Russell DeborahHon Dr DEBORAH RUSSELL (Associate Minister of Revenue): I'm very pleased to have an opportunity to correct some of the misapprehensions that have been lobbed at us from the Opposition benches. A speech that was full of mere speculation for a large part of it. The member then continued with speculation and what ifs" and "what might bes". It is clear he has not bothered to engage with the bill. So I want to address in particular the issue around the trustee rate and raising the trust rate to 39 percent. The previous speaker Andrew Bayly said "Well there's a number of problems with what you are going to do—there's a problem". And in particular he said that the reason that the trust rate is going up to 39 percent was because we on this side of the House had created a problem by increasing the top personal tax rate to 39 percent so it was our fault that there was a problem. But I want to say that that is an incorrect idea and it's incorrect because it misunderstands what trusts are supposed to be used for. It misunderstands the nature of trusts and I want to take it back quite some distance and talk about where trusts came from in the first place. Now Mr Speaker I know that you in particular will enjoy this story—because you're a great storyteller—about how trusts came into being. They first sort of came into being as instruments during the Crusades called "uses". And what would happen was a knight a lord a baron would want to head off to the Crusades to save his immortal soul by doing whatever it is he was going to do but he would be leaving behind his wife his children his estates and of course they were being left in a vulnerable position because their protector was not there. So what the knight the baron the lord would do he would assign the use of his assets to a trusted friend. And the trusted friend was to use those assets in order to support the wife and the children to support the vulnerable. It was a way of protecting the assets in order that vulnerable people would not lose them. Penny Simmonds: And that's what it's used for now.Hon Dr DEBORAH RUSSELL: And indeed that carried on. People being people they were called uses back then and they were put to all sorts of uses which really undermined the Government of the day and eventually Henry VIII abolished them. But they came back in the form of trusts and trusts do have a very specific purpose—it is in order to ensure that assets that activities belonging to vulnerable people are not exploited; that we support vulnerable people. That is what trusts are supposed to be used for. But as it turns out in many places around the world and particularly in New Zealand—we seem to have a fetish for trusts—what is done with it is it is used to shelter income. It is used to ensure that instead of genuinely passing over the benefits of a trust to vulnerable people income can be cycled through a trust and can be sheltered from taxation.So we have changed the way that trusts are used. That is where the problem is created. And it is absolutely fascinating because we know as the Minister told us that trusts have been used in many ways to avoid paying income tax. We know that about 78 percent of trustee income tax is earned by 5 percent of the top earning income trusts—78 percent of trustee income. It's not to do with protecting vulnerable people. It's not to do with ensuring that someone can—it is all to do with avoiding taxation. That is the problem that we are fixing. So that is exactly what we're doing there. Now the previous speaker asserted that we had actually created a real problem for exactly the people that trusts were supposed to expect—people with disabilities testatory trusts and so on. There is a specific carve-out in the bill. We are actually going to protect those trusts where people are using them for the genuine purpose for which trusts were supposed to be established. So there is a carve-out there and I know the member Penny Simmonds will be delighted to hear that and will support that carve-out. So there is a carve-out for testatory estates. There is a carve-out for vulnerable people. We've actually paid attention to that particular issue. Then the member speaking previously said that one genuine purpose of a trust was to protect assets. Protect assets from what? That "protecting assets" will be preserved. What is being changed is that people will not be able to flow income through a trust in order to avoid paying the top income tax rate. That is exactly the purpose of what is going on here. And then the previous speaker continued to engage in speculation about what might possibly happen to the company tax rate given that that was now going to be left sitting at 28 percent and the trustee rate was going to come in at 39 percent. We already have pretty significant rules in place to ensure that that 28 percent rate is not exploited by people who have a higher personal income tax rate.I just want to point out to the members on the other side and in particular to the previous speaker that one very standard way and one way that is still completely possible for people to pay an appropriate rate of tax to not pay the 39 percent on the trustee income is to actually allocate the income to the beneficiaries of the trust. So if the income from the trust is allocated to the beneficiaries of the trust and those beneficiaries have a lower tax rate—so for example if the income from a trust is allocated to a beneficiary who is on the 17.5 percent tax rate then that is the rate of tax that is paid. All that has to be done is that the trust has to be used for the purpose for which it was established to flow the income through to the beneficiaries and then the beneficiaries pay that tax rate. It is simple. It is simple to not pay the 39 percent rate as long as the trust is used properly and the income is flowed through to the beneficiaries of the trust.Now in the case where the beneficiary of the trust is on the 39 percent rate then it's all standard. But if the beneficiary of the trust is on a lower rate then that is the rate that is paid. So it is a very simple measure and it is sitting in the law already. So the scaremongering from the Opposition over this rate is absolutely absurd. It is based on speculation and hyperbole and it does not attempt to address the fundamental problem that is sitting in our tax system around the fairness of taxation. And in fact what they are doing is undermining a very small measure that we are taking in order to enhance the fairness of the tax system the tax system that supports all New Zealanders. I commend this bill to the House."