Norman Russel William: Taxation (Tax Administration and Remedial Matters) Bill — In Committee Third Reading 
Norman Russel William: Taxation (Tax Administration and Remedial Matters) Bill — In Committee Third Reading 
[Volume:675;Page:20784] 
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.