Norman Russel William: Taxation (Tax Administration and Remedial Matters) Bill — Second Reading 
Norman Russel William: Taxation (Tax Administration and Remedial Matters) Bill — Second Reading 
[Volume:674;Page:20102] 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 The Green Party will not be supporting the Taxation (Tax Administration and Remedial Matters) Bill for similar reasons to Labour. In my first reading speech on this bill I raised the concerns the Greens had at that time about the abolition of gift duty and nothing we heard at the Finance and Expenditure Committee has led me to change my views about the abolition of gift duty as a major problem for the New Zealand tax system. 
People need to understand that a bit of a cat and mouse game gets played between the Inland Revenue Department and trusts because trusts are systematically used to avoid tax in New Zealand. We have a systematic tax avoidance problem involving trusts. It is very hard for the Inland Revenue Department to know what goes on inside a trust. There is some information about what goes on inside trusts but often trusts are quite invisible to the tax department. It is difficult to crack down on tax avoidance activities without information about what is going on inside trusts. 
Gift duty is important because fundamentally it provides a lot of information about what is happening to trusts in New Zealand. Even though on the face of it it does not appear to do much about 220000 statements on gift duty are provided each year. Very little tax is actually being raised but there are considerable compliance costs. People said: “Hey look. You’re not raising much money in tax. There are a lot of compliance costs here. Why on earth are you keeping this thing?” The reason gift duty plays a very important role is that it provides a lot of information about what is going on with regard to trusts which will not be available once gift duty is abolished. The reason it provides information is that people can transfer only $27000 per person per year as a gift without attracting gift duty and they have to register that they are doing that so a bunch of information is provided. Once gift duty is abolished people can transfer very large amounts of money into trusts hide it away and move it around so this bill will facilitate tax avoidance in New Zealand. 
It is quite important for people to understand that this is quite a serious problem. The Minister of Finance even just today in the House was talking about the tax avoidance problem in New Zealand and how it is a significant problem. He talked about a number of changes he has made to the tax system to try to reduce the incentives for tax avoidance and I acknowledge the work he is trying to do there. However by abolishing gift duty we are actually reducing the tools we have available to crack down on tax avoidance. As Mr Nash said earlier $450 million is currently under investigation because of tax avoidance. 
We have some real opportunities with gift statements to track what is happening with assets going into trusts. It is also a great way of defeating creditors. Currently if someone slips some money—quite a lot of money—into a trust if their business goes belly up and their creditors come after them they can hide their money in the trust. At the moment we have quite a lot of information about the money flowing into trusts because of the gift duty statements; once gift duty statements are abolished we will have a lot less. It will also be harder in matrimonial property disputes to track where the money has gone. Currently through gift duty statements we have quite a lot of information about the flow of assets into trusts that are tucked away and hidden away. 
Most of all given all of these concerns about the abolition of gift duty and about the relationship between the abolition of gift duty and the use of trusts for tax avoidance it seems to us to be particularly foolish to rush into this decision to abolish gift duty at a time when the Law Commission is currently undertaking a review of trust law. Trusts are of course very extensively used in New Zealand—more so than in other countries. They are used very widely for tax avoidance as well as for lots of perfectly legitimate purposes. The Law Commission is currently conducting a review in relation to trusts which includes issues such as how much transparency there is around trusts and how much we can see into them. At the moment it is hard to see into trusts let alone to know they exist. If we do not know they exist and we cannot see into them then it is very difficult to figure out whether they are being used for tax avoidance activities or for legitimate activities. 
The Law Commission is currently conducting a review in relation to trusts to try to figure out whether we should be changing the rules around trusts whether there should be greater transparency whether there should be some kind of register and whether there should be a central register of information about the assets being held in trusts and who the beneficiaries of trusts are. If this central register of information were to come out of the review of trust law then it would actually provide an alternative way for the tax department to keep track of what is going on with regard to assets trusts and tax. There is a logic to that. 
If the Law Commission came out with such a recommendation and such a register was set up I think the Green Party and Labour would take quite a different view of this issue. But at the moment that has not happened. We are rushing through this change which will potentially open the floodgates to tax avoidance in New Zealand before the Law Commission has completed its review of trust law which might actually ameliorate the whole problem. For that reason we are not supporting this bill. There are of course lots of good things about this bill and it is a pity that this particular highly contentious issue has been included within it but there we have it. 
As we said in the first reading debate we will not be supporting this bill. I know that National will rush through with this bill with the support of ACT and no doubt United Future—Peter Dunne has been a champion of this bill. I think National members need to look at themselves and ask whether they are absolutely certain in the absence of the Law Commission review of trust law that this bill will not create opportunities for increased tax avoidance. Of course the written advice from the Inland Revenue Department was that it could not be absolutely certain. To be fair the department said it thought the probability was low but it also said it did not really know. It was uncertain what the downstream impacts would be. Given the problems we already have with tax avoidance in New Zealand why would we open another door to tax avoidance when we are not sure of the outcomes?