Norman Russel: Taxation (Annual Rates Returns Filing and Remedial Matters) Bill — Third Reading 
Text is incorporated into the Bound Volume 
Norman Russel: Taxation (Annual Rates Returns Filing and Remedial Matters) Bill — Third Reading 
[Sitting date: 25 October 2012. Volume:685;Page:6242. Text is incorporated into the Bound Volume.] 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on the Taxation (Annual Rates Returns Filing and Remedial Matters) Bill on behalf of the Green Party. This bill amongst many other things sets the annual income tax rates. The Green Party does not agree with the changes that the Government has made in income tax rates and for that reason will be voting against the bill. 
When you think about the changes that the Government made in terms of setting income tax rates fundamentally what it did was cut income tax for high-income earners and increase the taxes paid by low-income earners in the form of GST. That was a fundamentally inequitable change in the tax system. What it meant was that lower-income New Zealanders found themselves having to pay more for their food and groceries at the supermarket because of GST and upper-income earners found themselves with a whole bunch of spare cash. The Government has got a plan for what it wants to do with that. It wants to give those people the assets that it wants to privatise. It wants to give them to the people whom it gave the income tax cuts to because they are the only people in New Zealand who will be able to afford to buy the shares in the State-owned enterprises. 
Of course from a theoretical point of view if your objective with income tax cuts was to stimulate the economy you would do the exact opposite to what the Government did. If you want to stimulate the economy you give tax breaks to low-income earners because they tend to just spend the money rather than to upper-income earners. So the Government did the exact opposite to what you would do if your purpose was to assist the economy. 
I think it is also illustrative to compare what the Government is doing around carbon taxing and income taxes. I think an interesting comparison is what has happened in Australia. In Australia what they did was they brought in a carbon tax of A$23 a tonne. It is applied to the largest emitters particularly coal-fired electricity which is one of the critical areas and they used the revenue they gained through a carbon tax to increase the tax-free threshold from A$6000 to A$18200. I think that that is the alternative proposal that we could have had in front of us. 
When you look at the overall tax system the Government has made a choice to have an emissions trading scheme that basically means that taxpayers are subsidising pollution. It is a very expensive scheme from the point of view of the taxpayers because they have to pay a lot of money to subsidise pollution. At the same time the Government has given big tax cuts to upper-income earners and basically lower-income earners are faced with an increased GST. That produces an outcome that is highly unequal but it is also an outcome that subsidises and encourages greenhouse gas pollution because it is heavily subsidised in the New Zealand system. 
Compare that with the Australian system where they introduced a real price on carbon A$23 a tonne and then used the revenue to increase the tax-free threshold. Tax-free thresholds by their nature benefit those who are on lower incomes because everybody gets the same tax break the same quantity of money if you like in the form of a tax break when you introduce a tax-free threshold. So that was the alternative model which we have not gone down the path of. The model in Australia was put in place because of the influence of Greens working with the Australian Labor Party and I congratulate the Greens over there on that. 
The reality here from the point of view of a business that is efficient in the way it uses carbon is that that business has to pay higher tax rates in order to pay the cost of the emissions trading scheme so that it can subsidise those businesses that are inefficient in the use of carbon. I think it is very important to get this through—there is no free lunch around the emissions trading scheme. Someone has to pay the taxes to pay for the subsidies for pollution. That means that a business that is doing the right thing by becoming more efficient and reducing its greenhouse gas emissions per dollar of output—doing exactly what we need them to do—effectively has to pay higher taxes in order to subsidise the business that is producing more pollution because this money has to come from somewhere; it does not come from nowhere. 
If we had a system where the polluters actually paid then it would mean that we would have a signal to the business that is highly polluting that it should reduce its pollution. Instead under our system a signal goes to the efficient carbon producer the business that we should be encouraging. We say to them: “No you have to pay higher taxes because the subsidies through the emissions trading scheme are very expensive many billions of dollars and so we have to have higher taxes to pay for that.” That is the path we have gone down. 
We have gone down a path of a highly inequitable tax system in which there is no tax-free threshold effectively at the bottom and at the same time we have cut the top rate. So we have lower rates at the top compared with the Australian system for example and then that runs in parallel with the carbon pricing where effectively we are subsidising carbon pollution rather than putting a price on it. It is the exact opposite to what you would do if you wanted to use the tax system to produce more equitable outcomes. It is the exact opposite to what you would do if you wanted to use the tax system to encourage behaviour that would reduce carbon pollution. That is what this bill is making sure carries on by setting the annual rates. That is what this bill is putting in place to carry forward a tax system that not only makes our society more unequal but encourages greenhouse gas pollution. I just think it is amazing that the Government thinks that that is a sensible approach—that we should be subsidising pollution. 
The other part of this tax bill that is really missing I think is a crackdown on the foreign tax trusts. I must confess that until a couple of months ago I did not really understand the way foreign tax trusts work. I understood the domestic trust system. The way a foreign tax trust works is that if you are a foreigner from outside New Zealand you can set up a trust here and as long as all the income comes from outside New Zealand then you can have that trust here. Your identity is not known to anybody except the New Zealand - based trustees. Your income is completely tax-free inside New Zealand because the income comes from outside New Zealand. So there is no New Zealand tax on your foreign trust and that money and those assets are completely hidden. 
 When you register a foreign trust in New Zealand you have to register only the names of the New Zealand trustees of the trust. Nobody knows who the actual beneficiaries—the people who really own and benefit from the assets—are. That matters because there is an international problem of tax avoidance by very wealthy individuals. Internationally nobody is quite sure of the size of this problem. It is trillions of dollars. The way these people avoid paying tax is by using things like the New Zealand foreign trust regime. 
There is no way that say the Government of Mexico knows that one of its citizens is hiding their assets in New Zealand because there are no identifiers on the New Zealand foreign trust. There is no way for the Mexican Government to know that one of its citizens has parked a billion dollars in a foreign trust in New Zealand and is paying no tax on any of that. When the Minister of Revenue was asked about this he said it was a legitimate tax-avoidance. He said that this is legitimate tax-avoidance. I guess it is lawful in New Zealand but whether it is lawful internationally is a different question. 
We have responsibilities to other countries to try to reduce international tax-avoidance because if we do not do it then there is nothing to stop very wealthy New Zealanders using other structures in other countries to avoid paying their tax in New Zealand. What that means is that middle-class and working New Zealanders who pay PAYE tax have to pay more tax to cover the hospitals the schools and everything else that tax pays for. Working people end up paying more tax because the ultra-rich are avoiding paying their tax by hiding it in structures like the New Zealand foreign trust regime. 
Because we have under our legislation established a foreign trust regime that enables foreigners to avoid paying tax in their domestic countries—they can avoid it by hiding it in New Zealand—we are helping with international tax-avoidance by the ultra-rich. That means that ordinary workers—people who pay PAYE tax—have to pay more tax to cover the tax that is not being paid by those at the top end who are using things like these foreign trusts as instruments to avoid paying their fair share. That situation has not been addressed by this bill. 
When the Minister of Revenue and the Prime Minister were asked about it they said it was legitimate tax-avoidance. It is not legitimate tax-avoidance. It is completely immoral and wrong and the fact that the Government is not addressing it is immoral and wrong. We need to crack down on tax avoidance so that ordinary working people do not have to carry the full burden and the ultra-rich are made to actually pay their share of tax as well. 
This bill sets the tax rates for the next year. They are highly inequitable and for that reason we will not be supporting this bill.