Taxation (Tax Administration and Remedial Matters) Bill — In Committee Third Reading 
Taxation (Tax Administration and Remedial Matters) Bill — In Committee Third Reading 
[Volume:675;Page:20753] 
Taxation (Tax Administration and Remedial Matters) Bill 
In Committee 
Part 1 Amendments to Income Tax Act 2007 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I stand as somebody who was not on the Finance and Expenditure Committee so I have a number of questions for the Minister in the chair the Minister of Revenue that perhaps can assist me to get a better understanding of the particular issues that are covered in Part 1 of the Taxation (Tax Administration and Remedial Matters) Bill. As I understand it some of the main provisions in Part 1 relate to foreign investment portfolio investment entity (PIE) rules. That is such a complex area of work—and as I understand it it was actually introduced by way of Supplementary Order Paper which was then referred to the Finance and Expenditure Committee after the bill had been referred—and the select committee as I understand it took on board the need for some of the changes to be made and felt it was appropriate to call for submissions on the Supplementary Order Paper and to report the bill back to the House with the provisions of the Supplementary Order Paper included within the bill. This does seem to me to be a sensible way of approaching significant changes to legislation after it has already been introduced. It is a very good mechanism to ensure the public do still have the ability to have a say on matters of significance even though they have been introduced after the legislation has been introduced. 
I guess the question that I would like to know the answer to personally is whether this was because Supplementary Order Paper 220 was not ready for inclusion in the main bill or whether it was something that came up subsequently to the bill being referred and therefore the bill was seen as a convenient vehicle upon which to attach these rule changes. If that was the case then I am pleased that submissions were able to be called on it because I think that approach is way more preferable to bringing a Supplementary Order Paper to the House in the Committee stage. If we had had this Supplementary Order Paper referred to the House at this stage there would probably be an uproar and many expressions of outrage at things being tabled at the last minute and in the dead of night while we were under urgency. Of course it will not get that treatment today because it has been through a good process and submissions were called on it. So I would appreciate an answer. 
I cannot pretend to be an expert on the PIE rules. In fact the one thing that I normally tell people and which I am particularly grateful for is that I have never managed to find myself on the Finance and Expenditure Committee for any period of time. 
Hon Craig Foss 
: We have high standards! 
Hon LIANNE DALZIEL 
: I understand that the new Minister who formerly chaired the Finance and Expenditure Committee—and who was probably chairing the Finance and Expenditure Committee for a considerable part of this legislation if not for all of the legislation—did a very fine job as chair of that committee. No doubt that is what has seen him promoted to the high ranks that he has already managed to achieve. But I am not an expert on the PIE rules and for the sake of the record of the House I would like the Minister to go through the different elements of the adjustments that have been made the purpose of them and how they are intended to be applied with the new legislation in place. 
It does seem to me that the select committee took considerable time and effort not just to accept the Supplementary Order Paper in its entirety and insert it in the legislation but also to go through all the different elements of the Supplementary Order Paper and make some changes to it on the way through. I did note for the record that when the select committee reported back from its consideration it referred to the types of PIE that now exist. It expressed some concern about “the way the PIE legislation is structured with some over-arching rules applying to all PIES.” Therefore “Modifications for specific types of PIE explain how the rules applying to them differ from the general rules. It can be unclear whether certain provisions apply to certain PIES and some provisions conflict. We believe that the diversity of PIEs has made the legislation complicated almost inaccessible and hard to understand.” 
Well I cannot say that I am excited to read that because it worries me greatly that we may have made it inaccessible. I know that people will be making recommendations to people and it is not your average person in the street who will be looking at these matters but if we can avoid complexity we should. 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I am happy to respond to the points the member Lianne Dalziel has raised. I must say it is very rare in a debate of this type to get a detailed cross-examination on the application of the portfolio investment entity (PIE) rules but as the member has bravely walked down that path I am happy to respond in kind. I should go through just a few points here and then talk about the state of the Taxation (Tax Administration and Remedial Matters) Bill as it has emerged from the Finance and Expenditure Committee. 
The amendments the member referred to introduce two new categories within the PIE regime: the foreign investment zero-rate PIE and the foreign investment variable-rate PIE. These aim to align the tax treatment of non-resident investors in a PIE with the tax treatment of direct investors. Resident investors in a foreign investment PIE will continue to be taxed as if they were in an ordinary PIE. These new rules will be optional. PIEs can continue to apply to existing rules where non-residents are taxed at a flat 28 percent on their income. Foreign investment zero-rate PIEs will generally be able to invest only offshore. De minimis levels of New Zealand - sourced income will be allowed—for example so such a PIE can finance its day-to-day operations with a New Zealand bank account. Non-resident investors in a foreign investment zero-rate PIE will be taxed at zero percent on all their PIE income. 
Foreign investment variable-rate PIEs can invest in both New Zealand and offshore assets. Non-resident investors in a foreign investment variable-rate PIE will face a variety of different tax rates depending on the type and the source of the income. Foreign investment variable-rate PIEs will have an option to withhold non-resident withholding tax from distributions made to investors out of unimputed dividends. This will be instead of the PIE paying PIE tax in the normal manner and by withholding the non-resident withholding tax non-resident investors should be able to claim a credit for the tax paid in their jurisdiction. 
The key changes the committee has made include that for foreign investment variable-rate PIEs non-resident investors should be taxed only on interest income from financial arrangements and that matches the treatment of direct investors. Foreign investment zero-rate PIEs should be able to purchase New Zealand - sourced derivatives such as foreign exchange hedges. This is justified as these arrangements could be seen as part and parcel of the PIE’s offshore investments. In addition a non-resident would normally not be taxed on any income earned under New Zealand - sourced derivatives because derivatives do not pay interest. An investment in land investment companies should be allowed. The modifications to the exemptions in the foreign investment fund rules that were to apply if a foreign investment fund invested in a foreign investment PIE will be removed. 
A provision has been inserted to allow a retail PIE to treat income from a wholesale PIE if the retail PIE earned the income directly. This will prevent income earned from foreign investments made by a wholesale PIE in New Zealand being reclassified as New Zealand - sourced income when it was allocated to the retail PIE for example. The modifications to the source rules will be extended so that income from a foreign investment PIE would not have a New Zealand source merely because a contract was made or performed in New Zealand provided that the contract related to the PIE’s overseas investments. 
I am very pleased the member raised those questions. I hope that the very clear and simple explanation I have given in response has clarified a number of her concerns. 
IAIN LEES-GALLOWAY (Labour—Palmerston North) 
: 
 I also must confess like my colleague Lianne Dalziel to not being a member of the Finance and Expenditure Committee which considered the Taxation (Tax Administration and Remedial Matters) Bill and also that this matters— 
Hon Lianne Dalziel 
: But you aspire to be a member. 
IAIN LEES-GALLOWAY 
: I do. I think somewhere deep inside we all aspire. In fact Michael Woodhouse made the transition from the Health Committee to the Finance and Expenditure Committee so maybe there is hope for all of us yet. 
Maybe it was all that talk of portfolio investment entities (PIEs)—I do not know—but I was inspired to get to my feet and make a contribution to this debate. I do not want to talk about PIEs; I thought I might talk about clause 6 which refers to use-of-money interest. Again not having followed this bill through the select committee process on just a first reading of it I have a couple of questions for the Minister in the chair the Minister of Revenue as well. They are probably easily answered by any member of the select committee actually. 
New section DB 3B which is to be inserted in the Income Tax Act 2007 by clause 6 states: “(1) A person is allowed a deduction for an amount of interest they are liable to pay under Part 7 of the Tax Administration Act 1994.” Part 7 put simply states: “A taxpayer is liable to pay interest on unpaid tax to the Commissioner in accordance with this Part.” In other words if we do not pay our tax on time a use-of-money interest is applied to those unpaid taxes and we are liable to pay that tax. This new section DB 3B(1) says that a person is allowed a deduction. It is not clear to me just from reading this at first glance what the criteria are for that deduction—what makes someone able to apply for that deduction—so I wondered whether the Minister would address that issue. 
In an earlier bill I was lamenting the fact that the Inland Revenue Department now owes me money. I wonder whether this works the other way where the Inland Revenue Department has to pay interest on the use of money it has if one ends up overpaying tax student loan fees or anything like that. 
Sue Moroney 
: So you could buy more pies. 
IAIN LEES-GALLOWAY 
: One could buy more pie with the interest that one earned. 
Hon Lianne Dalziel 
: They kept demanding my husband’s student allowance after he paid it all back. 
IAIN LEES-GALLOWAY 
: Well that is what happened to me as well. It is atrocious. It is a terrible situation and I hope that something is being done about that situation. 
As someone who is coming to this for the first time I ask the Minister what the criteria are for getting a deduction for interest that one is liable to pay if one has not paid all one’s taxes and use-of-money interest is being applied to it. I would appreciate the Minister answering that question. It looks like he is keen to get to his feet and give us an answer and that would be fantastic. 
The question was put that the following amendments in the name of the Hon Peter Dunne to the proposed amendments set out on Supplementary Order Paper 254 in his name to Part 1 be agreed to: 
to omit from clause 7DB “EZ 23B(7) (Insurance or compensation for depreciable property replaced because affected by Canterbury earthquakes)” and substitute “EZ 23B(8)(Property acquired after depreciable property affected by Canterbury earthquakes)”; 
to omit from section EE 44(2)(d) in clause 7DC “Insurance or compensation for depreciable property replaced because affected by Canterbury earthquakes” and substitute “Property acquired after depreciable property affected by Canterbury earthquakes”;  
to omit the heading above section EE 47(4) and section EE 47(4) in clause 7DE and substitute the following heading and subsection: 
“Irreparable damage or damage rendering building or grandparented structure useless 
“(4)The third event is— 
“(a)the irreparable damage of an item or property that is not a building or grandparented structure; or 
“(b)the damage of an item of property that is a building or grandparented structure or of the neighbourhood of the building or grandparented structure causing the building or grandparented structure to be— 
“(i)useless for the purpose of deriving income; and 
“(ii)demolished or abandoned for later demolition.”;  
to omit section EE 48(3)(a) in clause 7DF(5) and substitute the following paragraph: 
“(a)the building or grandparented structure has been rendered useless for the purpose of deriving income and demolished or abandoned for later demolition as a result of damage to the building or grandparented structure or of the neighbourhood of the building or grandparented structure; and”; and 
to omit section EE 23B in 12BB and substitute the following section: 
“EZ 23B Property acquired after depreciable property affected by Canterbury earthquakes 
“ 
When this section applies 
“(1)This section applies for a person and an income year (the  
current year 
) before the 2016-17 income year when the person— 
“(a)in or before the current year receives insurance or compensation for items of depreciable property (the  
affected property 
) each of which as a result of a Canterbury earthquake as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011— 
“(i)if not a building or grandparented structure is irreparably damaged; or 
“(ii)if a building or grandparented structure is rendered useless for the purpose of deriving income and demolished or abandoned for later demolition because of damage to the building or grandparented structure or to the neighbourhood of the building or grandparented structure; and 
“(b)in the absence of this section would have in or before the current year from insurance or compensation for the items of affected property (the  
affected class 
) in 1 of the categories referred to in subsection (10)(b) total depreciation recovery income under section EE 48 (Effect of disposal or event) exceeding the total amount for the affected class of depreciation loss treated as a positive amount under section EE 48; and 
“(c)plans in the current year to acquire depreciable property (the  
replacement property 
) meeting the requirements of subsection (7); and 
“(d)gives written notice to the Commissioner under subsection (9)— 
“(i)specifying the affected property: 
“(ii)linking for the purposes of this section each item of acquired replacement property with an affected class. 
“ 
Depreciation recovery income and suspended recovery income 
“(2)The amount for the affected class of the excess referred to in subsection (1)(b) (the  
excess recovery 
) is not depreciation recovery income except to the extent of the amount that— 
“(a)remains after adjustment under subsection (3) or (6) (the  
suspended recovery income 
); and 
“(b)is attributed to an income year by subsection (7). 
“ 
Effect of acquiring item of replacement property if suspended recovery income from affected property not in pool 
“(3)If the person acquires an item of replacement property (the  
replacement item 
) and links the replacement item with affected property for which the person does not use the pool method the amount given by subsection (4)— 
“(a)is treated as not being included in the amount of the person’s expenditure on the replacement item for the purposes of determining— 
“(i)under section EE 16(4) (Amount resulting from standard calculation) the item value or cost for the replacement item if the person uses the diminishing value method or straight-line method for the replacement item; or 
“(ii)under section EE 22 (Cases affecting pool) the cost of the replacement item if the person uses the pool method for the replacement item; and 
“(b)is a reduction in the amount of the suspended recovery income for the affected property. 
“ 
Amount of reduction: expenditure on replacement item and suspended recovery income 
“(4)The amount of the reduction under subsection (3)(a) or (b) for a replacement item and affected property for which the person does not use the pool method is— 
“(a)zero if the cost of the affected property equals or is less than the person’s total expenditure in acquiring with or before the replacement item other replacement property linked with the affected property; or 
“(b)the amount calculated using the formula— 
limited replacement cost x excess 
affected cost. 
“ 
Definition of items in formula 
“(5)In the formula— 
“(a) 
limited replacement cost 
 is the lesser of the following: 
“(i)the amount by which the cost of the affected property exceeds the total expenditure in acquiring with or before the replacement item other replacement property linked with the affected property: 
“(ii)the amount of the expenditure on the replacement item: 
“(b) 
excess 
 is the excess recovery for the affected property: 
“(c) 
affected cost 
 is the total cost for the person of the affected property. 
“Effect of acquiring item of replacement property if suspended recovery income from affected property in pool 
“(6)If the person acquires an item of replacement property (the  
replacement item 
) and links the replacement item with affected property for which the person uses the pool method— 
“(a)the amount of the person’s expenditure on the replacement item is treated as being reduced by the amount equal to the lesser of the amount of expenditure on the replacement item and the amount of suspended recovery income for the affected property after the acquisition of other replacement property with or before the replacement item for the purposes of determining— 
“(i)the adjusted tax value of the replacement item if subparagraphs (ii) or (iii) do not apply; or 
“(ii)the cost of the replacement item for the straight-line method if that method is used to determine depreciation loss for the replacement item; and 
“(iii)the adjusted tax value of the pool of the replacement item if the person uses the pool method for the replacement item; and 
“(b)the amount of the suspended recovery income for the affected property is reduced by the amount of the treated reduction under paragraph (a). 
“ 
Requirements for replacement property 
“(7)An item of replacement property for a person must— 
“(a)be depreciable property that is not depreciable intangible property; and 
“(b)be acquired in or before the person’s 2015-16 income year; and 
“(c)be included in the same category under subsection (10)(b) as the affected class with which the person links the item if the affected class is described in subsection (10)(b)(i) or (ii); and 
“(d)be located in greater Christchurch as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011 if the item is a building grandparented structure or commercial fit-out. 
“ 
Amount of depreciation recovery income 
“(8)The person has in an income year for affected property an amount of depreciation recovery income equal to the amount of suspended recovery income for the affected property— 
“(a)at the end of the income year if that year is the 2015-16 income year and neither of paragraphs (b) and (e) 
apply earlier; or 
“(b)when in the income year the person decides not to acquire more replacement property if neither of paragraphs (a) and (e) apply earlier; or 
“(c)when in the income year the person goes into liquidation or becomes bankrupt if neither of paragraphs (a) and (b) apply earlier. 
“ 
Notice of election for affected property 
“(9)A person choosing to rely on this section to suspend in a current year the recognition of suspended recovery income from the insurance or compensation for affected property must give written notice to the Commissioner— 
“(a)for the earliest income year (the  
estimate year 
) in which the amount of the insurance or compensation for the affected property can be reasonably estimated by the later of 31 January 2012 and the date on which the return of income is filed for the estimate year; and 
“(b)if the current year is after the estimate year— 
“(i)for each income year between the estimate year and the current year by the date on which the return of income is filed for that income year; and 
“(ii)for the current year by the date on which the return of income is filed for the current year. 
“ 
Contents of notice of election 
“(10)A notice under subsection (9) must— 
“(a)describe the items of affected property; and 
“(b)indicate in which of the following categories each item of affected property is included: 
“(i)a building or grandparented structure not referred to in subparagraph (iii): 
“(ii)commercial fit-out not referred to in subparagraph (iii): 
“(iii)depreciable property for which the person uses the pool method: 
“(iv)depreciable property not referred to in subparagraphs (i) to (iii); and 
“(c)give details of each item of replacement property acquired in the current year and the affected class to which the person is linking the item; and 
“(d)give the amount of the expenditure on the replacement item and the reduction under subsection (3) or (6) of that expenditure for the purposes of determining adjusted tax value or depreciation loss; and 
“(e)give the amount for the affected class of the suspended recovery income at the end of the current year. 
“ 
Disposal of replacement property: reduction in cost treated as depreciation loss 
“(11)For the purposes of section EE 48 the amount by which a person’s expenditure on a replacement item is treated as being reduced under subsection (3) or (6) is an amount of depreciation loss for the item for which the person has been allowed a deduction. 
“ 
Relationship to subpart EE 
“(12)This section overrides subpart EE (Depreciation). 
Defined in this Act: adjusted tax value amount assessable income building commercial building commercial fit-out depreciable intangible property depreciable property depreciation loss depreciation recovery income grandparented structure income year liquidation notice pool pool method return of income straight-line method. 
Amendments to the amendments agreed to. 
The question was put that the amendments as amended set out on Supplementary Order Paper 254 in the name of the Hon Peter Dunne to Part 1 and the amendments set out on Supplementary Order Paper 263 in his name to Part 1 be agreed to. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 1 as amended be agreed to. 
Ayes 110 
New Zealand National 57; New Zealand Labour 42; ACT New Zealand 5; Maori Party 4; Progressive 1; United Future 1. 
Noes 10 
Green Party 9; Independent: Carter C. 
Part 1 as amended agreed to. 
Part 2 Amendments to Tax Administration Act 1994 
The question was put that the amendments set out on Supplementary Order Papers 254 and 263 in the name of the Hon Peter Dunne to Part 2 be agreed to. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 2 as amended be agreed to. 
Ayes 110 
New Zealand National 57; New Zealand Labour 42; ACT New Zealand 5; Maori Party 4; Progressive 1; United Future 1. 
Noes 10 
Green Party 9; Independent: Carter C. 
Part 2 as amended agreed to. 
Part 3 Remedial matters and abolition of gift duty 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I will raise exactly the same issue that I raised before but from a slightly different perspective. This issue was not done by way of Supplementary Order Paper but included in the provisions of the original bill—namely the issue of gift duty abolition being included in something called the Taxation (Tax Administration and Remedial Matters) Bill. I say that the Labour Party will be voting against this part and voting against the legislation as a whole because it contains this offensive provision. 
When we look at what a tax administration and remedial matters bill is for we see that it is not for a matter of significant policy such as the abolition of gift duty. That matter deserves to be part of a policy bill not something called a tax administration and remedial matters bill. I believe that it is a fundamental issue in terms of how these things are portrayed to the public when submissions— 
Hon Trevor Mallard 
: It’s misleading advertising. 
Hon LIANNE DALZIEL 
: It is misleading advertising. When we think of the submissions being called for—the select committee puts a notice in the paper and says it is calling for submissions on the Taxation (Tax Administration and Remedial Matters) Bill—do members think that anyone on earth would know that that bill would include a policy matter? Would anyone think that? When I first arrived in Parliament some 21 years ago this year— 
Hon Trevor Mallard 
: Oh! 
Hon LIANNE DALZIEL 
: I know; I was just a child at the time. When I came here all sorts of things used to be hidden behind names like this one. We had the Social Security Amendment Bill that contained benefit cuts. We had the Finance Amendment Bill (No 2)—or 3 4 5 or whatever—again hiding all of these things. The title did not disclose what the detail of the legislation was all about. Here we have the Taxation (Tax Administration and Remedial Matters) Bill which is getting rid of gift duty something that surely should be subject to quite a significant policy debate. I object to the use of a tax administration bill to deal with a matter of policy. 
Let us turn to the matter of policy. When we hear from the Government over and over again that we in this country should not be dealing with matters that we cannot afford when we are looking at changes to benefits and when we are looking at all sorts of things as far as the Government expenditure side goes why is the Government reducing our revenue on the other side of the ledger as part of this? 
Hon Member 
: $1 million! 
Hon LIANNE DALZIEL 
: It does not matter how much we are talking about. 
Aaron Gilmore 
: Saving $65 million a year. 
Hon LIANNE DALZIEL 
: I am sorry that figure is nothing to the National Party. It is nothing to the National Party that $65 million per year is up for grabs as far as this provision is concerned. 
We are actually talking about the Government saying it will do away with a form of revenue for the Government at a time when it is preaching hardship for every element of expenditure on the other side of the ledger. I think that is outrageous. I think it is important that as a country we deal with these issues and we do it on a principled basis. The principle here is that we know that the removal of this particular duty will open up a significant range of tax-avoidance opportunities. We know that will be the case. The Minister in the chair the Minister of Revenue may well shake his head but I expect him to take a call on this part and to respond to this particular issue in order to tell us why no tax-avoidance opportunities—I presume that is what he is saying—are opened up by the removal of gift duty. 
He has already been part of a Government decision to benefit—what percentage of income earners benefited from the tax cuts that we had last year? The top 10 percent of income earners. Now that same group of people is benefiting again from changes to our gift duty regime. Abolishing gift duty in the context of the massive unaffordable tax cuts given to the top income earners in New Zealand last year by this Government strikes me as really just looking after the interests of those people at the very top and not really caring about those who have to pay for an increased cost of living without having any commensurate decrease in their amount of taxation. 
I think gift duty is part of a progressive tax system. Its abolition will favour those people at the top end of the scale. I believe it is important that Government members stand to take a call on this issue to ensure that proper analysis of it is undertaken. 
I also understand that members of the Finance and Expenditure Committee were deeply concerned about the inexactitude of the regulatory impact analysis process. They felt that it failed to achieve the requirements of a robust process. I would like the Minister of Revenue to respond to that as well. 
Hon PETER DUNNE (Minister of Revenue) 
: 
 There are a number of things I should say by way of response. The first is to take up the member’s point about the timing of this legislation. My recollection is that the announcement that gift duty was to be abolished was made in June of last year June 2010. We said at the time that the legislation would be introduced via the next available legislative vehicle which happened to be this Taxation (Tax Administration and Remedial Matters) Bill. There is nothing unusual in policy changes being introduced in legislation of this type because these are in effect umbrella bills. The bill then went to the Finance and Expenditure Committee and submissions were called for on the provisions. The committee went through the bill and came back with a recommendation which we are now implementing many months later. 
Prior to the decision even being made a substantial review had been undertaken across the Government about whether we should simply just increase the threshold or abolish gift duty altogether. It became clear during that review that agencies like the Ministry of Economic Development Treasury the Ministry of Justice the Ministry of Health the New Zealand Police the Ministry of Social Development and the Housing New Zealand Corporation all said that with regard to potential abuses of the system which the member has referred to existing powers in existing legislation were more than adequate to deal with those concerns and that gift duty our second-oldest tax after stamp duty was therefore an anachronism and ought to be gone. 
But the story gets more compelling. Each year several hundred thousand gift duty returns are made to the Inland Revenue Department. Over 98 percent of those are nil returns. We spend about $500000— 
Hon Trevor Mallard 
: Nil tax or nil gifts? 
Hon PETER DUNNE 
: Nil in terms of the— 
Amy Adams 
: Nil tax paid. 
Hon Trevor Mallard 
: Nil tax not nil gifts? 
Hon PETER DUNNE 
: That is right. We spend about $500000 a year administering the gift duty system; we raise about a million dollars a year. So we have a tax that raises $500000 net a year but 98-plus percent of those who are affected by it are not actually caught by it. But here is the rub: any reasonable assessment shows that it is costing taxpayers not $500000 but $70 million a year to comply with the duty. That becomes somewhat of a no-brainer when the advice then becomes very strong that existing legislation in other areas is dealing with the mischief we are seeking to address in the first place. So the logic for retaining gift duty simply goes out the window at that point. The only people who are a little concerned about its departure I dare say are lawyers and accountants who for years have done very very well in terms of filing returns and preparing information to go to the Inland Revenue Department. It has been an easy source of income for them. Well not any longer. 
When estate duty was abolished in 1992 the Government of the day considered abolishing gift duty but decided not to at that point because it was a revenue earner. The reality is that it is not any more. We have significant provisions in other social legislation that take account of the capacity of people to manipulate the system so gift duty’s day has long since been and gone. What this legislation does—and I am very proud of the fact—is bury it from 1 October this year. There will be adequate provisions in other legislation and they will be enforced. That is what was intended to be the case all along. 
The strong argument that one could mount for the retention of gift duty was not all that strong. It was simply that if we take the duty away then other legislation will have to be enforced. That is really what it comes down to. Gift duty has been a convenient way out: we have not needed to worry about enforcing other legislation because we have had gift duty. That is back to front. Gift duty is costing taxpayers a lot of money it is raising very little for the Crown it is irrelevant it is time for it to go and that is what this legislation will do. 
In the time remaining to me I will pick up a point that Mr Lees-Galloway made in relation to an earlier part concerning use-of-money interest. He will find that the answers to his questions are actually contained in the provisions of this part regarding the way in which use-of-money interest applies and also the obligations for both the Crown and the taxpayer in that respect. 
RAYMOND HUO (Labour) 
: 
 With respect I think the Minister was wrong. 
Aaron Gilmore 
: Cutting. 
RAYMOND HUO 
: That member can take a call. The reason why I said the Minister was wrong is simply that estate duties were abolished in 1992 but gift duties remained in place not only for revenue but for a very good purpose. Gift duties remained in place to prevent people from giving away large assets in order to avoid paying creditors to obtain access to Government advantage or to avoid tax liabilities. 
I am inspired by the Minister’s press release published in November last year which I will read out: “Earlier this year I announced”—that is I the Minister not me—“that the Government’s intention to remove gift duty if concerns regarding creditor protection”— 
Simon Bridges 
: Who’s speaking? Is this Raymond or the Minister? 
RAYMOND HUO 
: —the member will listen please—“and social assistance targeting could be addressed.” said Mr Dunne. He went on to say: “Since my announcement there has been considerable work done by officials across government to assess the concerns. This work has revealed that the protection that gift duty offers in the areas of income tax creditors and social assistance has only ever been incidental and very limited.” That is a rather interesting position. 
I was not sitting on the Finance and Expenditure Committee for this particular bill but I had access to the submission from the New Zealand Institute of Chartered Accountants. I am sure the new chair of the select committee Amy Adams will be even more informed in this area. The submission from the New Zealand Institute of Chartered Accountants notes a number of tax-avoidance opportunities that may arise in the absence of gift duty and the institute established at least five such scenarios. The Law Society and a number of other submitters raised a further concern that the abolition of gift duty would create problems for the enforcement of claims under the Property (Relationships) Act 1976 and the Family Protection Act 1955. Of course those submissions are from the lawyers and accountants the Minister just described using very interesting language. 
Even Inland Revenue Department officials cautioned in the regulatory impact statement that tax avoidance could increase in the absence of the duty. I will quote: “it is not possible to precisely determine the extent to which gift duty alleviates issues such as income tax minimisation social assistance targeting and defeat of creditors.” On that note I wish that the Minister would take a call and enlighten us in that area. Thank you. 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 I am very pleased to take a call on the clauses in Part 3 of the Taxation (Tax Administration and Remedial Matters) Bill that cover remedial matters and the abolition of gift duty. I turn to the issues around the abolition of gift duty. I do not think the Minister is giving the fullest picture on these issues. The fact that gift duty raises only about a million or a million and a half dollars a year is not the only point for consideration. Actually gift duty exists to prevent tax avoidance and structuring. By scrapping gift duty we are opening a way to more tax avoidance and structuring. We have to remember—and this is at the heart of why Labour is opposing this part of the bill—that we have seen two rounds of tax cuts for top income earners. I think a chorus of voices is starting to be heard on ongoing tax reductions for those at the top end of town. We need only to read today’s  
Press 
—I know it is in there and it is probably in the  
Dominion Post  
as well—to see the commentary from Warren Buffett the wealthiest man in the world who has commented that he wants to pay more tax should pay more tax and is paying half the tax rate of his secretary which he thinks is wrong wrong wrong. When we abolish gift duty taxes we are furthering the ends of people like that. 
If members think this relates only to Warren Buffett they should take another look. If we look at last Sunday’s  
Herald on Sunday 
 we see that a column by Bernard Hickey noted that we have a situation in this country where a change has happened over the last 20 years. The top 1 percent of income earners are now taking more than double what they were taking in the mid-1980s. They are now taking nearly 14 percent. Fourteen percent of the national income in the hands of the top 1 percent of income earners is a doubling since the 1980s in this country. In America it is 20 percent so Warren Buffett is doing particularly well. Many other people in this country are benefiting from tax breaks like these being passed by this Government under the changes in the Taxation (Tax Administration and Remedial Matters) Bill. But it is just not appropriate—at this point most particularly in our economic and financial cycles when we have this country doing it tough—to send a signal to people at the top end of town that not only will they get two rounds of income tax cuts but also the Government will pass a bill that will effectively allow them to continue structuring things in a way that will not be subject to the scrutiny of the Inland Revenue Department. That is why Labour is opposing this bill. It is wrong wrong wrong to continue piling money into the accounts of people who as Bernard Hickey has observed are already getting 14 percent of the national income—14 percent is in the hands of 1 percent of the population which is a doubling since the 1980s. 
I challenge any member opposite to stand up in this Chamber and say that that is fair and that that is the kind of New Zealand they truly want to live in. When we get extremes of wealth on one hand we will then get the resulting extremes of poverty on the other. I have seen that kind of split in society. I lived briefly in South Africa in the 1980s. That is the kind of split that sees people with barbed wire fences around their homes in the leafier suburbs of town and sees people rioting on the streets because they just do not think they are getting a fair shake. Maybe we have seen some portent of that in Britain in the last couple of weeks too. 
We need to have an equitable society and gift duty may not be an income earner of any real recourse to the Inland Revenue Department but it is there for another reason: it is there to try to ensure that people pay their fair share of tax and that people do not structure and avoid tax through estates. That is the reason for it. In fact the analysis shows why it is important. When $70 million is being spent to avoid $1 million of tax what does that say? It says that there must be some considerable benefit to people for that amount of money to be spent trying to protect them from tax of that level. I say to this Parliament that we have a situation. When we get observers like Bernard Hickey from interestrate.co.nz saying that we have a situation in this country— 
The CHAIRPERSON (Eric Roy) 
: I have rung the bell; the member should sit down. Mr Robertson were you seeking the call? 
Grant Robertson 
: I was seeking the call. 
The CHAIRPERSON (Eric Roy) 
: I call Grant Robertson— 
Hon Trevor Mallard 
: Mr Burns didn’t have more than one call. 
The CHAIRPERSON (Eric Roy) 
: He did not seek the call. Are you raising a point of order Mr Mallard? 
Hon Trevor Mallard 
: No I am just chairing from the seat as you did Mr Chair. 
The CHAIRPERSON (Eric Roy) 
: Ha ha! 
GRANT ROBERTSON (Labour—Wellington Central) 
: 
 During the call that Brendon Burns has just taken Simon Bridges interjected from the other side of the Chamber that Labour was interested in “envy tax”. Well I have something to say to Mr Bridges. I am interested in a fair tax system where people pay their fair share—a fair tax system where people pay their fair share. We have heard a lot about the need to tighten our belts as a country as we deal with recession. We have heard a lot from members on the other side about the fact that these are tough times and there need to be cuts and we need to make sure that every dollar is spent wisely. Who bears the brunt of the need to tighten our belts? Who has to take the steps to deal with the recession? It is those on the lowest incomes. When do we see the people who benefited most in the financial boom times—the people who benefited most from the very things that actually led to the recession—paying their fair share? When do we see that from the Government? That is why on this side of the Chamber we are opposing the Taxation (Tax Administration and Remedial Matters) Bill. The abolition of gift duty is yet another step by this Government in saying that the people who have to pay for the effects of the recession are those on the lowest incomes while at the same time tax cuts—round after round of tax cuts—benefit mainly the highest-income earners. Now gift duty is being taken away. As other speakers have said it is not just about the revenue gathered; it is about the tax-avoidance measures. We now see yet again from this Government— 
Aaron Gilmore 
: Mr Robertson’s a tax expert! 
GRANT ROBERTSON 
: Aaron Gilmore says “tax expert”. I will tell members what I think I might be a bit of an expert on and that is fairness. That is actually giving people a fair go. 
Amy Adams 
: Fairness? Oh my God! 
GRANT ROBERTSON 
: Amy Adams decries the concept of fairness. Well if we do not have fairness in our society if we do not try to include people in our society and give them the chance to achieve their potential then we run the risk of people feeling excluded. We run the risk of London-style activities happening because people have no role in the future of their society if we do not include them. If we as a country keep letting the gap between rich and poor grow that is how social exclusion grows. That means people are not able to fulfil their potential. Bills like this that abolish gift duty and taxation packages from the National Government that favour those who have the most against those who have the least will lead to the gap between rich and poor growing. 
This measure adds to unfairness. It does not mean that people will pay their fair share in our taxation system. And I would say that that should be the basis of any taxation system. Regardless of the details where tax experts are required the fundamentals that parliamentarians get to decide on are whether a tax system is fair. This Government throughout its term has made our tax system more and more unfair. It has weighted all of the tax cuts in favour of those who earn the most; and those who earn the least—those who have actually struggled through the recessionary times—are the people who constantly have to make the sacrifices. The sacrifices are not being made by the people who have not paid tax for years and years. 
We have heard about Warren Buffett from Brendon Burns. We heard from Sam Morgan who said that he should be paying more tax. He said that he should be paying more tax—and he should be paying more tax. He acknowledges that he wants to do that. But Mr Gilmore and his colleagues on the National side are saying that those on the lowest incomes have to take the cuts in services and have the punitive measures put in place and those on the highest incomes continue to get tax cuts and no longer have to pay gift duty. Those are the people being favoured by this kind of provision and that is wrong in my view. This bill has been brought before Parliament as my colleague Lianne Dalziel said through what is called an administration and remedial matters bill but in actual fact the removal of gift duty sits alongside other fundamental policy issues that in my view have made our tax system more unfair and in turn will make our society more unfair. We can do so much better than this by having a tax system that actually taxes income in all its forms. I believe we must do that. 
Hon TREVOR MALLARD (Labour—Hutt South) 
: 
 I do not think we often get bills that more clearly define the difference between the people who are ruling in the interests of the wealthy and high-income earners and the people who care about middle-income New Zealanders and about common sense. I throw back to the Minister in the chair the Minister of Revenue his comments that helped him do so well at a previous election and I point out to him that this bill the Taxation (Tax Administration and Remedial Matters) Bill is not about revenue in the end. I agree with him on that. It is about a brake on transferring wealth to avoid the revenue system in other ways. 
He knows well the thousands and thousands of cases of Kiwis who through use of trust arrangements gain Working for Families. He knows of the kids of the farmers all over the country who drive Ranger Rovers to university and then get full student allowances. They drive to university in Range Rovers owned by the family trust and then they claim allowances while poor kids and middle-income kids—people whose families are earning way below the average income—are not eligible for those allowances. The Minister knows that the brake on the transfer of assets and also income to trusts is gift duty. It is one of the brakes—I think administrative stuff and legal fees are one of them—but it is one of the very important brakes. It does not stop the process but it slows the process. 
It means that for very large assets it can take decades to transfer funds from an individual to a trust or through the forgiving provisions which I am sure the member is aware of. I know that a lot of members opposite are aware of the provisions that forgive and therefore gift. 
Hon Lianne Dalziel 
: They loan and then they gift. 
Simon Bridges 
: Hey I drive a Hyundai man! 
Hon TREVOR MALLARD 
: They loan and then they gift and Simon Bridges is proud of it. He says “I have ripped off the tax system! I make middle-income people pay tax while I avoid mine!”. That is what Simon Bridges says and he is proud of it. I think it is amazing that we have a young member who is meant to be principled but who is so proud that poor people pay tax so he can avoid it—poor people pay tax so he can avoid it. 
I want to know whether the people of Ohariu-Belmont in the Minister’s electorate are aware of that fact because most of them are wage earners and salary earners—the vast majority of them—and I want to know whether they are happy with him acting for the privileged in the way he is doing now. 
You know I agree with the vast majority of his argument on abolishing gift duty. There is not a lot of money in it—there is not a lot of money in it. There is some administration involved in administering it and there is a lot of money spent on lawyers and accountants—far far too much. I mean there is nothing wrong with the photocopier as far as many of these trusts are concerned in my opinion. But this change is designed to let people of privilege hide their wealth hide their income and rip off the State. I am sick of the biggest beneficiaries of the tax system being the rich. I am sick of the Prime Minister getting $1000 a week in tax cuts while the GST goes up on my beneficiaries. I am sick of an arrangement being made to void the tax liabilities of people who are the wealthiest. 
This Minister I believe actually deep down knows what he is doing is wrong. He used to have principles—he used to have principles. We discussed these matters in the past. What he is doing to suck up to his ministerial colleagues is taking a bill through that privileges the rich. 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I was reminded listening to the member Trevor Mallard particularly but also to one or two of his colleagues beforehand about a statement that Winston Churchill once made about I think Aneurin Bevan. He said that the honourable member should not develop more indignation than he can contain which I think was certainly true during the previous speech. 
Hon Trevor Mallard 
: Is that a challenge? 
Hon PETER DUNNE 
: The bar might be high; I do not think the member could get there. 
Let me come to some of the points he has made. I am sorry to disillusion him on a key premise of his argument but I am not in the least unhappy about the Taxation (Tax Administration and Remedial Matters) Bill being passed. I have promoted the abolition of gift duty during the time that his Government was in office and beforehand so I am delighted to see something that I have been committed to for a long time finally being achieved. 
I listened to the arguments that essentially say that this is fundamentally unfair because somehow it is taking away a block. We know it does not actually raise any money but it is a sort of symbolic thing that stops people from behaving in a way that we might regard as inappropriate. Well I have two comments to make on that argument. Firstly tax law is not about symbolism; tax law is about getting the revenue that the Government needs to perform its functions. Every member who has spoken in this debate so far acknowledges that we get no revenue effectively from gift duty but the argument somehow seems to be that it is a symbolic impact. 
The second point I will make is that if we look at the other mechanisms available—the social security legislation the legislation that the Ministry of Social Development administers regarding access to the various long-term health and social subsidies—we can see that provisions within those pieces of legislation can prevent exactly the type of concern that members opposite are professing this afternoon. Then also— 
Hon Trevor Mallard 
: The student allowance legislation? 
Hon PETER DUNNE 
: I will come to that in a minute. The member made reference to the ability of people to manipulate trusts. In fact one of the things this Government did last year was align the trust and top personal tax rates so that the logic of using a trust as an evasion or an avoidance mechanism was considerably diminished. 
The member talks about Working for Families and he talks about student allowances. We have made it very clear. We legislated in the wake of last year’s Budget for definition changes for the purposes of income affecting Working for Families. Work is under way it was announced earlier this year on student allowances—that is about to follow. I am trying to put before the member the fact that a comprehensive suite of measures is being put in place— 
Hon Trevor Mallard 
: The Minister just confirmed it. 
Hon PETER DUNNE 
: Confirmed what? 
Hon Trevor Mallard 
: Confirmed that you can drive the trust Range Rover and then get a student allowance. 
Hon PETER DUNNE 
: Absolute nonsense. No one cannot. A funny claim was made at one stage by the Labour Party in the Finance and Expenditure Committee that somehow one could get all one’s school fees exempted. We went and checked that and no one found any record to give any substance to that claim. I say to the member that the Range Rover claim comes into the same category. 
This issue is a simple one of administrative efficiency. We get no money from this tax we spend about half of what we actually get on administering it and there is a massive compliance cost on people for being part of it. It is a no-brainer when we have other measures in place to address the concerns that members opposite raise that we need not continue with a tax that was put in place in the 1880s—it has been around since 1885—in an entirely different environment from that which prevails today. Members opposite are arguing a bit of nostalgia politics. I would not call it envy politics. It is: “Let’s keep what we’ve always had because it has always been there.” Under that scenario we would never make any change whatsoever. 
This is a tax whose time has been and gone. This is a tax that most New Zealanders will be pleased to see the back end of. The demise of this tax was well and truly foreshadowed. It is now time to perform the last rites on it and this legislation does precisely that. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I want to follow on from the Minister of Revenue’s comments and also those of some of my colleagues. I now have a copy of the regulatory impact statement in front of me. I enjoy reading regulatory impact statements but this one is of particular interest to me because now I understand why the Finance and Expenditure Committee was concerned about it. I want to read a paragraph from it then reflect on another element of it because it has a detailed analysis of where this $60 million to $70 million has come from. “We recommend that gift duty be repealed on the basis of enhanced efficiency simplicity and administrative costs and the significant reduction of private sector compliance costs (although fiscal cost is also a relevant consideration). We believe that gift duty does not fulfil its current objectives and the risks of its repeal are low. However it is not possible to precisely determine the extent to which gift duty alleviates issues such as income tax minimisation social assistance targeting and defeat of creditors. Therefore it is important that affected government agencies monitor the effects of gift duty repeal on their areas and make any necessary operational changes.” 
What is also instructive—and I am so glad I was referred to this—is the Government agencies that Treasury and the Inland Revenue Department consulted on this measure. There were the obvious ones—the Ministry of Economic Development the Ministry of Justice the Ministry of Health the Ministry of Social Development and the Housing New Zealand Corporation because they are all relevant—but also the New Zealand Police. I think the New Zealand Police is in that mix because of the whole risk area around money-laundering. I think the Minister should give us a little bit more of a discussion point around what these different Government agencies have done or are planning to do in order to address issues such as income tax minimisation social assistance targeting fraud and defeat of creditors. I would have thought defeat of creditors would be a matter of significant substance for the Government to consider in these circumstances. 
I come to the question of how much this measure will save the private sector. Various Government members have chipped across the Chamber about how much it is costing the private sector to be exposed to the gift duty regime. I could not quite understand where the compliance costs of $70 million had come from but now I do understand. So I would like to take the time of the House to explain very carefully where the $70 million comes from. 
Under standard gifting programmes to family trusts a number of deeds are required that must be filed with the Inland Revenue Department in addition to gift statements. Initially a deed of sale is required when the asset is transferred to a trust. Then a deed of acknowledgment of debt is drawn up and annual deeds of forgiveness are required to reduce the outstanding debt. The average cost quoted by practitioners is $285 plus GST to draw up the annual deed of forgiveness and to file it along with the gift statement. If this cost is grossed up to reflect the 225000 gift statements filed each year it reveals more than $70 million in annual costs to the private sector excluding the initial costs of setting up the gifting programme the deed of sale and the deed of acknowledgment of debt. Well I find that extraordinary. I do not know whether others find that extraordinary as well. But what the Government is essentially accepting as the basis for its claim that this measure will save $70 million is the fact that the regime we have in place at the moment actually allows only $27000 per year to be transferred without any tax being paid and what the Government wants is for people to be able to transfer the lot instantly in 1 year with no tax implications whatsoever. That is exactly what will happen and that is exactly what the legislation was kept in place to ensure would not occur for a whole lot of other reasons. 
I recognise that the social assistance targeting does use a different set of criteria and often it is the conflict between the criteria that confuses people. They think they can gift up to $27000 a year or forgive $27000 a year of a loan but in fact the social security amount will be $5000 a year. Of course the department can go back year after year over 5 years to look at whether a person has deprived themselves of an asset. 
I remember when the surcharge was in place. A relatively new member of Parliament at the time who had come in at the same time as me one Michael Laws went around the country explaining to people that they could enter into a gifting programme in order to avoid paying the surcharge. He basically said that for 5 years a person had to gift up to $5000 a year but once they had got past those 5 years where the claw-back applied they could gift up to $27000 a year without any worry in terms of shifting that asset. So in actual fact there will be situations where the Government is saying that it will make it absolutely crystal clear that there is no limitation in terms of the transfer of the asset other than changes that may be made directly to the social security scheme as well. 
I have not gone into the question of the creditors because I am a little bit worried about where that might take us. When the Government of the day repealed the estate duty the gift duty it said was retained for an interim period but what I am really unclear about is what processes have been put in place in order to secure those three areas: first the social security regime; second the protection of creditors which is the one that particularly concerns me; and third the area of protection in relation to the question of the means-testing regimes that might apply and also to other areas of income tax. What I am unclear about is whether the Government has actually taken that additional step to provide for this coverage. 
I do not believe that it is unreasonable for the Opposition to want to see something a little bit more than the regulatory impact statement that has been prepared. What the Government has not said is why it thinks it is acceptable that entire assets can be transferred with no implications for taxation or any other purposes. Why is that the driver? It seems to me that having a regime in place that allows an asset to be transferred without tax implications at $27000 a year does stop people from potentially income splitting. It stops people from potentially transferring major assets over to the ownership of someone else in order to avoid something that they themselves find they are subject to. If it really is to protect themselves against creditors then that obviously is a major worry to all of the SMEs—the small and medium sized enterprises—from one end of the country to the other that find themselves at the end of queue after queue after queue trying to get money off people who have declared themselves without assets. They are unable to claim their asset off them because they have transferred it in one fell swoop rather than having to go through this gifting regime. I do not think the Minister has taken seriously enough the issues we have raised. I hope he will take another call actually work through each of those different areas and explain to us what steps the Government has asked each of those departments to put in place to make sure that this measure does not have the impact that I think the regulatory impact statement has alerted the House to. 
When the regulatory impact analysis was done there were five options put forward for the Government’s consideration. I want to know why this particular option was the preferred option. I turn particularly to the question of creditor protection. There is a view that creditors are given some protection by gift duty because defaulting debtors are unable to transfer assets out of their name without either becoming liable for gift duty or entering into a gifting programme. I guess that is one of the advantages of the system as it is at the moment. It is not so much the amount of tax that it collects; it is the fact that people construct their gifting programme over a longer period of time in order to avoid paying the tax. So in fact not paying the tax is part of what it is designed to achieve. The regulatory impact statement talked about the result of gifting programmes being that the person who is transferring an asset receives a corresponding debt asset by virtue of the interest-free on-demand loan that is exchanged with the recipient in satisfaction of a market value sale. The diminishing amount of the outstanding debt remains because it can be forgiven only at a rate of $27000 every 12 months in order to avoid gift duty. I am aware of some instances where the issue has arisen that the $27000 has been gifted within a 12-month period—because it is not a calendar year; it is a 12-month period. I know a constituent who entered into a gifting arrangement where they were on one side of the line instead of the other. It was in the next financial year but was within the 12-month period. But anyway they had managed to get themselves in a bit of bother over that. 
But the point was that a debt valued at $1 million would take an individual 38 years to completely forgive if one was avoiding gift duties—if that was the point of it. The unforgiven portion of a debt under a gifting programme can be demanded in order to satisfy creditor claims against the transferor. If gift duty is repealed gifting programmes will no longer be necessary because the value of allowable gifts would be unlimited. Therefore when a person transfers a large asset there will no longer be any portion of its value immediately available to be clawed back. I think this is a serious issue. It is probably one of the most serious issues and that is because obviously an official assignee looking at a bankrupt situation would be able to use this as some leverage. 
Sitting suspended from 6 p.m. to 7 p.m. 
Hon LIANNE DALZIEL 
: I was talking about creditor protection concerns and referencing the regulatory impact statement that accompanies this legislation. I had just got to the point where I was identifying how the officials who wrote that report had decided that that would not be a major problem. Essentially it was because people involved in gifting arrangements were not going bankrupt left right and centre and therefore it could not possibly be a problem. But my problem is that this gifting programme allows gifting of $27000 a year. People who do not care about the tax implications can simply gift an entire property and pay gift duty on it but people who want to avoid paying gift duty simply have to limit gifts to $27000 a year. Somebody who was coming up to bankruptcy would have the ability to gift away an entire asset and therefore take it outside the disposition provisions of the Property Law Act. That is an issue that is raised in the regulatory impact statement. It talks about the change of the wording in that Act from “intention to prejudice” to “intention to defraud” and the fact that those words have not been defined by the New Zealand courts. Given the lack of clarity this is something we will have to keep an eye on. 
The areas of potential risk for the Government are listed in quite some detail in the regulatory impact statement and I will come back to that in a later call but I will just talk about the Ministry of Social Development benefits the residential care subsidy the Working for Families tax credits student allowances State housing legal aid—and the Government has a legal aid bill before the House; it very narrowly passed its first reading last night—child support relationship property disputes enduring powers of attorney and trust law concerns— 
SU’A WILLIAM SIO (Labour—Mangere) 
: 
 I am a rugby player. I love playing rugby—rugby league. When I played in better times when I was a lot fitter and stronger I used to love selling the dummy pass. I was good at it. I was good at selling the dummy pass. As long as I had somebody to my side I could show the ball and flick it—pretend that I was flicking it—and I would suck in the other side and always get a score. I used to love that. But I hated it when somebody else did it to me. 
I am using that analogy because I suggest to this Committee that when it comes to the economy and taxation restructuring we have been sold many many dummy passes by this Government. I mean there was the tax switch where the top 10 percent of income earners received over 40 percent of the tax cuts. Somehow— 
Dr Rajen Prasad 
: Dummy pass. 
SU’A WILLIAM SIO 
: Yes—dummy pass again. We were told that those wealthy people would invest their money jobs would be created and somehow the rest of the nation would receive the benefits of the tax cuts that had gone to the rich. Well the reality is that we have high unemployment a high cost of living and families who are struggling. 
We can look at GST. Before the election in 2008 we were sold another dummy pass. We were told that GST would not be increased to 15 percent. Then it was increased to 15 percent and we were told that no one would be worse off. Well the reality is that the highest 10 percent of wage earners pay 7 percent of their after-tax income as a proportion in GST while the lowest 10 percent of earners pay an additional10 percent more than that in GST as a proportion of their after-tax income. 
With the Taxation (Tax Administration and Remedial Matters) Bill the proposal by the Government to abolish gift duty is another dummy pass that we have been told about. Supposedly the proposal is because gift duty generates only $1.5 million but the reality is that the Government is doing this because the duty imposes a high level of compliance costs on the private sector. That is the Government’s wording. We have been told another dummy pass: somehow again this is good for the private sector. 
But let us be quite clear. Why is the gift duty imposed? It is to prevent tax avoidance and structuring. So when we remove gift duty it opens up our economy to tax avoidance and structuring. When we listen to the New Zealand Institute of Chartered Accountants we hear that the institute outlines that a number of tax-avoidance opportunities will arise in the absence of gift duty. Those opportunities include the ability for people to split incomes with those on lower incomes the ability to transfer incomes to loss-making entities the ability to transfer assets in order to meet minimum thresholds for financial arrangement rules and foreign investment fund rules the ability for those with a tax liability to divest themselves of the means to pay and then to claim hardship and the ability to make charitable donations via others so that a higher tax rebate may be claimed. That is mind-boggling. We have been told that this legislation will be good yet you have— 
The CHAIRPERSON (H V Ross Robertson) 
: Order! 
SU’A WILLIAM SIO 
: Sorry. The New Zealand Institute of Chartered Accountants has outlined that tax-avoidance opportunities will arise as a result of the removal of gift duty. We have the regulatory impact statement by the Inland Revenue Department officials who say that “it is not possible to … determine the extent to which gift duty alleviates issues such as income tax minimisation”. In other words the removal of gift duty will give rise to tax avoidance. 
Not too long ago I asked a question of the Minister of Revenue: “What was the total amount of company tax if any written off by the IRD for each month since January 2009?”. I will tell members the answer I received. In January 2009 $9.8 million worth of company tax was written off. In March 2009 $30.7 million worth of company tax was written off. In May 2009 it was $8.9 million in June it was $38.8 million in July it was $12.2 million and so the list went on to June 2011 when it was $11.758 million. 
AMY ADAMS (National—Selwyn) 
: 
 I move  
That the question be now put 
. 
CHRIS HIPKINS (Labour—Rimutaka) 
: 
 I have to say that I am disappointed. I am disappointed that the Government is trying to shut down the debate on this Taxation (Tax Administration and Remedial Matters) Bill already. I am quite fascinated as well because this bill is tidying up the tax system and making it simpler and dealing with a number of remedial issues is something that we on this side of the Chamber would normally support. We do support the vast bulk of provisions in this bill but when we get to Part 3 “Remedial matters and abolition of gift duty” we see that it is just tacked on in there as if it is a remedial matter. It is actually a pretty big deal. 
I have to say that my impression of Parliament having been here 2½ years—going on toward 3 years now—is that we can tell a lot about a Government’s priorities by the legislation it chooses to push through under urgency. Here we are under urgency abolishing gift duty which is a tax cut by stealth for the wealthiest New Zealanders. It is a tax cut by stealth—[ 
Interruption 
] Members are getting very excited over there because those members on the other side of the Chamber are all about privilege and all about protecting their mates and making life easier for their mates. 
They talk about the fact that the people at the bottom of the heap unemployed people need to pick themselves up by their bootstraps. Apparently the kids of the wealthiest New Zealanders do not need to do that; they can expect a free lunch under this National Government. This is a National Government that introduced hereditary entitlement to school attendance and now through abolishing gift duty it wants to make life a heck of a lot easier for those at the top of the heap while it pulls out the ladder for those at the bottom. It is yet another example of National’s priorities being all about the people at the top of the heap and not about the people struggling to get by and struggling to make a living. It is all about making it more possible for people to avoid paying their fair share of tax which is what this Government is all about. 
In fact it is not me who is saying that; the Institute of Chartered Accountants said that about this legislation. It argued that the absence of gift duty creates the potential for people to split their income with people on lower incomes in order to avoid paying their fair share of tax. It is another example of National promoting those at the top of the heap by letting them not pay their fair share while those at the bottom of the heap continue to get whacked. Those people who are doing a hard day’s work and flogging their guts out to make this country a better place to provide for their families get whacked with higher tax under this National Government through increases in GST and the like while the Government is going to help those people at the top of the heap who want to give their money to their kids in order to avoid paying their fair share of tax. That is what it is going to do. 
The other thing is the ability to transfer income to loss-making entities. It is another example of National providing a loophole to allow those on the highest incomes and with the most assets to avoid paying their fair share of tax. It creates the ability to transfer assets in order to meet minimum thresholds for the financial arrangement rules and the foreign investment fund rules. It is another example of National doing its bit so that its wealthy mates can avoid paying their fair share of tax. It creates the ability for someone with a tax liability to divest themselves of the means to pay and then claim hardship. They can give everything away to their kids instantly and then say: “Oh my goodness me! I can’t afford to pay any more so you are just going to have to do whatever you do—bankrupt me even. That’s OK; I am not going to pay my fair share of tax. In fact I am not going to pay my fair share of anything.” That is what people can do if we abolish gift duty. They can give all their money away instantly in order to run away from their problems and to run away from their tax liabilities. That is what this National Government is all about—giving it out to the people who have the most assets and the most income and making life a bit easier for them while the people who are working hard who are scraping to get by and who are paying their fair share get clobbered with paying more under this National Government. 
This abolition of gift duty very clearly sets out what this National Government’s priorities are all about and it is not about the hard-working New Zealanders it is not about the people who are trying to pull themselves up by their bootstraps to make life better for themselves and better for their families; it is all about the people who have the most already—the top 10 percent of New Zealanders who have the lion’s share of the tax cuts under this National Government. That is who it really represents. That is who it is here for. Those are the people who support National and fund its election campaigns and they are the people whom this National Government is happy to work in the best interests of. It is not the people who are working hard who are doing their fair share and who are willing to pay their fair share of tax; they get to pay more through things like the increase in GST. I think that says an awful lot about this Government’s priorities and that is the reason— 
JO GOODHEW (Junior Whip—National) 
: 
 I move  
That the question be now put 
. 
STUART NASH (Labour) 
: 
 As someone who sat on the Finance and Expenditure Committee that reviewed this Taxation (Tax Administration and Remedial Matters) Bill I say that there is a lot of good stuff in here. Of that there is no doubt; there is a lot of good stuff in here. As I think I said in my first reading speech on this bill it is a real shame that the abolition of gift duty provision sort of snuck into the end of the bill. As my colleague Mr Hipkins has said a remedial matters bill is really not the place to insert this sort of legislation. 
What we have in front of us is a bill that runs to about 128 pages so it is quite a substantial bill. As mentioned there is a lot of good legislation in there but about one-fifth of a page is filled by clause 110 “Estate and Gift Duties Act 1968” on the abolition of gift duty. The clause is about 10 lines long and begins “(1) No gift duty is payable under the Estate and Gift Duties Act 1968 in relation to a gift made on or after 1 October 2011.” With those two lines a tax is removed that has been in place for a very very long time. 
I am not saying—and Labour made this clear at the Finance and Expenditure Committee—that we are necessarily against the abolition of gift duty. But we have said that the analysis has not been undertaken to prove that this is the right thing to do. I acknowledge that gift duty is collecting only about $2 million a year. I also acknowledge that it is costing the Inland Revenue Department over $70 million a year. So on the surface there appears to be a little bit of discrepancy around that. But a lot of submitters came to the Finance and Expenditure Committee to say “Hold on a second. This has not undertaken a rigorous analysis to check that the unintended consequences of removing gift duty will not be dire for the country.” 
There are a whole lot of unintended consequences of removing gift duty. Let me list just a couple. The first one is the hiding of matrimonial property. When we quizzed the Inland Revenue Department about that in the select committee its officials said: “Well it’s been looked at by another agency and we think it should be fine. But what we will do is take a look at it a couple of years down the track just to make sure that it is working.” Well that is simply not good enough. It is simply not good enough. 
There is the ability to avoid creditors but I suggest that when this bill goes through tonight when it is signed off there will be an absolute rush to lawyers and accountants by everyone who has a trust and who has not gifted all their assets across to that trust. That is what they will do. I know there are legal precedents that allow creditor courts to look back into gifting and into those trusts to see whether there is any sort of ill purpose there. But I suspect that every single person in business at the moment who has not completed their gifting programme will do so in the knowledge that if everything is working well at the moment but turns to custard in 2 years’ time they will be fine. 
The thing that concerns me about the removal of gift duty in Part 3 is that a hell of a lot of legislation and precedents will be set which will be decided through the courts. They will be decided through the courts because the law is not strong enough and there are too many holes. We have already talked about that. In my first reading speech I talked about the ability to avoid paying tax through continual gifting and through gifting from one entity to another. One person I had an email from outlined how easy it would be to launder money. 
I suspect that the vast majority of people who are going to take advantage of this legislation are good law-abiding New Zealand citizens. I suspect that the vast majority of them are going to undertake a gifting programme because they can. But there will be elements—and the Minister of Revenue knows this—of the business society who will take advantage of this legislation and who are just waiting for it to come through to say: “Now is my opportunity.” They will grab that opportunity with both hands and there will be tax avoidance as part of that. Even the Trustees Association said that it believed that a significant number of trusts had not met legal requirements. 
JAMI-LEE ROSS (National—Botany) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 66 
New Zealand National 57; ACT New Zealand 5; Maori Party 3; United Future 1. 
Noes 53 
New Zealand Labour 42; Green Party 9; Progressive 1; Independent: Carter C. 
Motion agreed to. 
The result corrected after originally being announced as Ayes 66 Noes 54. 
The question was put that the amendments set out on Supplementary Order Paper 254 in the name of the Hon Peter Dunne to Part 3 be agreed to. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 3 as amended be agreed to. 
Ayes 66 
New Zealand National 57; ACT New Zealand 5; Maori Party 3; United Future 1. 
Noes 53 
New Zealand Labour 42; Green Party 9; Progressive 1; Independent: Carter C. 
Part 3 as amended agreed to. 
The result corrected after originally being announced as Ayes 66 Noes 54. 
Schedule agreed to.  
Clause 1 agreed to.  
Clause 2 Commencement 
The question was put that the following amendment in the name of the Hon Peter Dunne to the proposed amendments set out on Supplementary Order Paper 254 in his name to clause 2 be agreed to: 
to omit subclause (7BB) and substitute the following subclause: 
(7BB) Sections 3BB 4D 7DB 7DC 7DD 7DE 7DF 12BB and 79BB are treated as coming into force on 4 September 2010. 
A party vote was called for on the question  
That the amendment to the amendments be agreed to. 
Ayes 66 
New Zealand National 57; ACT New Zealand 5; Maori Party 3; United Future 1. 
Noes 53 
New Zealand Labour 42; Green Party 9; Progressive 1; Independent: Carter C. 
Amendment to the amendments agreed to. 
The result corrected after originally being announced as Ayes 66 Noes 54. 
The question was put that the amendments as amended set out on Supplementary Order Paper 254 in the name of the Hon Peter Dunne to clause 2 be agreed to. 
CATHERINE DELAHUNTY (Green) 
: 
 I raise a point of order Mr Chairperson. I have just been informed that we are not casting their vote so I am not voting. 
The CHAIRPERSON (H V Ross Robertson) 
: Can the member be clear: is that for the Mana party or the Green Party? 
CATHERINE DELAHUNTY 
: The Mana party. 
The CHAIRPERSON (H V Ross Robertson) 
: We have had a number of votes for the Mana party. Are all the other votes in order? 
CATHERINE DELAHUNTY 
: No they are not. Could you just delete those votes. I have just been informed we are not voting for Mana at this time. 
The CHAIRPERSON (H V Ross Robertson) 
: So all those votes that were given for Mana previously are to be deleted? 
CATHERINE DELAHUNTY 
: Thank you yes. 
The CHAIRPERSON (H V Ross Robertson) 
: The member has to seek leave for that to happen. 
CATHERINE DELAHUNTY 
: I seek leave for the votes posted for the Mana Party to be removed. We are not voting on its behalf at this time. 
The CHAIRPERSON (H V Ross Robertson) 
: Is there any objection to that course of action being taken? There is none. 
A party vote was called for on the question  
That the amendments as amended be agreed to. 
Ayes 66 
New Zealand National 57; ACT New Zealand 5; Maori Party 3; United Future 1. 
Noes 53 
New Zealand Labour 42; Green Party 9; Progressive 1; Independent: Carter C. 
Amendments as amended agreed to. 
The CHAIRPERSON (H V Ross Robertson) 
: The question now is that clause 2 as amended stand part. 
Hon Lianne Dalziel 
: Can I take a call on clause 2? 
The CHAIRPERSON (H V Ross Robertson) 
: Technically when the vote was called for clauses 1 and 2— 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I raise a point of order Mr Chairperson. I just make a query as this is a matter for the Committee. You have put amendments to clause 2 have you not? So my only query is whether we have actually commenced voting on clause 2. 
The CHAIRPERSON (H V Ross Robertson) 
: We actually did vote on the Minister’s amendments as amended to clause 2 set out on Supplementary Order Paper 254 so because we have already voted on the amendments it means we are unfortunately unable to go back to clause 2. We have already voted on the amendments. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I raise a point of order Mr Chairperson. I felt that you had sought the assistance of the Committee to deal with what is a difficult situation. I listened very carefully to the Chair and clause 2 was not called. If clauses 1 and 2 had both been called I would have taken the call then. In fact I leaned over to the junior Opposition whip and I asked when clause 2 would be called. I really felt that your asking the Committee whether anyone objected to my taking a brief call on clause 2 under these circumstances would be useful. I do not think there is any point in recalling the Speaker back for this if we can resolve it as a Committee. 
The CHAIRPERSON (H V Ross Robertson) 
: I accept what the member says and I am prepared to ask the Committee to let the member have a call. Is there any objection to that course of action being taken? There is none. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 I shall be mercifully brief as a result of the indulgence of the Committee. I wanted to take a call on clause 2 of the Taxation (Tax Administration and Remedial Matters) Bill because it is of course the commencement clause. There are several commencement dates. They traverse all the different elements of this particular bill. 
The reason why I wanted to raise this clause in the Committee of the whole House is there is a significant discussion in the regulatory impact statement about the trust law concerns that arise from this change to the law. This is the issue that I think is particularly relevant to the commencement dates that have been chosen. “The Law Commission is currently undertaking a review of trust law in New Zealand and is expected to release an issues paper shortly. Officials have met with the Law Commission to discuss concerns and will continue to follow the Commission’s progress. The review will broadly consider the various uses of trusts where legal ownership of property is transferred to a trust but control and enjoyment of that property is retained. New forms of regulation such as a central trust register and the compulsory filing of annual trust accounts are among the ideas that have been raised for reform. Such reforms would help deal with information concerns that may arise as a result of the repeal of gift duty. The Law Commission’s work is ongoing and may continue for some time.” 
The point I wanted to make is that given that work is being undertaken to address a number of the concerns we have raised about the exposure the Government allows by abolishing the gift duty for it to do so prior to the completion of this work and the work of a number of departments is I think more than unfortunate. 
The CHAIRPERSON (H V Ross Robertson) 
: Thank you for that and thank you for the Committee’s indulgence. 
A party vote was called for on the question  
That clause 2 as amended be agreed to. 
Ayes 66 
New Zealand National 57; ACT New Zealand 5; Maori Party 3; United Future 1. 
Noes 53 
New Zealand Labour 42; Green Party 9; Progressive 1; Independent: Carter C. 
Clause 2 as amended agreed to. 
Bill reported with amendment. 
Report adopted. 
Third Reading 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (Tax Administration and Remedial Matters) Bill be now read a third time 
. The bill before us is about simplifying the tax system so that it works more efficiently and operates in a way that reduces compliance costs for New Zealanders thereby providing an environment that supports growth. These are obviously matters of particular interest at a time of global economic uncertainty and it is pleasing that a large number of the measures in the bill were welcomed by members on all sides of the Chamber during the Committee stage. 
One prominent feature of this bill is the proposed abolition from 1 October of this year of gift duty. It is fair to say that that measure did not receive a universal welcome from all members of the Committee and it was probably the cause of the most vigorous debate on this legislation during that stage. In my view however it is right that gift duty which has long since ceased to fulfil its function and instead imposes unjustifiable compliance costs should be relegated to history. It has been around since 1885 and has been largely ineffective in recent years in that it raises barely more than the revenue it costs to operate the system while imposing significant compliance costs on taxpayers. Concerns about the matter can easily be addressed by existing social and other legislation administered by other Government agencies. The review that preceded the decision to abolish gift duty was initially a review of the threshold at which it applied and it became obvious during that review process that there was little point in adjusting the threshold and that the tax was so ineffectual that we should remove it altogether and so it has come to be. 
Although much of the attention during the Committee stage focused on the abolition of gift duty it is worth reminding members that there are a number of other important aspects of this legislation. One such significant proposal will help make our Public Service more efficient. Changes to the secrecy and information-sharing provisions in the tax administration rules will bring the Public Service more into line with today’s customer service expectations and help improve efficiency across the Public Service. The present secrecy rules are too restrictive and do not for instance allow a non-English speaker or someone who has hearing difficulties to have a relative or a friend helping them even if they have the taxpayer’s permission. Clearly a dose of common sense is required. 
The information-sharing amendments in this bill will result in improvements in service provision and accuracy efficiency—by eliminating duplication of effort—and the detection and prevention of fraud. These changes will result in a more efficient Public Service providing services that are more tailored to the customer’s needs. 
The bill also includes a number of proposed changes to the rules on the tax disputes process which complement major changes made by the Inland Revenue Department to the way in which it currently administers the tax disputes process. Our tax system relies on voluntary compliance and it is therefore appropriate that disputes which inevitably arise are resolved quickly and efficiently for both parties. 
The bill also includes a number of matters relating to the recent Canterbury earthquakes. The most significant of these is the introduction of roll-over relief for depreciation recovery income. This will apply to cases where an asset is replaced and the insurance or compensation would otherwise have given rise to such income. The timing of income from the proceeds of business interruption insurance is also being changed with effect from 4 September 2010. The bill also proposes to relieve interest charged on overdue tax for some overseas workers in New Zealand who came here to assist following the earthquakes. These workers have unexpected tax to pay as a result of their stays in New Zealand being longer than anticipated. The Government wants to encourage productive investment in Canterbury and these measures will help to achieve that. Officials are still considering further earthquake-related tax issues and they will be brought to the attention of the House as and when it is appropriate. 
In addition this bill reduces tax for non-residents investing in New Zealand through New Zealand portfolio investment entities. There was some rather technical discussion in the early part of the Committee stage about these particular provisions. I should point out that this is an important set of reforms which is designed to assist New Zealand to potentially become a hub for the investment of international funds. By improving efficiency and removing undue compliance costs this bill helps create an environment that supports growth while maintaining the integrity of our tax system. 
It is significant legislation and substantial effort has been put into it by officials and drafters to get it to this point. I also acknowledge the Finance and Expenditure Committee for its thorough consideration of the bill for its good work and for the recommendations that it has brought forward which have been adopted. I am very pleased to commend the Taxation (Tax Administration and Remedial Matters) Bill to the House. 
STUART NASH (Labour) 
: 
 As the Minister of Revenue said there is some very good legislation in the Taxation (Tax Administration and Remedial Matters) Bill. The Finance and Expenditure Committee went through it with a fine-tooth comb and on nearly every single point we came to agreement and consensus and we agreed that this is fantastic legislation. This bill as it stands reaches to about 130 pages and on about 129 ½ of these pages we were in full agreement but there were two lines in this bill that we did not agree on and those were lines at the very end of this bill in clause 110 of 110 clauses. Those two lines read: “No gift duty is payable under the Estate and Gift Duties Act 1968 in relation to a gift made on or after 1 October 2011.” 
That is the shame of this bill. Labour will not be supporting this bill because of those two lines. We believe that the abolition of gift duty is not a good step for New Zealand or the New Zealand tax system. As the Minister mentioned gift duty has been around since 1885. This measure was part of the Estate and Gift Duties Act. Estate duty was abolished about 30 years ago but gift duty was left intact for a very good reason and that is because legislators understood that gift duties stopped avoidance behaviour which we are very very concerned about. 
As we know in the last few Budgets under Labour and National the Inland Revenue Department has been given significant amounts of money to chase those who avoid tax. I think in excess of $100 million has been provided to chase those who are avoiding tax. As officials of the Inland Revenue Department will know this bill will in fact make it easier for certain sections of our society to avoid tax and that $100 million will have to be spread a lot wider as the department seeks to find a lot of avoidance activity that will take place. 
Let me give members an example. There are 325 fraud cases being looked at by the Inland Revenue Department at the moment and four of those cases total $420 million—just four of them. We have received advice that in fact if the House abolishes gift duty there will be a lot more of this money-go-round as it will make it incredibly easy. In fact it will drop any barrier to the movement of money between legal entities trusts companies and whatever. This just adds to the overall complexity that the Inland Revenue Department faces in terms of chasing those who defraud the tax system or who engage in avoidance behaviour. 
I would like—and I very rarely do this—to read out a good chunk of Labour’s minority report on this bill. It is not very long but it is very important. We said: “New Zealand Labour … believe the analysis upon which the gift duty abolition proposal is based is fundamentally flawed because it does not adequately take into account the full range of potential tax avoidance opportunities.” We grilled the Inland Revenue Department on this issue. In my short brief experience in this House and in the Finance and Expenditure Committee Inland Revenue Department officials are very very good at what they do. They answer questions brilliantly but I got the very strong impression that they were operating under orders saying: “This is what the Minister wants and this is what this Government wants; therefore do it. Ram it through.” It was probably one of the very few times when I was not convinced that the Inland Revenue Department was happy with the legislation going through. 
As mentioned there are 130 pages in the legislation and 129 pages were actually very good. We all agreed about it. It makes the tax system more efficient as the Minister outlined. The Minister himself outlined some of the measures we all agreed on—they are great but the abolition of gift duty is not one of those. We also said: “no sensitivity analysis has been provided. No options analysis has been provided. The policy process would not meet the standards expected under a thorough Regulatory Impact Statement.” This bill gets rid of a tax that has been there for well over 100 years. We expected a lot more. We said we were “concerned that the analysis does not address any of the social equity concerns raised by a number of submitters and Labour members on the committee. [We] believe in the first instance that any legislation proposing the abolition of gift duty should [at least] be delayed until the Law Commission’s review of trust law is complete.” 
We made this clear; we asked the officials why they could not hold off. We asked them to just hold off and then if the Law Commission came out with a ruling a strong view or a strong recommendation on trust law they could bring it back to the Finance and Expenditure Committee and we would consider it. We would consider it; we understand the compliance costs related to administering this tax. But they would not hear of that. They would not hear of that because the Minister Peter Dunne made a deal with National and National accepted that deal as part of his support. It will be bad law. 
David Bennett 
: Give it up Stuart. 
STUART NASH 
: It has resulted in bad inequitable law and Mr Bennett knows that. I bet that Mr Bennett on 2 October or maybe midnight of 1 October or midnight on 31 September will be going straight to his tax accountant to say: “Anything I have not gifted into any of my trusts move them across now.” He may have to stand in line because I suspect there is a whole lot of people lining up at the moment as was said to me by a trust lawyer in Napier. A trust lawyer in Napier who makes a lot of money out of this sort of stuff said to me that he has major concerns about this provision. He has major concerns about this—about the equity. An accountant said to me that this is not good law—this is not good law. In fact the only person who believes that this is good law is Peter Dunne. I do not know whether John Key’s Government was hoodwinked or what happened. 
Hon Tau Henare 
: Why are you worried? 
STUART NASH 
: I am worried because this legislation will screw a hell of a lot of New Zealanders. Like a lot of tax legislation put through by that member’s party it is not good for 90 percent of New Zealanders. His party is being consistent this is consistent tax legislation because it favours the wealthy few at the risk of the great many. New Zealand Labour members believe in a fair tax regime that promotes social and fiscal— 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: I advise the House that politics as we all know is the art of the possible. The possible we will explore today is good order. There are 402 Standing Orders in this place. They grant us good grace and good order and an opportunity for all members to make a commanding contribution. 
STUART NASH 
: The New Zealand Institute of Chartered Accountants submitted that although it welcomed the abolition of gift duty in its view there are “a number of tax avoidance opportunities that may arise in the absence of gift duty”. The institute went on to list five. Part of the reason why not much money was collected under gift duty is that there is ignorance of the law. Let me give members one example. I have a friend who is a wealthy individual and we were talking about how hard it is for young people to buy houses. He said he helped both of his children to buy houses; he gave them $100000 each. I said: “You gave them $100000 each?” and he said “I gave them $100000 each.” I asked whether he paid gift duty on that and he said no he did not pay any gift duty on that. I asked whether he knew that any gift over $27500 attracted gift duty. He said: “Oh shivers. No I didn’t know that.” But ignorance is no defence—ignorance is no defence. 
What we should have done in this House is wait until the Law Commission’s report came out done a thorough study on the impacts of the abolition of gift duty and then made an informed decision. This is a rushed decision which the Inland Revenue Department knows will have significant impact upon its ability to chase those who engage in avoidance and fraudulent behaviour. This is not good legislation. Labour will not back it. We think this is rushed and we think this is legislation at its very worst. The abolition of gift duty should not go ahead. Thank you very much. 
AMY ADAMS (National—Selwyn) 
: 
 I will take just a brief call tonight on the Taxation (Tax Administration and Remedial Matters) Bill third reading. Before I touch on gift duty which is obviously a pretty contentious issue in this debate I will reflect on some of the other things this bill does because people listening to the debate this afternoon could be forgiven for thinking that that was pretty much all that was in the bill. 
I acknowledge the comments of the previous speaker Stuart Nash who made the point that there are a lot of good tax changes in this bill and I think they deserve to be put on record although I know that the Minister of Revenue referred to them of course. One of the key changes we looked at was the information-sharing powers that the Inland Revenue Department holds and the restrictions on its ability to do that. The Finance and Expenditure Committee certainly came to the view that the law was overly restrictive the way it was. We have come up with what I think is a good framework going forward to enable sensible sharing of information between the department and other Government agencies. As a member of the Finance and Expenditure Committee I certainly look forward to reviewing how that change operates in the years to come if I am lucky enough to stay on that committee. 
The bill improves the tax disputes process tidies up tax pooling rules and deals with some overtaxation of non-resident investors in portfolio investment entities ensuring effectively that people are taxed in broadly the same manner that they would be taxed if they invested directly in those domestic assets. The Minister also mentioned tonight in his contribution the further Supplementary Order Papers we have seen that tidy up some other tax issues relating to insurance payouts and the rebuild in Canterbury. Of course this House is always very supportive of any aid in that direction. 
Just coming back to gift duty very briefly I touch on the fact that although it has been well traversed that this is a tax that raises very little in revenue terms—$1 million gross; half a million dollars or less net and something like 98 percent of all compliance that goes through the department in relation to this results in no tax payable—it is not unfair to say that there are issues that have to be looked at in relation to how people can divest themselves of assets and ensure that that is not done in an inappropriate way and that it is not done to defeat creditors. But I think the point that has been missed in the debate so far is that this is tax legislation and tax law is not the place to ensure that the legislation is correct around asset transfers and the protection of creditors. Those provisions do exist and the contentions from Labour members that suggest that now it will be all on for man and beast and everyone can pass assets off to anyone they like and avoid anything with impunity are frankly wrong. There are significant powers already in the insolvency legislation and in wider legislation to ensure that gifts that are made solely with the purpose of defeating a creditor or solely with the purpose of entitling oneself to more Government assistance are able to be set aside. 
If the ongoing monitoring of the position post the abolition of gift duty suggests that more work is needed then certainly we will be very happy to look at that. But as a matter of tax law this tax is defunct it is obsolete and all it does is create an industry of compliance with tax lawyers and accountants. It serves no net purpose to the Government’s fiscal books and its time has come. I think the Minister was absolutely right when he said that there is no rational reason for keeping it as a tax law any more. 
Can I also touch on the fact that under existing structures assets can be divested instantaneously. A debt back is created and then that debt back goes through a process of forgiveness over a period of years at $27000 a year per person or $54000 a year per couple. The asset itself goes on day one with or without gift duty. If there is concern about protection of specific assets under current laws that asset—with gift duty without any penalty or payment—can be divested immediately with all capital gained from that date. The only asset that remains as I say is a financial one which at day one is reduced usually by $54000 across a couple and that amount reduces in time. 
To suggest that the picture will change significantly as one might have thought from listening to this debate I think is misleading. I think this is the right step as a matter of tax reform. We will continue to monitor it to see how it evolves but my guess is that the change will not be anything like as significant in terms of asset divestment and avoidance as has been suggested in this debate. The biggest change that we will see is the people of New Zealand no longer having to pay out $70 million to lawyers and accountants to do something that has no public good. For that reason I am very happy to commend the bill. 
Hon LIANNE DALZIEL (Labour—Christchurch East) 
: 
 There are a number of features of the Taxation (Tax Administration and Remedial Matters) Bill that fully meet the intent of something that is described as a tax administration and remedial matters bill. What Amy Adams talked about was not one of them. The abolition of gift duty does not fit within the ordinary definition of tax administration and remedial matters. That has been the Opposition’s No. 1 objection to the use of this particular vehicle for the abolition of gift duty. It is a policy matter of some substance and deserves to be dealt with by a bill that actually addresses policy issues rather than it simply being seen as a matter of tax administration. But there is a reason why this Government has chosen it as a matter of tax administration and I will come to that shortly. 
As members of this House will know I am a great fan of something known as a regulatory impact statement. I sometimes feel like I am the only person who reads them but on this occasion I know that is not the case because every Labour member on the Finance and Expenditure Committee read the regulatory impact statement and they were unimpressed. They were so unimpressed that they actually challenged the content of the regulatory impact statement in their report back to the House. I think that is a significant issue and something this House should take very seriously. If we cannot rely on the regulatory impact statement to provide us with the basis for quality decision-making then heaven help us because actually the people of New Zealand put us here to do something a little bit more than a once-over-lightly and the regulatory impact statement is supposed to offer slightly better than the options offered in this case. 
Let us look at the options but first I should make this point to the House because I think members just do not get what the regulatory impact statement is for. It is supposed to identify the mischief that is to be remedied by the particular proposal that the Government has adopted. It then should identify a range of options that the Government could adopt choosing the least regulatory intervention all the way through to a major regulatory intervention. All of those options would be put on the table and then there would be a cost-benefit analysis a risk-opportunity analysis—all of that work would be done and that is where the regulatory impact comes in. There would also be consultation with major players. Well the consultation on this particular one has been rather an eye-opener for me as well. 
Let us look at the options that the regulatory impact statement put on the table. The first option was to narrow the scope of gift duty. It looked at the people whom the previous speaker was talking about—the family trusts the individuals and the closely held companies. It then looked at the concerns around income tax minimisation social assistance targeting and defeating creditors which largely relate to gifts between those individuals and therefore looked at limiting the rules around gift duty to those particular individuals. 
The second option was to raise the threshold at which gift duty applies noting as the regulatory impact statement did that the current threshold of $27000 per annum for the gifting programme had been fixed in 1984 and had not been revised since then. There was a view that it had not kept up to date with inflation. The regulatory impact statement identified that if the threshold had been adjusted it would be $78291 but it said that that would “dilute gift duty’s protective effect against these forms of targeted gifting by speeding up the rate at which assets may be transferred.” But actually getting rid of gift duty does not just speed it up; it completes the process in one fell hit. So I do not know why that was a good argument but I am sure that somebody in the bowels of whatever department wrote the paper will understand why that was the case. 
Option three was to remove the need to file gift statements for non-liable gifts. I found this absolutely fascinating because we have heard a lot of people saying that about 200000 gift statements have to be filed each year. Well that is quite interesting because the regulatory impact statement states that “The most significant part of compliance costs is not completion of gift statements—rather it is the annual drawing up of deeds of forgiveness which require engagement with a legal practitioner.” That is it. So all of this talk we have heard about the huge cost to the Government of managing the compliance cost in relation to the completion of gift statements does not stack up against the Government’s own regulatory impact analysis. 
Option four is to move to electronic systems. Well I was gobsmacked to find out that in fact they cannot be filed by electronic means at the moment. I do not understand why. It is to do with the original deed having to be filed along with the gift duty statement—which is then photocopied and returned by post. I am sure we could do better than that. I do not know why it was ruled out. The regulatory impact statement says “The financial outlay required to upgrade systems is expected to cost within the range of $1-7 million.” Within the range of $1 million to $7 million? One would think Treasury could come up with something slightly better. It sounds like the good old days when Labour was in Government and we got quotes from the Ministry of Social Development as to how much it would cost to upgrade SWIFT for a minor technical adjustment to a benefit. It was always in the millions and millions of dollars. But $1 million to $7 million to make it possible for the Inland Revenue Department to have a document scanned as an original document and signed off by somebody who would give it the status that it required? I cannot believe it. This document says a lot. 
The last option of course—they have left us only one option the one they wanted right from the start—is to repeal gift duty. The thing I find fascinating is something the previous speaker drew attention to. She said we are saving the private sector $70 million. Is that not wonderful? We are saving people $70 million by getting rid of gift duty. Well do members know how they came up with that figure? It was on the basis that the average cost quoted by practitioners for drawing up an annual deed of forgiveness is $285 plus GST. So what she meant to say is we are saving 225000 people $285 plus GST each so that they can have the benefit of not paying tax on what they are gifting to somebody else in order to divest themselves of their assets. That is what this is about. The Government does not like hearing this but this is about its priority. It is prioritising the same people it prioritised in the tax cuts. It said that 10 percent of New Zealanders would get the bulk of the benefit of the tax cuts and that is exactly what it is doing with this measure. 
That is what draws me to paragraph 57 in the regulatory impact statement: “The number one concern related to the repeal of gift duty from an income tax perspective has until very recently been the ability of individuals to reduce their taxable income by transferring their income-generating assets to a trust. High-earning individuals could transfer assets such as shares or interest-bearing savings to a trust so that the associated income accrues to the trustee. This would allow the income to be taxed at the trustee tax rate instead of at the top marginal personal tax rate.” Now listen to this: “Up until 1 October 2010 this would offer a tax saving of 5%. However alignment of the trustee and top personal tax rate from 1 October 2010 will remove this tax advantage.” But that is the whole point. The Government reduced the top tax rate for its mates and now it is giving them the total benefit by removing the gift duty as well. Those members are saying that it makes no odds because of a change they have made to the tax system favouring the highest-income earners in this country over and above those who struggle to make ends meet every single week because of the price of milk because of the price of fuel and because of the price of their groceries which just go up and up and up. 
This debate says a lot about this Government’s priorities and we know exactly where this will take us as we enter election time because the people of New Zealand will know perfectly well where that party’s priorities lie and it certainly is not with average New Zealand with every New Zealander who sees themselves disadvantaged once more by this Government. 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on the Taxation (Tax Administration and Remedial Matters) Bill. Tax is the price we pay to live in a decent society. Tax is how we afford public hospitals so that when people get sick and have heart attacks they have a public health system that will look after them. That is why we pay our taxes. We pay our taxes so that we have a decent education system so that our kids—and all kids wherever they are from in our country—can access decent education. That is why it is important that we all pay our taxes and that we all pay them honestly and fairly. That is why the symbols around tax are very very important. The Minister of Revenue earlier dismissed this. He said that this is merely a battle about symbols. Actually it is not just a battle about symbols. But even if it was a battle about symbols symbols in tax matter. The reason they matter is that if everyone thinks that everyone else is avoiding their tax then they think it is OK to avoid paying their tax too. But if everyone thinks that pretty much everyone else is paying their fair share then it is very likely that they will pay their fair share as well. That is what is important about the symbols around our tax system. 
Unfortunately since the new-right revolution of the 1980s and the embrace of the “greed is good” culture we have now had the development of widespread tax avoidance and a culture of widespread tax avoidance in New Zealand. We find it from the very top all the way through but particularly amongst higher-income earners. The reason why I say that we find tax avoidance at the very top is that the banks were caught avoiding paying around $2 billion of tax. The High Court found that the banks had been illegally and unlawfully avoiding paying tax and then eventually the banks were forced to repay around $2 billion in tax that they owed to the rest of us because they had been unlawfully avoiding it. None of those people were prosecuted. We have created the problem whereby tax avoidance has become widespread. There was a case recently where someone was caught avoiding paying a very large amount of tax and the punishment was simply home detention. The banks themselves did not receive any punishment whatsoever. No bank executives were put in jail or anything. 
We have a problem with tax avoidance in our country and we have a problem with the culture around tax avoidance. That is why the gift duty issue matters so much. Aside from the content of it it is also about the symbolism of it and about whether everyone is paying their tax. Gift duty acts as a buttress to the tax system. That is one of its purposes. One of the key ways to avoid paying tax that has emerged in New Zealand is through the use of trusts. Income-generating assets have been moved into trusts so that they are taxed at the trustee rate rather than taxed at the marginal tax rate. Gift duty has effectively acted as a dam against large amounts of assets being transferred into trusts. It means that the asset flow going into trusts has been slowed down and that assets can be gifted into trusts at $27000 per year rather than being gifted all at once. The gift duty rules although not appearing to do a huge amount in terms of generating tax have been acting as a large dam preventing an even greater amount of assets from flowing directly into trusts and being lost from view once and for all. 
This has been of major benefit to the tax system. It has generated huge amounts of information about what is going on in terms of assets and attempts to hide income-generating assets and other assets in trusts and that has been very useful. That is why from the beginning of this debate from the first reading the Green Party has opposed this bill. It has opposed it because of the abolition of gift duty. We are pleased that Labour has seen the light. We wish only that National had seen the light and understands the significance of what it is doing. I suspect unfortunately that maybe National does realise what it is doing or maybe it does not. But one of the effects of this bill will be that the dam will be removed. The dam that is currently operating to hold back large amounts of assets and to control their flow into trusts will be removed. A huge flow of assets will go into trusts and from there those assets will be lost from sight to most of us including the Inland Revenue Department. 
One of the arguments that the Government puts up as to why this no longer matters is the equalisation of income tax rates and the trustee rate. The only thing is that these rates will not stay the same for ever. The current Government has equalised these rates but there is no guarantee that a future Government might not think that New Zealand having a tax system that is wildly out of skew with the tax system of most other Western countries and having a very low top marginal tax rate—and I remind the House that in the UK it is 50 percent—is how it should stay. New Zealand will not have a very low top marginal tax rate for ever. It has not been the case in the past and I am sure that in the future we will have a higher marginal tax rate than we have today. At that point once again a gap will open up between the trustee rate and the top marginal tax rate. It is for this reason that wealthy individuals in New Zealand will be cheering with joy when this Parliament passes this bill because they will be free to move all of their income-generating assets into trusts in the full knowledge that were a future Government to increase the top marginal tax rate again their assets will be safe. Their assets will be safe from their fair share of tax in New Zealand. 
In the regulatory impact statement the Inland Revenue Department unfortunately did not talk about this option because talking about future policy changes with a change in Government was not one of the options the department was given the responsibility to talk about. But the reality is that it is a very real possibility in New Zealand that in the future we will have a higher top marginal tax rate than the trustee rate. So this bill will give a lot of people who have very large assets the opportunity to hide them away in trusts so that they do not get caught in the future. It is a very sad day because it fundamentally undermines fairness in our tax system. Once we undermine fairness in the tax system everybody thinks it is OK to avoid paying their taxes. They see the banks avoid paying $2 billion in taxes but nobody gets punished and nobody goes to court. If someone illegally stole $2 billion from the Reserve Bank would it be the case that no one would be prosecuted or get caught? Instead the banks’ executives and their advisers—and PricewaterhouseCoopers was in on this—unlawfully avoided paying their tax and nobody went to court. Nobody personally—none of the directors or the executives—ended up in court. They all got away with it. All they had to do was pay back some of the money. 
The problem with laws like this is that they undermine the integrity of the tax system by reinforcing the idea that the tax system has one rule for the wealthy—as we are seeing tonight with a special rule for the wealthy so that they can hide their assets in trusts—and one rule for wage and salary earners. Wage and salary earners have to pay their taxes; it is very hard to avoid them. That is why we have opposed this bill from the beginning. We believe that the tax system needs to be fair and it needs to appear to be fair. Although there are many good aspects about this bill—and I think there is probably cross-party support for the large majority of this bill—it is fundamentally undermining some of the essential fairness elements of the tax system with these changes around gift duty. 
I say to the Minister that symbols do matter. This bill is about more than symbols but symbols do matter. The Government is saying today that just as all its other tax changes have one single direction which is to move money towards the wealthy this bill we are debating tonight has exactly the same direction to it. When we look at each of the changes whether it is the change to the top tax rate to GST or to gift duty we see that each of them might be a relatively small amount—though the tax changes were not small and 40 percent of it went to the top decile—but when we put them all together they all have the same direction of movement which is to move wealth towards those at the top end. 
I tell members that if we keep adding to inequality in our country through the tax system through the wages system and through every other mechanism then we will end up with a society that we do not wish to live in. If members wonder why people might not be comfortable with what is going on in Aotearoa New Zealand then they should look at inequality and look at what bills like this are doing to inequality. They are adding to inequality which will only make it more expensive further down the track with regard to health education justice the courts the police and crime because inequality produces more costs on all of those things. Thank you. 
Hon JOHN BOSCAWEN (Leader—ACT) 
: 
 It is a pleasure to stand and take a call on the Taxation (Tax Administration and Remedial Matters) Bill. As we heard from Mr Nash earlier most of the parts of this bill are not contentious. They are accepted by most parties in the House and by both sides of the House. Mr Nash used his speaking opportunity to focus on the abolition of gift duty. We have just heard an argument from Mr Norman that the abolition of gift duty is wrong. He said that one of the reasons we have gift duty is to restrict the transfer of assets into trusts away from an individual taxpayer and that it is done for the purpose of reducing one’s personal income tax. But interestingly he acknowledged that simply setting the top marginal tax rate which is currently 33c at the same rate as the rate for trusts negated the benefit of shifting assets into trusts. He tried to argue that the setting of those two rates at the same level would be a temporary measure until such time as a future Labour Government increased the top marginal tax rate. 
I suggest to Mr Norman that he is absolutely wrong. He talked about the reality as being that at some stage in the future that top tax rate will rise. My advice to the people of New Zealand is not to support any political party that would want to do that because as we have heard when we have a difference between those two rates it leads to tax planning and tax avoidance. If we actually wanted to grow the economy reduce tax avoidance and improve the incentives to work hard and save we would do exactly the opposite. We would be lowering tax rates—we would actually lower the tax rates. If there is one thing that the ACT Party stands for it is reducing wasteful Government expenditure and lowering taxes and letting the people of New Zealand retain more of the income they earn. 
It is interesting that Mr Norman talked about a top tax rate of 50 percent in the United Kingdom. It was only last week that Mr Norman was complaining about the social problems in the United Kingdom. We know that the United Kingdom is broke. We know that most of the major developed countries in Europe are broke. Why are they broke? Because they have huge amounts of wasteful Government expenditure they have high marginal tax rates and they provide a disincentive for people to work to invest and to get on. I suggest that Mr Norman look at countries in Asia—the countries in Asia that are growing—and look at the countries that are actually growing during this worldwide recession. What do we see in Asia? We see low rates of tax. I suggest that if the Green Party had the interests of this country at heart it would be looking at how we reduce rates of tax reduce wasteful Government expenditure and provide an incentive for people to work hard and to keep more of what they earn. 
Mr Norman talked about the inequality. He talked about the so-called rich and the wage and salary earners. If Mr Norman was really concerned about wage and salary earners he would be looking at how we could reduce waste and reduce the top marginal tax rate. If we had a top marginal tax rate of no more than 20c in the dollar we would actually have the right incentives. 
The ACT Party will be supporting this bill and we encourage New Zealanders to give further thought to how we can reduce wasteful Government expenditure and lower tax rates. Thank you. 
DAVID BENNETT (National—Hamilton East) 
: 
 I will just follow on from the last speaker John Boscawen who I think made some very good points about the nature of the Taxation (Tax Administration and Remedial Matters) Bill and what it means for New Zealand’s economic performance. This bill is good for the New Zealand economy. It is good for New Zealand taxpayers it is good for the total tax take that New Zealand will get and it is good for making New Zealand businesses more competitive on the world stage. It is sad that Labour and the Green Party especially have to come and say no to good law in this House just because they want to keep a façade going in the public eye of their attack on those who are successful those who have something or those who have worked hard to make something of their lives and for this country. It is really sad that they cannot support good law that is simple that has all the bases ticked and that is in the best interests of New Zealand as a country going forward. They cannot support it because their ideology will not allow them to. That is very sad for New Zealand. The public out there sees through Labour and the Green Party and it realises that those parties do not actually have the best interests of New Zealanders at heart. They have only their own self-interest and what they can do during election campaigns. They try to divide and conquer a country by putting one person against another. They tell people to look over the fence be afraid of other people have fear of them and try to take what they have earned just so Labour can be in control and try to govern. Those tactics do not work any more. The world has moved on. The New Zealand public has moved on. It is time that Labour got out there and supported things that are in the best interests of New Zealand because there is no way that we can support an industry that costs $70 million in compliance costs. Why would one put $70 million worth of compliance costs on New Zealand businesses and individuals for no real benefit other than one’s political motives? It is a very sad day when Labour has to put politics above the people of New Zealand. Thank you. 
TE URUROA FLAVELL (Maori Party—Waiariki) 
: 
 Tena koe Mr Deputy Speaker. Kia ora tatou katoa. In talking to the Taxation (Tax Administration and Remedial Matters) Bill I think one of the components of candidate training that should be part of compulsory learning for all wannabe politicians should be to gain an understanding of the long list of acronyms that are sometimes bandied about in Parliament and in this Chamber. In this bill for example the SOP introduces new measures associated with RWT on trusts and beneficiaries QC and LAQC transition measures and ESCT in the context of employer superannuation contribution tax. I think members get the general gist by just reeling off some of those acronyms. Well today’s new word is PIEs—P-I-E-s. They are not the mince and cheese pies that Todd McClay associates himself with but are amendments relating to the treatment of non-resident investment in portfolio investment entities à la PIEs. 
Even the category “non-resident” is bizarre in a sense: it defines what people are not rather than what they are. It is like “non-Maori” which interprets a person’s identity as not being Maori but does not actually tell us anything about the unique identity of those non-Maori—of Irish American or French whakapapa. 
Currently if a foreign person invests directly in a foreign investment he or she pays no New Zealand tax. By making it more attractive for a foreign person to invest in managed funds it will support the managed funds industry in Aotearoa with the idea that it will lead to more jobs in providing back-office services for managed funds. Another benefit for other New Zealanders is that if we have a greater pool of funds under management we will get economies of scale. This makes it more attractive to foreign investors which ultimately makes it cheaper for investors in Aotearoa as well and for example some of these fund managers include AMP and AXA New Zealand. It is a case of what will be good for the foreign investor will ultimately be good for Aotearoa New Zealand as a whole. 
The Maori Party supports an economy of investment which leads to greater productivity and enhances well-being so in this sense we are pleased to support the Taxation (Tax Administration and Remedial Matters) Bill. I have to say pretty quickly that the Maori Party considers it necessary to carefully scrutinise and manage all foreign investments by non-residents in Aotearoa. That is about protecting and preserving what is ours—within our hands and within our land. It should go without saying that we support the majority of the amendments that concern further responses to the Canterbury earthquake and the affected taxpayers in the 2010 and 2011 tax returns. 
The major provisions allow for the roll-over of depreciation recovered to go into replacement assets. For example suppose a building had a historical cost of $3 million had been depreciated for tax purposes to $1 million and was insured for replacement at $5 million. If this building was destroyed by the Canterbury earthquake the owner would be up for a tax bill of about $600000 on the depreciation recovered of $2 million even though he or she would have no money with which to pay this tax. Such tax returns would represent a windfall gain for the Government from the earthquakes which in anyone’s books is pretty crazy. Basically the effect of the amendment means that people affected by the earthquake will not have to pay tax on depreciation as one would usually. I understand there are also write-off rules. It is proposed that the write-off rules for buildings be extended from those buildings written off by an event say an earthquake to include buildings that have been destroyed as a consequence of an event. 
The Maori Party supports the effective recovery of Christchurch and as such we support any changes to tax law that will help to facilitate this as a part of manaakitanga. We also wish to lift the economy of Aotearoa and support whanau. The Maori Party is happy to support this bill at its third reading. 
BRENDON BURNS (Labour—Christchurch Central) 
: 
 It has been interesting to listen to the speeches of a couple of the preceding speakers in this debate on the third reading of the Taxation (Tax Administration and Remedial Matters) Bill and to note comments from Mr Bennett about how this bill serves the best interests of New Zealand. I say to that member opposite that this bill serves the best interests of a tiny percentage of New Zealanders. 
Mr Boscawen from the ACT Party said that we needed to look to Asia where they have low tax rates. Well I say to that member opposite that we sat next to each other at the State luncheon for our retiring Governor-General today and I am happy to pay my taxes to help pay for that lunch. There are no free lunches. If we want to live in a responsible and decent society then paying our taxes is the price we pay for things like that and for a multitude of other things besides. If Mr Boscawen wants to swap the life that we have to go to work in a Chinese sweatshop pay low tax rates and earn $200 a month to produce Adidas T-shirts with All Blacks slogans on them then I say good luck to him—go to Shanghai or wherever. 
If we want to take that thinking to its ultimate analogy we need look no further than at what happened in the United States Congress but a couple of weeks ago where the Tea Party rump of the Republican Party forced a vote that said: “We will not support any tax increases on the billionaires of the United States but Mr President and those in Congress we want you to cut Medicare education spending and pensions.” What does that mean? It means that America has been through a financial downgrade as a result of that decision. That is where countries get to when they get into the mantra that says they should cut the taxes to the wealthy and impose the costs on the rest of society. 
We need only look at the comments in the paper only today from Warren Buffett America’s wealthiest man who said that he wants to pay more taxes and that he should pay more taxes. Or we can look at the commentary from Bernard Hickey last weekend. He said that we need a thriving middle class in New Zealand not a situation that has seen the wealthiest 1 percent increase their share of the wealth from 7 percent to around 14 percent in the last 20 years. That is the sort of direction we are heading in with this bill which does away with gift duty for the very wealthiest in our community. 
Part of the explanation for this bill was that gift duty raised only about $1 million a year and cost half that amount to administer. I say again to the Minister of Revenue that that is disingenuous because this policy was about stopping more avoidance and structuring. The very fact so much money is spent by people on gifting arrangements suggests that people are doing very well out of it. That is what the policy is about. That is why it is there. That is the reason it should stay in place. 
I commend my colleague Lianne Dalziel for her reading of the regulatory impact statement particularly paragraph 57 where the department noted that in fact until October last year there was a greater benefit from gift duty because the tax rates were a little higher. Of course removing that top tax rate has removed the tax advantage so ipso facto we should do away with gift duty. What a lovely logical sequence that is—to set up it for the fall. 
I will also point out to the House what the regulatory impact statement said in respect of some of the impacts—and Lianne Dalziel is right; members of the Labour Party do read the regulatory impact statements on bills like this one. The authors of the regulatory impact statement consulted all of the Government departments relevant to the repeal of gift duty. One of the commentaries came from the Ministry of Social Development which stated that if the change were to happen there could be some ramifications for some of the issues with residential care subsidies—that is if gift duty is repealed people will be able to transfer all their assets into a trust instantly. At the moment people have to stage it. They have do it by transferring $27000 a year. The ministry also notes that it has a provision where it can look at how people might make lump-sum payments. But here we are with the Ministry of Social Development needing to review its administration of financial means assessment if gift duty is repealed. So it is heralded in front of us that the Inland Revenue Department will save $400000 and what a great saving that is but there is one Government department stating that its cost structures are likely to rise as a result. 
The Ministry of Social Development went on to state that staff training would therefore be required around the operational impacts of the changes. There would also need to be complete land-title searches for properties where applicants had lived for a significant amount of time to determine whether the property has been gifted by the applicant. The ministry has noted that this will lead to increased operational costs so there we are. We are saying that we will save some money at the Inland Revenue Department but we are looking at the potential for extra costs at the Ministry of Social Development. And that was without any real analysis of what this change might mean in terms of what the State has to administer in respect of residential care where we have a carefully managed regime to ensure that people pay a fair component of the cost of residential care. Obviously these changes could impact upon that regime. 
The Ministry of Social Development also commented about entitlements to Working for Families tax credits an issue very dear to the Minister who introduced this bill and to the Government which wants to crack down we are told on those who might be rorting Working for Families tax credits where it is not appropriate. The ministry said that there is the potential for applicants to transfer income-earning assets out of their names in order to remove income associated with the asset from their taxable income. Again that is a consequence of this bill. It underlines the very premise that Labour has been talking about—this gift duty is there not for what it brings in but for what it prevents from happening in respect of further rorting of the tax base. 
There was further commentary from the Housing New Zealand Corporation. It was not seen as a big issue by the corporation because most of the people in State housing are not likely to be the beneficiaries of gifting arrangements but none the less there was seen to be some risk around that issue. The corporation said that it would be on the alert for those kinds of outcomes. Child support is another area in which it is believed that the State will have to keep a watchful eye because of the fact that gift duty arrangements will be removed by this bill. 
There are a number of consequences of this legislation and Labour has said explicitly that it is not an appropriate measure to be introducing. We need an equitable tax base most especially at this time. We need arrangements that underscore and underline that everybody pays their fair share. Gift duty has been an arrangement that simply said to people that it is there to try to ensure they do pay their fair share. It has not been a great revenue collector. It was actually pointed to after a former National Government removed estate duty in 1992 as part of a need for an ongoing protective mechanism one that was weakened with last year’s move on top tax rates. 
In summary Labour is saying very clearly that there are good elements to this bill—sensible progressive amendments to tax law that have come through the Finance and Expenditure Committee and that Labour has supported. But when it comes to gift duty we say that it is an important protective mechanism of the tax base that it deserves to stay in place and that it is there to ensure that equity prevails in the tax system. We need to ensure that equity is preserved not only to balance the amount of tax that people pay to ensure that the top end of town pays its share and that tax is paid not just by the lower end of town but also to provide a signal to people that we are all part of one community and one society. When we get signals being sent consistently—consistently— 
Chester Borrows 
: You should remember that. 
BRENDON BURNS 
: The member opposite who just intervened was asking just a few minutes ago: “Well those on the bottom end get assistance so why not the top end?”. The point is the equity of the arrangements. We must have a broad agreement that we are an equitable society. 
All of the international research is saying that New Zealand is in fact a much less equitable society than it was even 10 or 20 years ago. That puts at peril our very socio-economic base. When we chip away at it time and time again with tax measures like this we are putting at risk I think society itself. If people do not feel that they are getting a fair shake at things then there will be consequences from that. We are seeing this change come through at a time when we have seen in other countries some of the consequences where inequity has come to the point where people have taken to the streets. I think we actually have to acknowledge that those risks are there for New Zealand and every time we chip away at our tax base with measures like this—rewarding the top end of town when there is no real case for it—we put ourselves at risk. 
AARON GILMORE (National) 
: 
 It is a pleasure to stand and talk about some of the misinformation we have heard tonight on the Taxation (Tax Administration and Remedial Matters) Bill and respond to some of the comments. We have heard about Labour’s conspiracy theory its fear its hate and its envy. Its whole focus in a 127-page bill was on one page and that was the page with the provisions about gift duty. 
You see gift duty does not work for anybody but Labour is worried about it because it has the fear and envy that some people out there are ripping off the system. Well we have heard tonight that gift duty collects $400000 net in tax each year and we have heard some great conspiracy theories from the other side of the Chamber that the $70 million in compliance costs that is being paid to tax lawyers and accountants up and down the country each year may not be real. There are some fears about that. Well let us assume the cost was half of that or one-tenth of that. In any of those situations reducing costs to consumers is what this Government is all about and increasing efficiency for consumers is what this Government is about. 
Opposition members over there do not care about that. They care about creating some ideas of fear and conspiracy—whether in respect of money-laundering or anything else like that—and they seem to think that the existing legislative framework will not work. I think that is a bit of a worry. Those members are success haters and successful people do not like the Labour Party. I find that very strange indeed. 
Most of the stuff in this 127-page bill we are finishing off tonight is about portfolio investment entities (PIEs). We have land PIEs wholesale PIEs retail PIEs overseas foreign investment PIEs variable-rate PIEs and multi-rate PIEs. I have to say that we have not heard much about those tonight but we have heard a lot about one page in the 127-page bill: the issue around gift duty. Maybe Labour members ate lots of pies during the dinner break and that is why they are focused on one particular page. 
This bill is good for New Zealand. It reduces costs to mums and dads up and down the country. They will save $70 million in fees for just one page in this legislation. They will have the ability through the changes in the PIE rates here through their KiwiSaver accounts to save significant money through investments. But the prior member pointed out and believed that this bill had no benefits for mums and dads. Well I can tell Mr Burns that lots of mums and dads invest in PIEs and they will benefit significantly out of the tax changes in this bill despite the comments of that member. 
Finally the nature of the fear and envy that exists tells us a lot about what goes through the minds of the Labour members. They are worried about one paragraph in a 127-page bill. They are not worried about growth and reducing costs to taxpayers up and down the country; they are worried about one paragraph in a 127-page bill. That paragraph would probably put out of work a whole bunch of tax accountants and lawyers up and down the country. They make on average about $500000 a year and this bill will reduce compliance costs by $70 million a year. Those people could be gainfully employed doing something productive and enterprising in New Zealand and that is what we want to see—not them running around trying to cheat the taxpayers in relation to tax codes. 
All the fear and envy that those members have put forward is covered by other legislation and we heard from the Minister of Revenue earlier tonight that that is taken into account. So for the people listening out there who have heard those members the people who are worrying about the transfer of assets I say that it has all been taken into account—from money-laundering through to relationship property and everything in between. It is a shame and a misfortune that some of the comments from the Opposition tonight have been putting fear in the good people of New Zealand. I think that is a shame. 
This is a good bill. It will reduce the cost to New Zealand and it is another step in the right direction for a Government that is looking at reducing costs to mums and dads out there. 
RAYMOND HUO (Labour) 
: 
 I say to the National member Aaron Gilmore who has just resumed his seat that Labour believes in a fair tax regime that promotes social and fiscal equity. Gift duty is part of a progressive tax system that does not favour or disadvantage any member of society. In reply to Aaron Gilmore’s misinformed speech let us look at the title of this bill which is the Taxation (Tax Administration and Remedial Matters) Bill. Unfortunately I did not have the chance to take a call in the Committee stage on this particular clause because my learned colleagues Lianne Dalziel and Iain Lees-Galloway got the calls before me. With respect the title is rather misleading. It is wrong to use a bill that is supposedly for administration and remedial matters to push through the abolition of a tax. Legislation such as this should be reserved for technical changes and ought to be uncontroversial. 
As I said in my second reading speech in July apart from the provisions relating to gift duty Labour supports the contents of this bill and in the normal course of events would vote for it. However due to those concerns we have to vote against the entire bill. 
In the Committee stage Lianne Dalziel asked a very good question about portfolio investment entities (PIEs) and the Minister of Revenue gave a very good answer. I also had a question for the Minister but again I did not have an opportunity to ask it. The question was about the application dates. The rule applicable to category 2 PIEs is proposed to apply from the start of the 2012-13 income year but those applicable to category 1 PIEs are to apply from the date of Royal assent. The application date for category 1 PIE rules has been brought forward in response to submissions and according to the regulatory impact statement it will allow some funds to launch prior to April 2012. No explanation was given as to why a similar starting date is not proposed for the category 2 PIE rules. 
Much has been said about clause 110 namely the abolition of gift duty. So far all explanations and rationale shall I add from the Minister and the National MPs are focused on one single issue—that is gift duty imposes a high level of compliance costs on the private sector and no longer raises any significant revenue. I also said in the Committee stage that Minister Dunne got it wrong when he said that estate duties were abolished in 1992 but gift duties remained in place for revenue purposes. That statement actually begs the question. The Minister confirmed in his previous speeches that revenue from gift duty was about $1 million per annum but the cost to the Inland Revenue Department to administer it was about half a million dollars. On the other hand the Minister said the compliance costs on the private sector amounted to $70 million a year plus the law was too old and so on so it must go. I say to the Minister that gift duty was originally implemented to prevent people from circumventing the estate duty. Estate duty was abolished in 1992 but gift duty remained in place to prevent people from giving away large assets in order to avoid paying creditors obtaining access to Government benefits or avoiding tax liability. 
It has been argued that the abolition of gift duty will allow people to more easily hide assets in trusts to avoid creditors and tax and use this opportunity to obtain access to rest home subsidies for example. This was one of the major concerns in reviewing whether gift duty should be abolished. A number of lawyers and accountants made good quality submissions and to be fair they made submissions in good faith— 
Hon Maurice Williamson 
: No self-interest eh. 
RAYMOND HUO 
: It was not because they might lose the opportunity to earn fees as implied by the Minister of Revenue and the Minister who is interjecting. The submission from the New Zealand Institute of Chartered Accountants pointed out a number of tax-avoidance opportunities that may arise in the absence of gift duty including the ability to split income with people on lower incomes transferring income to loss-making entities and transferring assets in order to meet minimum thresholds under financial arrangement rules and foreign investment fund rules etc. Even the Inland Revenue Department officials cautioned in the regulatory impact statement that tax avoidance could increase in the absence of the duty. 
The Law Society and a number of other submitters raised a further concern that the abolition of gift duty would create problems for the enforcement of claims under a number of pieces of legislation such as the Property (Relationships) Act and the Family Protection Act. 
Labour believes that the analysis upon which the gift duty abolition proposal is based is fundamentally flawed because it does not adequately take into account the full range of potential tax-avoidance opportunities. We are also concerned that the analysis does not address any of the social equity issues. The Government also ignored advice from New Zealand Trustee Services that called for any changes to gift duty to be delayed until the Law Commission’s review of trust law has been completed. The Law Commission as I said in my second reading speech in July has embarked upon an in-depth review of trust law in New Zealand. The first issues paper was released in November 2010 and this year the Law Commission will release its fourth and final part of its review of trust law. I find it a bit odd that the Government has ignored the fact that a review of our trust law is under way and has still decided to go ahead and abolish gift duty which has existed for 125 years. 
The abolition of gift duty will have far-reaching consequences. The bill as introduced by Minister Dunne is relatively simple but the change will have ramifications in other areas of the law as I addressed earlier—for instance relationships and property creditor protection and insolvency. 
As I said at the very beginning of my contribution Labour believes in a fair tax regime that promotes social and fiscal equity. Gift duty is part of a progressive tax system that does not favour or disadvantage any member of society. Thank you. 
Dr RAJEN PRASAD (Labour) 
: 
 I also am pleased to take a call on the Taxation (Tax Administration and Remedial Matters) Bill. It has been interesting listening today to the Committee stage and the third reading of this bill. I want to reflect on some of the comments that have been made. I was interested in Trevor Mallard’s comments late in the afternoon when he said that there are some provisions that come before the House that reflect the essential differences we have with members opposite and this is certainly one of them. When we begin to look at fairness and equity then we can see why we strongly oppose some of the provisions in this bill. Mr Gilmore argued that we have spent all of our time talking about what is effectively the last substantial clause in the bill—much of our time has been spent on that. He seemed to be saying that no matter the size of a bill if there is an important clause in it that we do not agree with we must still pass the bill. That was the kind of shallow thinking that Aaron Gilmore had and he was advising this side of the House to take that view. 
We heard also from Mr Bennett. I wonder whether he had read the bill fully or what point he was trying to make. He really did believe that this side of the House does not have the best interests of the community at heart. He actually believes that. That is the kind of amazing contribution that we heard on this bill. 
Then we had a contribution from the ACT Party. The ACT member began to make a non-existent link between taxation in Britain the unrest in the Middle East and the development of the Asia-Pacific region. His argument went something along the lines that Britain’s troubles are caused by high taxation and the differences that creates. Then he referred to the Middle East and talked about the unrest there. He talked about the kind of society there and blamed it on the kinds of things we are debating here. Then he came amazingly to the two Asian giants I guess he was referring to that are producing amazing growth rates at the moment. That member should reflect on the fact that those two countries put together probably have a billion people in poverty. [ 
Interruption 
] The member has been to those countries and that is a fact. But when members on this side of the House talk in the New Zealand context about fairness and equity then those things become important. 
My colleague Su’a William Sio talked about a hospital pass—that the nature of this bill was a hospital pass. There is quite a lot of truth in that comment about what this legislation does and how the last clause of this bill has introduced a major change which is fundamental in a bill of this kind. Debates on remedial matters bills of this kind—and this point has also been made—generally are non-controversial and generally there is broad agreement across the House. But this was not a bill like that. A major controversial element has been introduced in the bill. Minister Dunne tried to make light of that but we cannot make light of that when it is a serious provision that needs to be debated fully. It is quite sad really when this side of the House supports all of the other provisions in the bill—everything but one clause. Tax secrecy the privacy framework tax pooling and changes to donee status: we support all of those things but what we have been reduced to doing is to debate this particular provision. 
It is interesting to follow the argument from the other side. The Government justifies the abolition of gift duty because of these elements: gift duty raises only $1.5 million a year costs half that amount to administer and has a $70 million compliance cost. The Government says that therefore it does not work; therefore it has to go. But that is being deliberately disingenuous because gift duty exists to prevent tax avoidance and structuring. That is what it is there for. Scrapping gift duty opens the way to tax avoidance and structuring. If we take those characteristics the measure has been quite successful. It was never about how much tax was going to be taken or how much it would cost to administer. It was an important pillar to avoid tax avoidance and structuring. 
That point was made very strongly by the New Zealand Institute of Chartered Accountants. I know that Minister Williamson believes that of course it would say that because of self-interest. Well I give the institute quite a bit more credit than the Minister does. The Minister himself supports that group in terms of the quality of its submissions before select committees so I take its submission seriously. The institute identifies major tax-avoidance opportunities that this provision will give. The House has heard them all but the final statement is still worth repeating: “ability to split incomes with people on lower incomes”. That is very interesting because Minister Dunne is interested in income splitting although his National colleagues are not. Maybe this is a back-door way of bringing in income splitting or maybe there is a lovely Freudian kind of explanation for why the Minister supports it. But “ability to transfer income to loss-making entities”—everyone has talked about that but it still is a problem. Simply taking it away in this way does not solve those problems. The “ability to transfer assets in order to meet minimum thresholds for the financial arrangement rules and the foreign investment fund rules” and “ability for someone with a tax liability to divest themselves of the means to pay and then to claim hardship”—those kinds of points have been well made. 
I liken the measure to putting a fence at the top of a hill of unstable ground so that people will not play there and fall in so that that fence does its work. But because nobody has fallen over and died we think we should take that fence away. That is what I liken this provision in this bill to and that is why we cannot support it. 
Other important contributions were made. I was fascinated by Lianne Dalziel’s passionate interrogation—and she spent about four or five calls on this—concerning the regulatory impact statement. It told us a lot about those whose job it is to tell this House what those impacts are. She went through it in some detail and made an important contribution. But there is a question in my mind now. I know that Aaron Gilmore does not accept this but the $70 million that is projected is probably a figment of somebody’s imagination. It is a very rough way of doing it but it has become a driving force for this Government in bringing this clause into this bill at this time. Therefore it stretches credibility—certainly mine—and it is in the regulatory impact statement. 
In the end one has to wonder why the Government is doing it. Is the Government now simply taking another step in advantaging those who are well off and making sure they get another tax break? They have had several already and this is another one that will make that ability available to them. I thought Stuart Nash was very astute in saying that one of the perverse effects of this could be seen in those who will now transfer huge sums of their resources into trusts etc. It will heighten avoidance behaviour—behaviour of a type we have not seen. 
It is a rushed decision and for all of those kinds of reasons despite the fact that we support every other clause in this bill this has been the pivotal clause for us. The Government is not prepared to wait for the report on all of this to be ready so that a more considered decision can be made. I wish it would listen to what Warren Buffett said yesterday: “Do charge me tax fairly.” Members on that side might need to think about that. Thank you. 
A party vote was called for on the question  
That the Taxation (Tax Administration and Remedial Matters) Bill be now read a third time. 
Ayes 66 
New Zealand National 57; ACT New Zealand 5; Maori Party 3; United Future 1. 
Noes 53 
New Zealand Labour 42; Green Party 9; Progressive 1; Independent: Carter C. 
Bill read a third time.