Dunne Peter: Taxation (Tax Administration and Remedial Matters) Bill — Second Reading 
Dunne Peter: Taxation (Tax Administration and Remedial Matters) Bill — Second Reading 
[Volume:674;Page:20095] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (Tax Administration and Remedial Matters) Bill be now read a second time 
. This bill is important for New Zealand as it introduces crucial changes to the tax system which are needed to support economic growth and to ensure integrity and fairness within the system. A good tax system encourages economic endeavour by eliminating unnecessary hindrances and limiting compliance costs and these themes run through this bill. 
A key feature of the bill is the abolition of gift duty. Gift duty is a relic of the estate duty era which is long since passed. It has continued to impose $70 million of compliance costs on New Zealanders each year while no longer serving its intended purpose and raising less than $1 million in annual revenue. About 99 percent of annual gift duty returns are nil returns which further illustrates the pointless nature of this tax. So it is time to abolish gift duty once and for all. 
Since the notion of abolishing gift duty was first aired last year some concern has been voiced about the consequences for the tax system. There have been predictable amounts of criticism that there has not been enough analysis. Well let me assure members that the decision to proceed with the abolition of gift duty was taken following considerable research. Eight Government agencies were involved in consultation on the likely consequences of abolition and the Inland Revenue Department was at the centre of the review. The decision therefore has not been taken lightly. 
Members will note that the accompanying regulatory impact statement goes into some depth. That is because it is dealing with an issue of great moment: the abolition of a tax. So comprehensive was the regulatory impact statement that it has been described as a model of what a regulatory impact statement should be. It deliberately outlines the problems with gift duty and considers a number of options for addressing them before coming down in favour of repeal. 
The potential for tax avoidance was one of the key areas considered during the gift duty review. The review concluded that gift duty is not an effective way to target tax avoidance. A range of existing rules in the Income Tax Act better target avoidance arrangements involving gifts. These include rules for gifts involving companies and employers in addition to trusts. Last year’s Budget further reduced opportunities for avoidance by aligning the top personal tax rate and the trust tax rate. Trusts therefore can no longer provide a tax shelter as was previously the case. The Inland Revenue Department will continue to monitor the situation and a post-implementation review will be undertaken to ensure that existing measures are operating as intended. 
The move to abolish gift duty is part of a carefully constructed package that has seen all marginal tax rates fall substantially and the top personal and trust rates aligned. Any moves to unpick this package by introducing either new taxes on capital or differential rates for trusts and the top personal rate would inevitably raise questions about the need not only to reinstate a form of gift duty far more stringent than the one this bill repeals but to maybe restore estate duty or indeed introduce some other forms of wealth tax to prevent significant avoidance occurring. An equally unpopular and cumbersome alternative would be to continue the alignment of the top personal and trust rates but at a significantly higher level than is currently the case. The House should give careful consideration to those points as this debate unfolds and as subsequent events unfold as well. 
This bill also includes a number of proposed changes to the rules relating to the tax disputes process which complement major changes made by the Inland Revenue Department to the way it administers that process. Our tax system relies on voluntary compliance and it is therefore appropriate that the disputes that inevitably arise are resolved quickly and efficiently for both parties. 
The bill also introduces changes to the secrecy provisions in the tax administration rules to help to bring the Public Service more into line with today’s customer service expectations and to improve efficiency across the Public Service. Overall these amendments will result in improvements in service provision including improved accuracy improved efficiency by eliminating duplication of effort and increased detection and prevention of fraud. 
A Supplementary Order Paper that was referred to the Finance and Expenditure Committee provides for the removal of the overtaxation of non-residents’ investment through portfolio investment entities. A number of useful submissions were received and considered by the committee and the legislative changes have now been incorporated into the bill. Those changes will facilitate the development of New Zealand as a financial hub. 
Earlier today I released a further Supplementary Order Paper to provide roll-over relief for depreciation recovery arising from the Canterbury earthquakes. This will make replacement of assets lost in the earthquakes more feasible for Canterbury businesses and is another step towards providing taxpayers with relief from taxation on windfall gains from depreciation resulting from the earthquakes. 
The Supplementary Order Paper also addresses the issue of the timing of deemed sales of destroyed insured assets allowing the time of sale to be deemed the point when insurance proceeds can be reasonably estimated. The Government is seeking to encourage productive investment in Canterbury and these depreciation measures will help to achieve that. As further tax issues arise in response to the earthquakes the Government will assess them and respond accordingly as indeed we have been doing throughout the course of this year. 
The Government cannot of course control the business sector but we can support it by providing an environment that creates jobs and wealth. By improving efficiency and removing undue compliance costs this bill will help to create that environment while also ensuring the maintenance of the integrity of our tax system. It is therefore with a great deal of pleasure that I commend the Taxation (Tax Administration and Remedial Matters) Bill to the attention of the House.