Huo Raymond: Taxation (Tax Administration and Remedial Matters) Bill — In Committee Third Reading 
Huo Raymond: Taxation (Tax Administration and Remedial Matters) Bill — In Committee Third Reading 
[Volume:675;Page:20792] 
RAYMOND HUO (Labour) 
: 
 I say to the National member Aaron Gilmore who has just resumed his seat that Labour believes in a fair tax regime that promotes social and fiscal equity. Gift duty is part of a progressive tax system that does not favour or disadvantage any member of society. In reply to Aaron Gilmore’s misinformed speech let us look at the title of this bill which is the Taxation (Tax Administration and Remedial Matters) Bill. Unfortunately I did not have the chance to take a call in the Committee stage on this particular clause because my learned colleagues Lianne Dalziel and Iain Lees-Galloway got the calls before me. With respect the title is rather misleading. It is wrong to use a bill that is supposedly for administration and remedial matters to push through the abolition of a tax. Legislation such as this should be reserved for technical changes and ought to be uncontroversial. 
As I said in my second reading speech in July apart from the provisions relating to gift duty Labour supports the contents of this bill and in the normal course of events would vote for it. However due to those concerns we have to vote against the entire bill. 
In the Committee stage Lianne Dalziel asked a very good question about portfolio investment entities (PIEs) and the Minister of Revenue gave a very good answer. I also had a question for the Minister but again I did not have an opportunity to ask it. The question was about the application dates. The rule applicable to category 2 PIEs is proposed to apply from the start of the 2012-13 income year but those applicable to category 1 PIEs are to apply from the date of Royal assent. The application date for category 1 PIE rules has been brought forward in response to submissions and according to the regulatory impact statement it will allow some funds to launch prior to April 2012. No explanation was given as to why a similar starting date is not proposed for the category 2 PIE rules. 
Much has been said about clause 110 namely the abolition of gift duty. So far all explanations and rationale shall I add from the Minister and the National MPs are focused on one single issue—that is gift duty imposes a high level of compliance costs on the private sector and no longer raises any significant revenue. I also said in the Committee stage that Minister Dunne got it wrong when he said that estate duties were abolished in 1992 but gift duties remained in place for revenue purposes. That statement actually begs the question. The Minister confirmed in his previous speeches that revenue from gift duty was about $1 million per annum but the cost to the Inland Revenue Department to administer it was about half a million dollars. On the other hand the Minister said the compliance costs on the private sector amounted to $70 million a year plus the law was too old and so on so it must go. I say to the Minister that gift duty was originally implemented to prevent people from circumventing the estate duty. Estate duty was abolished in 1992 but gift duty remained in place to prevent people from giving away large assets in order to avoid paying creditors obtaining access to Government benefits or avoiding tax liability. 
It has been argued that the abolition of gift duty will allow people to more easily hide assets in trusts to avoid creditors and tax and use this opportunity to obtain access to rest home subsidies for example. This was one of the major concerns in reviewing whether gift duty should be abolished. A number of lawyers and accountants made good quality submissions and to be fair they made submissions in good faith— 
Hon Maurice Williamson 
: No self-interest eh. 
RAYMOND HUO 
: It was not because they might lose the opportunity to earn fees as implied by the Minister of Revenue and the Minister who is interjecting. The submission from the New Zealand Institute of Chartered Accountants pointed out a number of tax-avoidance opportunities that may arise in the absence of gift duty including the ability to split income with people on lower incomes transferring income to loss-making entities and transferring assets in order to meet minimum thresholds under financial arrangement rules and foreign investment fund rules etc. Even the Inland Revenue Department officials cautioned in the regulatory impact statement that tax avoidance could increase in the absence of the duty. 
The Law Society and a number of other submitters raised a further concern that the abolition of gift duty would create problems for the enforcement of claims under a number of pieces of legislation such as the Property (Relationships) Act and the Family Protection Act. 
Labour believes that the analysis upon which the gift duty abolition proposal is based is fundamentally flawed because it does not adequately take into account the full range of potential tax-avoidance opportunities. We are also concerned that the analysis does not address any of the social equity issues. The Government also ignored advice from New Zealand Trustee Services that called for any changes to gift duty to be delayed until the Law Commission’s review of trust law has been completed. The Law Commission as I said in my second reading speech in July has embarked upon an in-depth review of trust law in New Zealand. The first issues paper was released in November 2010 and this year the Law Commission will release its fourth and final part of its review of trust law. I find it a bit odd that the Government has ignored the fact that a review of our trust law is under way and has still decided to go ahead and abolish gift duty which has existed for 125 years. 
The abolition of gift duty will have far-reaching consequences. The bill as introduced by Minister Dunne is relatively simple but the change will have ramifications in other areas of the law as I addressed earlier—for instance relationships and property creditor protection and insolvency. 
As I said at the very beginning of my contribution Labour believes in a fair tax regime that promotes social and fiscal equity. Gift duty is part of a progressive tax system that does not favour or disadvantage any member of society. Thank you.