Russell DeborahHon Dr DEBORAH RUSSELL (Labour): Thank you Mr Speaker. The first part of what I would like to say today is that I would like to draw the House's attention to page 14 of the report back from the Finance and Expenditure Committee and a particular paragraph in there in which the committee says—and I want to read this into the record—We wish to register our sincere thanks to Therese Turner for her work as the independent specialist adviser on tax bills over the last 25 years. Her advice has been invaluable to members of the Finance and Expenditure Committee and undoubtedly improved parliamentary scrutiny of tax legislation. We wish her all the best." Therese Turner was the independent adviser to the committee for a long long time. In fact when I started work at Inland Revenue back in 2004 in the policy advice division then Therese Turner was then the specialist adviser whom we consulted as tax officials whom the select committee worked with and who has provided extraordinary advice to the committee over a very very long time. Tax can be complicated. Therese Turner looked at it reviewed it explained it to committee members and gave us that independent advice—independent from officials independent from Treasury independent from political processes—as to whether or not the tax legislation in front of us was workable. The Finance and Expenditure Committee over 25 years owes a great deal to Therese Turner as does this House and so I'm very glad to have that recorded in the select committee report. Mr Speaker and other members of the House you will notice as you read this report—as I'm sure you all do—that it was unanimously agreed to by the Finance and Expenditure Committee. That is unsurprising. This bill started in the previous Parliament under the previous Ministers of Revenue and then continued in the current Parliament so these are tax measures that were introduced during the last Parliament. It is unsurprising that members on this side of the House agree to these tax measures. There has however since then been an Amendment Paper introduced which will be introduced at the committee of the whole House stage. Obviously we will want to debate that Amendment Paper but the bill as it stands at the moment is one which all members in this House agree to. However there are some matters that I would like to address a little. I first want to point out that it is the annual rates bill. As a constitutional requirement the Government is required to ensure that the tax rates are set by legislation every year by 31 March of the year for which the tax rates apply. This bill does that job and it is the Government's responsibility to ensure that it is passed through all its stages by 31 March and so members will find that the tax rates are set in I think clause 3 of this bill. But I do want to take issue with something that the Minister of Revenue has said in his speech. He said that setting the tax rates confirmed—I think he said that it confirmed it was part of the commitment we have to a broad based - low rate tax system. As I've said many times before we do not have a broad based - low rate tax system. There is a significant gap in our tax system where capital income is not treated as income for income tax purposes. Now to a large extent the brightline test addresses that. However coming up in the amendment bill the Government is proposing to remove the brightline test or to reduce it down to two years. It is moving further away from a broad based - low rate system and we need to remember that we might have a low-rate system but we do not have a broad-based tax system. However aside from that there is a great deal in this bill which we do agree with and which I think it is important for people to understand. There are a couple of matters I would like to talk through and if I have time a third. But I'm sorry Mr Speaker when I start talking about tax I sometimes get a little carried away and concentrate a little too much. ASSISTANT SPEAKER (Greg O'Connor): Yeah well five minutes in to get to the bill wasn't bad actually Ms Russell. Hon Dr DEBORAH RUSSELL: I've been speaking to the bill all along Mr Speaker. I want to talk about the changes to the trustee tax rates. Now the bill as introduced proposed increasing the trustee tax rate to 39 percent to align it with the top personal tax rate. However we received a number of submissions—quite a significant number of submissions—from accounting firms from lawyers from practitioners and from people affected by this saying that that might be inappropriate for a large number of trusts in this country. It might be appropriate to have trusts which earn a large amount of income to have that 39 percent tax rate aligned with the top income tax rate but a great many trusts in this country do not earn a lot of income and that might have been overreach going for the 39 percent rate. So the committee and officials and submitters all worked together to work out what would be an appropriate threshold if we had two trust tax rates—one for tax below a certain threshold; one tax rate for trusts above that threshold—and it turns out that there's an appropriate flex point. It's at about $10000 or so. Now $10000 is a nice round figure so we've worked with that. What it means is that in the bill as it has come back from the committee if a trust earns over $10000 in trustee income then that income will be taxed at 39 percent—all of it from the first dollar right up through. If a trust earns below $10000 then the trustee income will be taxed at 33 percent and that provides small trusts with a bit of relief from that top tax rate. However that figure was chosen quite carefully because at that $10000 point the advantage of having a 33 percent tax rate over a 39 percent tax rate is just $600 right? So a person could be better off by $600 if they kept the income below $10000 or if you set up a number of trusts you could maybe spread all the income across a number of trusts to try to get around that top tax rate. So instead of having one trust with $100000 of income taxed at 39 percent you could maybe have 10 trusts with $10000 of income each taxed at 33 percent. But the compliance costs of running a trust of getting it set up and of doing all the processing for it is probably more than the $600 is worth. It's a good flex point to choose both in terms of the number of trusts which actually fall below that threshold but also in terms of working out where the point is where compliance costs outweigh the benefit of a particular tax gain so we all supported that threshold. I think the committee showed really good sense too with the changes it made with respect to deceased estates where again taxing them all at 39 percent was inappropriate. Most deceased estates don't have that kind of income sitting in them but more to the point it can take a bit of time to wind up a deceased estate. When we talked to practitioners we found that they were telling us that actually most deceased estates can get wound up within 18 months to two years and some may take a little bit longer so what we have put in place is three years. There's a three-year grace period to get those deceased estates wound up; so that's three years past the income year in which the trust begins. So that's quite a considerable period of flexibility and it's a very sensible change. I just wanted to speak very briefly to the taxation of backdated lump-sum payments. This is where ACC lump-sum payments are backdated. If a person gets a lump-sum piece of income in one year by chance—so for example if they got say $200000 of backdated income—then some of that would be taxed at the top tax rate of 39 percent because it was all received in a lump. So what we've said is that in actual fact what should happen is that for that sum of money the appropriate tax rate should be determined by looking at the average tax rate over the previous four years and applying that rate. So that seems to be a fair thing to do and I think having that spread over four years is quite reasonable. I suppose we could try to go back many years to when the injury was first incurred for ACC purposes but in actual fact in some cases there might have been higher tax rates in force at the time. I think that spreading it back over the four previous years strikes a reasonable balance between getting it right for the individual taxpayer and making it comparatively easy to calculate and I think that in the large majority of cases it means that the actual amount that is taxed is about right. It won't be perfect but it will be pretty good and so for that reason we support that change. So there's a lot to talk about in this bill. I could take another call perhaps or maybe not. There is plenty for people to talk about and it is a good bill and at this second reading I commend it to the House."