who were in work and to those who were not—hence the title the in-work payment. If we were to extend the in-work payment to those who were not in work we would actually defeat the whole purpose of what Working for Families was about. The title was deliberately chosen; it was about families who were in work and struggling to make ends meet and about giving them a boost. Extending it across the field simply broadens the welfare net. I give credit to the previous Government for not including that idea in the original thinking. I think that point detracts from the member’s argument. 
The other thing I mention was that the hoary old chestnut of the capital gains tax was wheeled out by the Greens as part of their Mind the Gap package—I thought that was a railway term from the United Kingdom but never mind. The reality is that a capital gains tax in New Zealand would add hugely to compliance costs would not be fair and would not raise the revenue that is supposed to be attached to it. Over a long period of time it might but it is a simplistic argument to say that we should have a comprehensive capital gains tax exempt the family home and all the revenue that will flow will allow nirvana to be created in this nation. It simply does not work that way. 
I am delighted that we have rejected the notion of a capital gains tax; I think it is time to bury the idea once and for all. It has been floated over the last 20 years and no Government has ever picked it up because whenever a Government has looked at the reality of what it would actually mean it has worked out that it would be worth far less than the trouble the disruption and the chaos it would create. It is far better to move to an alignment of rates far better to smooth out some of the discrepancies that are there at the moment and far better to deal with some of the abuses that we will talk about in later parts of this bill—which are distorting investment patterns and creating biases in the economy—than to impose what would be the ultimate of envy taxes. That is where that policy becomes a complete failure and a nonsense. 
As I conclude I acknowledge that this debate may have a little bit longer to run but I say that it has been a good constructive debate today and I congratulate all of the members who have participated. I disagree profoundly with many of the things that have been said but I think there has been a good airing of the issues. Let us hope that we can continue in this spirit.