Taxation (Tax Administration and Remedial Matters) Bill

I will raise exactly the same issue that I raised before, but from a slightly different perspective. This issue was not done by way of Supplementary Order Paper but included in the provisions of the original bill—namely, the issue of gift duty abolition being included in something called the Taxation (Tax Administration and Remedial Matters) Bill. I say that the Labour Party will be voting against this part, and voting against the legislation as a whole, because it contains this offensive provision.

When we look at what a tax administration and remedial matters bill is for, we see that it is not for a matter of significant policy, such as the abolition of gift duty. That matter deserves to be part of a policy bill, not something called a tax administration and remedial matters bill. I believe that it is a fundamental issue in terms of how these things are portrayed to the public when submissions—

💬 Hon Trevor Mallard: It’s misleading advertising.

It is misleading advertising. When we think of the submissions being called for—the select committee puts a notice in the paper and says it is calling for submissions on the Taxation (Tax Administration and Remedial Matters) Bill—do members think that anyone on earth would know that that bill would include a policy matter? Would anyone think that? When I first arrived in Parliament some 21 years ago this year—

💬 Hon Trevor Mallard: Oh!

I know; I was just a child at the time. When I came here all sorts of things used to be hidden behind names like this one. We had the Social Security Amendment Bill that contained benefit cuts. We had the Finance Amendment Bill (No 2)—or 3, 4, 5, or whatever—again hiding all of these things. The title did not disclose what the detail of the legislation was all about. Here we have the Taxation (Tax Administration and Remedial Matters) Bill, which is getting rid of gift duty, something that surely should be subject to quite a significant policy debate. I object to the use of a tax administration bill to deal with a matter of policy.

Let us turn to the matter of policy. When we hear from the Government over and over again that we in this country should not be dealing with matters that we cannot afford, when we are looking at changes to benefits, and when we are looking at all sorts of things as far as the Government expenditure side goes, why is the Government reducing our revenue on the other side of the ledger as part of this?

💬 Hon Member: $1 million!

It does not matter how much we are talking about.

💬 Aaron Gilmore: Saving $65 million a year.

I am sorry, that figure is nothing to the National Party. It is nothing to the National Party that $65 million per year is up for grabs as far as this provision is concerned.

We are actually talking about the Government saying it will do away with a form of revenue for the Government at a time when it is preaching hardship for every element of expenditure on the other side of the ledger. I think that is outrageous. I think it is important that as a country we deal with these issues, and we do it on a principled basis. The principle here is that we know that the removal of this particular duty will open up a significant range of tax-avoidance opportunities. We know that will be the case. The Minister in the chair, the Minister of Revenue, may well shake his head, but I expect him to take a call on this part, and to respond to this particular issue in order to tell us why no tax-avoidance opportunities—I presume that is what he is saying—are opened up by the removal of gift duty.

He has already been part of a Government decision to benefit—what percentage of income earners benefited from the tax cuts that we had last year? The top 10 percent of income earners. Now that same group of people is benefiting again from changes to our gift duty regime. Abolishing gift duty in the context of the massive, unaffordable tax cuts given to the top income earners in New Zealand last year by this Government strikes me as really just looking after the interests of those people at the very top, and not really caring about those who have to pay for an increased cost of living without having any commensurate decrease in their amount of taxation.

I think gift duty is part of a progressive tax system. Its abolition will favour those people at the top end of the scale. I believe it is important that Government members stand to take a call on this issue to ensure that proper analysis of it is undertaken.

I also understand that members of the Finance and Expenditure Committee were deeply concerned about the inexactitude of the regulatory impact analysis process. They felt that it failed to achieve the requirements of a robust process. I would like the Minister of Revenue to respond to that as well.

There are a number of things I should say by way of response. The first is to take up the member’s point about the timing of this legislation. My recollection is that the announcement that gift duty was to be abolished was made in June of last year, June 2010. We said at the time that the legislation would be introduced via the next available legislative vehicle, which happened to be this Taxation (Tax Administration and Remedial Matters) Bill. There is nothing unusual in policy changes being introduced in legislation of this type, because these are, in effect, umbrella bills. The bill then went to the Finance and Expenditure Committee, and submissions were called for on the provisions. The committee went through the bill and came back with a recommendation, which we are now implementing many months later.

Prior to the decision even being made, a substantial review had been undertaken across the Government about whether we should simply just increase the threshold or abolish gift duty altogether. It became clear during that review that agencies like the Ministry of Economic Development, Treasury, the Ministry of Justice, the Ministry of Health, the New Zealand Police, the Ministry of Social Development, and the Housing New Zealand Corporation all said that with regard to potential abuses of the system, which the member has referred to, existing powers in existing legislation were more than adequate to deal with those concerns, and that gift duty, our second-oldest tax after stamp duty, was therefore an anachronism and ought to be gone.

But the story gets more compelling. Each year several hundred thousand gift duty returns are made to the Inland Revenue Department. Over 98 percent of those are nil returns. We spend about $500,000—

💬 Hon Trevor Mallard: Nil tax or nil gifts?

Nil in terms of the—

💬 Amy Adams: Nil tax paid.

💬 Hon Trevor Mallard: Nil tax, not nil gifts?

That is right. We spend about $500,000 a year administering the gift duty system; we raise about a million dollars a year. So we have a tax that raises $500,000 net a year, but 98-plus percent of those who are affected by it are not actually caught by it. But here is the rub: any reasonable assessment shows that it is costing taxpayers not $500,000 but $70 million a year to comply with the duty. That becomes somewhat of a no-brainer when the advice then becomes very strong that existing legislation in other areas is dealing with the mischief we are seeking to address in the first place. So the logic for retaining gift duty simply goes out the window at that point. The only people who are a little concerned about its departure, I dare say, are lawyers and accountants, who for years have done very, very well in terms of filing returns and preparing information to go to the Inland Revenue Department. It has been an easy source of income for them. Well, not any longer.

When estate duty was abolished in 1992 the Government of the day considered abolishing gift duty, but decided not to at that point because it was a revenue earner. The reality is that it is not any more. We have significant provisions in other social legislation that take account of the capacity of people to manipulate the system, so gift duty’s day has long since been and gone. What this legislation does—and I am very proud of the fact—is bury it from 1 October this year. There will be adequate provisions in other legislation, and they will be enforced. That is what was intended to be the case all along.

The strong argument that one could mount for the retention of gift duty was not all that strong. It was simply that if we take the duty away, then other legislation will have to be enforced. That is really what it comes down to. Gift duty has been a convenient way out: we have not needed to worry about enforcing other legislation because we have had gift duty. That is back to front. Gift duty is costing taxpayers a lot of money, it is raising very little for the Crown, it is irrelevant, it is time for it to go, and that is what this legislation will do.

In the time remaining to me I will pick up a point that Mr Lees-Galloway made in relation to an earlier part concerning use-of-money interest. He will find that the answers to his questions are actually contained in the provisions of this part, regarding the way in which use-of-money interest applies, and also the obligations for both the Crown and the taxpayer in that respect.

With respect, I think the Minister was wrong.

💬 Aaron Gilmore: Cutting.

That member can take a call. The reason why I said the Minister was wrong is simply that estate duties were abolished in 1992 but gift duties remained in place not only for revenue but for a very good purpose. Gift duties remained in place to prevent people from giving away large assets in order to avoid paying creditors, to obtain access to Government advantage, or to avoid tax liabilities.

I am inspired by the Minister’s press release published in November last year, which I will read out: “Earlier this year I announced”—that is, I the Minister, not me—“that the Government’s intention to remove gift duty if concerns regarding creditor protection”—

💬 Simon Bridges: Who’s speaking? Is this Raymond or the Minister?

—the member will listen, please—“and social assistance targeting could be addressed.”, said Mr Dunne. He went on to say: “Since my announcement there has been considerable work done by officials across government to assess the concerns. This work has revealed that the protection that gift duty offers in the areas of income tax, creditors and social assistance has only ever been incidental and very limited.” That is a rather interesting position.

I was not sitting on the Finance and Expenditure Committee for this particular bill, but I had access to the submission from the New Zealand Institute of Chartered Accountants. I am sure the new chair of the select committee, Amy Adams, will be even more informed in this area. The submission from the New Zealand Institute of Chartered Accountants notes a number of tax-avoidance opportunities that may arise in the absence of gift duty, and the institute established at least five such scenarios. 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 the Property (Relationships) Act 1976 and the Family Protection Act 1955. Of course those submissions are from the lawyers and accountants the Minister just described, using very interesting language.

Even Inland Revenue Department officials cautioned, in the regulatory impact statement, that tax avoidance could increase in the absence of the duty. I will quote: “it is not possible to precisely determine the extent to which gift duty alleviates issues such as income tax minimisation, social assistance targeting, and defeat of creditors.” On that note, I wish that the Minister would take a call and enlighten us in that area. Thank you.

I am very pleased to take a call on the clauses in Part 3 of the Taxation (Tax Administration and Remedial Matters) Bill that cover remedial matters and the abolition of gift duty. I turn to the issues around the abolition of gift duty. I do not think the Minister is giving the fullest picture on these issues. The fact that gift duty raises only about a million, or a million and a half, dollars a year is not the only point for consideration. Actually, gift duty exists to prevent tax avoidance and structuring. By scrapping gift duty we are opening a way to more tax avoidance and structuring. We have to remember—and this is at the heart of why Labour is opposing this part of the bill—that we have seen two rounds of tax cuts for top income earners. I think a chorus of voices is starting to be heard on ongoing tax reductions for those at the top end of town. We need only to read today’s Press—I know it is in there, and it is probably in the Dominion Post as well—to see the commentary from Warren Buffett, the wealthiest man in the world, who has commented that he wants to pay more tax, should pay more tax, and is paying half the tax rate of his secretary, which he thinks is wrong, wrong, wrong. When we abolish gift duty taxes, we are furthering the ends of people like that.

If members think this relates only to Warren Buffett, they should take another look. If we look at last Sunday’s Herald on Sunday, we see that a column by Bernard Hickey noted that we have a situation in this country where a change has happened over the last 20 years. The top 1 percent of income earners are now taking more than double what they were taking in the mid-1980s. They are now taking nearly 14 percent. Fourteen percent of the national income in the hands of the top 1 percent of income earners is a doubling since the 1980s in this country. In America it is 20 percent, so Warren Buffett is doing particularly well. Many other people in this country are benefiting from tax breaks like these being passed by this Government under the changes in the Taxation (Tax Administration and Remedial Matters) Bill. But it is just not appropriate—at this point most particularly in our economic and financial cycles, when we have this country doing it tough—to send a signal to people at the top end of town that not only will they get two rounds of income tax cuts but also the Government will pass a bill that will effectively allow them to continue structuring things in a way that will not be subject to the scrutiny of the Inland Revenue Department. That is why Labour is opposing this bill. It is wrong, wrong, wrong to continue piling money into the accounts of people who, as Bernard Hickey has observed, are already getting 14 percent of the national income—14 percent is in the hands of 1 percent of the population, which is a doubling since the 1980s.

I challenge any member opposite to stand up in this Chamber and say that that is fair, and that that is the kind of New Zealand they truly want to live in. When we get extremes of wealth on one hand, we will then get the resulting extremes of poverty on the other. I have seen that kind of split in society. I lived briefly in South Africa in the 1980s. That is the kind of split that sees people with barbed wire fences around their homes in the leafier suburbs of town, and sees people rioting on the streets because they just do not think they are getting a fair shake. Maybe we have seen some portent of that in Britain in the last couple of weeks, too.

We need to have an equitable society, and gift duty may not be an income earner of any real recourse to the Inland Revenue Department, but it is there for another reason: it is there to try to ensure that people pay their fair share of tax, and that people do not structure and avoid tax through estates. That is the reason for it. In fact, the analysis shows why it is important. When $70 million is being spent to avoid $1 million of tax, what does that say? It says that there must be some considerable benefit to people for that amount of money to be spent trying to protect them from tax of that level. I say to this Parliament that we have a situation. When we get observers like Bernard Hickey, from interestrate.co.nz, saying that we have a situation in this country—

The CHAIRPERSON (Eric Roy): I have rung the bell; the member should sit down. Mr Robertson, were you seeking the call?

💬 Grant Robertson: I was seeking the call.

The CHAIRPERSON (Eric Roy): I call Grant Robertson—

💬 Hon Trevor Mallard: Mr Burns didn’t have more than one call.

The CHAIRPERSON (Eric Roy): He did not seek the call. Are you raising a point of order, Mr Mallard?

💬 Hon Trevor Mallard: No, I am just chairing from the seat, as you did, Mr Chair.

The CHAIRPERSON (Eric Roy): Ha, ha!

During the call that Brendon Burns has just taken, Simon Bridges interjected from the other side of the Chamber that Labour was interested in “envy tax”. Well, I have something to say to Mr Bridges. I am interested in a fair tax system where people pay their fair share—a fair tax system where people pay their fair share. We have heard a lot about the need to tighten our belts as a country as we deal with recession. We have heard a lot from members on the other side about the fact that these are tough times and there need to be cuts and we need to make sure that every dollar is spent wisely. Who bears the brunt of the need to tighten our belts? Who has to take the steps to deal with the recession? It is those on the lowest incomes. When do we see the people who benefited most in the financial boom times—the people who benefited most from the very things that actually led to the recession—paying their fair share? When do we see that from the Government? That is why on this side of the Chamber we are opposing the Taxation (Tax Administration and Remedial Matters) Bill. The abolition of gift duty is yet another step by this Government in saying that the people who have to pay for the effects of the recession are those on the lowest incomes, while at the same time tax cuts—round after round of tax cuts—benefit mainly the highest-income earners. Now gift duty is being taken away. As other speakers have said, it is not just about the revenue gathered; it is about the tax-avoidance measures. We now see yet again from this Government—

💬 Aaron Gilmore: Mr Robertson’s a tax expert!

Aaron Gilmore says “tax expert”. I will tell members what I think I might be a bit of an expert on, and that is fairness. That is actually giving people a fair go.

💬 Amy Adams: Fairness? Oh my God!

Amy Adams decries the concept of fairness. Well, if we do not have fairness in our society, if we do not try to include people in our society and give them the chance to achieve their potential, then we run the risk of people feeling excluded. We run the risk of London-style activities happening, because people have no role in the future of their society if we do not include them. If we as a country keep letting the gap between rich and poor grow, that is how social exclusion grows. That means people are not able to fulfil their potential. Bills like this that abolish gift duty, and taxation packages from the National Government that favour those who have the most against those who have the least, will lead to the gap between rich and poor growing.

This measure adds to unfairness. It does not mean that people will pay their fair share in our taxation system. And I would say that that should be the basis of any taxation system. Regardless of the details, where tax experts are required, the fundamentals that parliamentarians get to decide on are whether a tax system is fair. This Government throughout its term has made our tax system more and more unfair. It has weighted all of the tax cuts in favour of those who earn the most; and those who earn the least—those who have actually struggled through the recessionary times—are the people who constantly have to make the sacrifices. The sacrifices are not being made by the people who have not paid tax for years and years.

We have heard about Warren Buffett from Brendon Burns. We heard from Sam Morgan, who said that he should be paying more tax. He said that he should be paying more tax—and he should be paying more tax. He acknowledges that he wants to do that. But Mr Gilmore and his colleagues on the National side are saying that those on the lowest incomes have to take the cuts in services and have the punitive measures put in place, and those on the highest incomes continue to get tax cuts and no longer have to pay gift duty. Those are the people being favoured by this kind of provision, and that is wrong, in my view. This bill has been brought before Parliament, as my colleague Lianne Dalziel said, through what is called an administration and remedial matters bill, but in actual fact the removal of gift duty sits alongside other fundamental policy issues that, in my view, have made our tax system more unfair and in turn will make our society more unfair. We can do so much better than this by having a tax system that actually taxes income in all its forms. I believe we must do that.

I do not think we often get bills that more clearly define the difference between the people who are ruling in the interests of the wealthy and high-income earners, and the people who care about middle-income New Zealanders and about common sense. I throw back to the Minister in the chair, the Minister of Revenue, his comments that helped him do so well at a previous election, and I point out to him that this bill, the Taxation (Tax Administration and Remedial Matters) Bill, is not about revenue in the end. I agree with him on that. It is about a brake on transferring wealth to avoid the revenue system in other ways.

He knows well the thousands and thousands of cases of Kiwis who through use of trust arrangements gain Working for Families. He knows of the kids of the farmers all over the country who drive Ranger Rovers to university and then get full student allowances. They drive to university in Range Rovers owned by the family trust, and then they claim allowances, while poor kids and middle-income kids—people whose families are earning way below the average income—are not eligible for those allowances. The Minister knows that the brake on the transfer of assets and also income to trusts is gift duty. It is one of the brakes—I think administrative stuff and legal fees are one of them—but it is one of the very important brakes. It does not stop the process, but it slows the process.

It means that for very large assets it can take decades to transfer funds from an individual to a trust, or through the forgiving provisions, which I am sure the member is aware of. I know that a lot of members opposite are aware of the provisions that forgive, and therefore gift.

💬 Hon Lianne Dalziel: They loan and then they gift.

💬 Simon Bridges: Hey, I drive a Hyundai, man!

They loan and then they gift, and Simon Bridges is proud of it. He says “I have ripped off the tax system! I make middle-income people pay tax while I avoid mine!”. That is what Simon Bridges says, and he is proud of it. I think it is amazing that we have a young member who is meant to be principled but who is so proud that poor people pay tax so he can avoid it—poor people pay tax so he can avoid it.

I want to know whether the people of Ohariu-Belmont, in the Minister’s electorate, are aware of that fact, because most of them are wage earners and salary earners—the vast majority of them—and I want to know whether they are happy with him acting for the privileged in the way he is doing now.

You know, I agree with the vast majority of his argument on abolishing gift duty. There is not a lot of money in it—there is not a lot of money in it. There is some administration involved in administering it, and there is a lot of money spent on lawyers and accountants—far, far too much. I mean, there is nothing wrong with the photocopier as far as many of these trusts are concerned, in my opinion. But this change is designed to let people of privilege hide their wealth, hide their income, and rip off the State. I am sick of the biggest beneficiaries of the tax system being the rich. I am sick of the Prime Minister getting $1,000 a week in tax cuts while the GST goes up on my beneficiaries. I am sick of an arrangement being made to void the tax liabilities of people who are the wealthiest.

This Minister, I believe, actually, deep down knows what he is doing is wrong. He used to have principles—he used to have principles. We discussed these matters in the past. What he is doing, to suck up to his ministerial colleagues, is taking a bill through that privileges the rich.

I was reminded, listening to the member Trevor Mallard particularly, but also to one or two of his colleagues beforehand, about a statement that Winston Churchill once made about, I think, Aneurin Bevan. He said that the honourable member should not develop more indignation than he can contain, which I think was certainly true during the previous speech.

💬 Hon Trevor Mallard: Is that a challenge?

The bar might be high; I do not think the member could get there.

Let me come to some of the points he has made. I am sorry to disillusion him on a key premise of his argument, but I am not in the least unhappy about the Taxation (Tax Administration and Remedial Matters) Bill being passed. I have promoted the abolition of gift duty during the time that his Government was in office and beforehand, so I am delighted to see something that I have been committed to for a long time finally being achieved.

I listened to the arguments that essentially say that this is fundamentally unfair because somehow it is taking away a block. We know it does not actually raise any money, but it is a sort of symbolic thing that stops people from behaving in a way that we might regard as inappropriate. Well, I have two comments to make on that argument. Firstly, tax law is not about symbolism; tax law is about getting the revenue that the Government needs to perform its functions. Every member who has spoken in this debate so far acknowledges that we get no revenue, effectively, from gift duty, but the argument somehow seems to be that it is a symbolic impact.

The second point I will make is that if we look at the other mechanisms available—the social security legislation, the legislation that the Ministry of Social Development administers regarding access to the various long-term health and social subsidies—we can see that provisions within those pieces of legislation can prevent exactly the type of concern that members opposite are professing this afternoon. Then, also—

💬 Hon Trevor Mallard: The student allowance legislation?

I will come to that in a minute. The member made reference to the ability of people to manipulate trusts. In fact, one of the things this Government did last year was align the trust and top personal tax rates so that the logic of using a trust as an evasion or an avoidance mechanism was considerably diminished.

The member talks about Working for Families and he talks about student allowances. We have made it very clear. We legislated, in the wake of last year’s Budget, for definition changes for the purposes of income affecting Working for Families. Work is under way, it was announced earlier this year, on student allowances—that is about to follow. I am trying to put before the member the fact that a comprehensive suite of measures is being put in place—

💬 Hon Trevor Mallard: The Minister just confirmed it.

Confirmed what?

💬 Hon Trevor Mallard: Confirmed that you can drive the trust Range Rover and then get a student allowance.

Absolute nonsense. No, one cannot. A funny claim was made at one stage by the Labour Party in the Finance and Expenditure Committee that somehow one could get all one’s school fees exempted. We went and checked that, and no one found any record to give any substance to that claim. I say to the member that the Range Rover claim comes into the same category.

This issue is a simple one of administrative efficiency. We get no money from this tax, we spend about half of what we actually get on administering it, and there is a massive compliance cost on people for being part of it. It is a no-brainer, when we have other measures in place to address the concerns that members opposite raise, that we need not continue with a tax that was put in place in the 1880s—it has been around since 1885—in an entirely different environment from that which prevails today. Members opposite are arguing a bit of nostalgia politics. I would not call it envy politics. It is: “Let’s keep what we’ve always had, because it has always been there.” Under that scenario, we would never make any change whatsoever.

This is a tax whose time has been and gone. This is a tax that most New Zealanders will be pleased to see the back end of. The demise of this tax was well and truly foreshadowed. It is now time to perform the last rites on it, and this legislation does precisely that.

I want to follow on from the Minister of Revenue’s comments and also those of some of my colleagues. I now have a copy of the regulatory impact statement in front of me. I enjoy reading regulatory impact statements, but this one is of particular interest to me because now I understand why the Finance and Expenditure Committee was concerned about it. I want to read a paragraph from it, then reflect on another element of it, because it has a detailed analysis of where this $60 million to $70 million has come from. “We recommend that gift duty be repealed on the basis of enhanced efficiency, simplicity and administrative costs and the significant reduction of private sector compliance costs (although fiscal cost is also a relevant consideration). We believe that gift duty does not fulfil its current objectives and the risks of its repeal are low. However, it is not possible to precisely determine the extent to which gift duty alleviates issues such as income tax minimisation, social assistance targeting and defeat of creditors. Therefore, it is important that affected government agencies monitor the effects of gift duty repeal on their areas and make any necessary operational changes.”

What is also instructive—and I am so glad I was referred to this—is the Government agencies that Treasury and the Inland Revenue Department consulted on this measure. There were the obvious ones—the Ministry of Economic Development, the Ministry of Justice, the Ministry of Health, the Ministry of Social Development, and the Housing New Zealand Corporation, because they are all relevant—but also the New Zealand Police. I think the New Zealand Police is in that mix because of the whole risk area around money-laundering. I think the Minister should give us a little bit more of a discussion point around what these different Government agencies have done, or are planning to do, in order to address issues such as income tax minimisation, social assistance targeting fraud, and defeat of creditors. I would have thought defeat of creditors would be a matter of significant substance for the Government to consider in these circumstances.

I come to the question of how much this measure will save the private sector. Various Government members have chipped across the Chamber about how much it is costing the private sector to be exposed to the gift duty regime. I could not quite understand where the compliance costs of $70 million had come from, but now I do understand. So I would like to take the time of the House to explain very carefully where the $70 million comes from.

Under standard gifting programmes to family trusts, a number of deeds are required that must be filed with the Inland Revenue Department, in addition to gift statements. Initially, a deed of sale is required when the asset is transferred to a trust. Then a deed of acknowledgment of debt is drawn up, and annual deeds of forgiveness are required to reduce the outstanding debt. The average cost quoted by practitioners is $285 plus GST to draw up the annual deed of forgiveness and to file it along with the gift statement. If this cost is grossed up to reflect the 225,000 gift statements filed each year, it reveals more than $70 million in annual costs to the private sector, excluding the initial costs of setting up the gifting programme, the deed of sale, and the deed of acknowledgment of debt. Well, I find that extraordinary. I do not know whether others find that extraordinary, as well. But what the Government is essentially accepting as the basis for its claim that this measure will save $70 million is the fact that the regime we have in place at the moment actually allows only $27,000 per year to be transferred without any tax being paid, and what the Government wants is for people to be able to transfer the lot instantly, in 1 year, with no tax implications whatsoever. That is exactly what will happen, and that is exactly what the legislation was kept in place to ensure would not occur, for a whole lot of other reasons.

I recognise that the social assistance targeting does use a different set of criteria, and often it is the conflict between the criteria that confuses people. They think they can gift up to $27,000 a year, or forgive $27,000 a year of a loan, but, in fact, the social security amount will be $5,000 a year. Of course, the department can go back year after year, over 5 years, to look at whether a person has deprived themselves of an asset.

I remember when the surcharge was in place. A relatively new member of Parliament at the time, who had come in at the same time as me, one Michael Laws, went around the country explaining to people that they could enter into a gifting programme in order to avoid paying the surcharge. He basically said that for 5 years a person had to gift up to $5,000 a year, but once they had got past those 5 years, where the claw-back applied, they could gift up to $27,000 a year without any worry in terms of shifting that asset. So in actual fact there will be situations where the Government is saying that it will make it absolutely crystal clear that there is no limitation in terms of the transfer of the asset, other than changes that may be made directly to the social security scheme as well.

I have not gone into the question of the creditors, because I am a little bit worried about where that might take us. When the Government of the day repealed the estate duty, the gift duty, it said, was retained for an interim period, but what I am really unclear about is what processes have been put in place in order to secure those three areas: first, the social security regime; second, the protection of creditors, which is the one that particularly concerns me; and, third, the area of protection in relation to the question of the means-testing regimes that might apply, and also to other areas of income tax. What I am unclear about is whether the Government has actually taken that additional step to provide for this coverage.

I do not believe that it is unreasonable for the Opposition to want to see something a little bit more than the regulatory impact statement that has been prepared. What the Government has not said is why it thinks it is acceptable that entire assets can be transferred with no implications for taxation or any other purposes. Why is that the driver? It seems to me that having a regime in place that allows an asset to be transferred, without tax implications, at $27,000 a year does stop people from potentially income splitting. It stops people from potentially transferring major assets over to the ownership of someone else in order to avoid something that they themselves find they are subject to. If it really is to protect themselves against creditors, then that, obviously, is a major worry to all of the SMEs—the small and medium sized enterprises—from one end of the country to the other that find themselves at the end of queue after queue after queue, trying to get money off people who have declared themselves without assets. They are unable to claim their asset off them, because they have transferred it in one fell swoop, rather than having to go through this gifting regime. I do not think the Minister has taken seriously enough the issues we have raised. I hope he will take another call, actually work through each of those different areas, and explain to us what steps the Government has asked each of those departments to put in place to make sure that this measure does not have the impact that I think the regulatory impact statement has alerted the House to.

When the regulatory impact analysis was done there were five options put forward for the Government’s consideration. I want to know why this particular option was the preferred option. I turn particularly to the question of creditor protection. There is a view that creditors are given some protection by gift duty because defaulting debtors are unable to transfer assets out of their name without either becoming liable for gift duty or entering into a gifting programme. I guess that is one of the advantages of the system as it is at the moment. It is not so much the amount of tax that it collects; it is the fact that people construct their gifting programme over a longer period of time in order to avoid paying the tax. So, in fact, not paying the tax is part of what it is designed to achieve. The regulatory impact statement talked about the result of gifting programmes being that the person who is transferring an asset receives a corresponding debt asset by virtue of the interest-free, on-demand loan that is exchanged with the recipient in satisfaction of a market value sale. The diminishing amount of the outstanding debt remains, because it can be forgiven only at a rate of $27,000 every 12 months in order to avoid gift duty. I am aware of some instances where the issue has arisen that the $27,000 has been gifted within a 12-month period—because it is not a calendar year; it is a 12-month period. I know a constituent who entered into a gifting arrangement where they were on one side of the line instead of the other. It was in the next financial year but was within the 12-month period. But, anyway, they had managed to get themselves in a bit of bother over that.

But the point was that a debt valued at $1 million would take an individual 38 years to completely forgive, if one was avoiding gift duties—if that was the point of it. The unforgiven portion of a debt under a gifting programme can be demanded in order to satisfy creditor claims against the transferor. If gift duty is repealed, gifting programmes will no longer be necessary, because the value of allowable gifts would be unlimited. Therefore, when a person transfers a large asset, there will no longer be any portion of its value immediately available to be clawed back. I think this is a serious issue. It is probably one of the most serious issues, and that is because, obviously, an official assignee looking at a bankrupt situation would be able to use this as some leverage.

Sitting suspended from 6 p.m. to 7 p.m.

I was talking about creditor protection concerns and referencing the regulatory impact statement that accompanies this legislation. I had just got to the point where I was identifying how the officials who wrote that report had decided that that would not be a major problem. Essentially, it was because people involved in gifting arrangements were not going bankrupt left, right, and centre, and therefore it could not possibly be a problem. But my problem is that this gifting programme allows gifting of $27,000 a year. People who do not care about the tax implications can simply gift an entire property and pay gift duty on it, but people who want to avoid paying gift duty simply have to limit gifts to $27,000 a year. Somebody who was coming up to bankruptcy would have the ability to gift away an entire asset, and therefore take it outside the disposition provisions of the Property Law Act. That is an issue that is raised in the regulatory impact statement. It talks about the change of the wording in that Act from “intention to prejudice” to “intention to defraud”, and the fact that those words have not been defined by the New Zealand courts. Given the lack of clarity, this is something we will have to keep an eye on.

The areas of potential risk for the Government are listed in quite some detail in the regulatory impact statement, and I will come back to that in a later call, but I will just talk about the Ministry of Social Development benefits, the residential care subsidy, the Working for Families tax credits, student allowances, State housing, legal aid—and the Government has a legal aid bill before the House; it very narrowly passed its first reading last night—child support, relationship property disputes, enduring powers of attorney, and trust law concerns—

I am a rugby player. I love playing rugby—rugby league. When I played in better times, when I was a lot fitter and stronger, I used to love selling the dummy pass. I was good at it. I was good at selling the dummy pass. As long as I had somebody to my side, I could show the ball and flick it—pretend that I was flicking it—and I would suck in the other side and always get a score. I used to love that. But I hated it when somebody else did it to me.

I am using that analogy because I suggest to this Committee that when it comes to the economy and taxation restructuring, we have been sold many, many dummy passes by this Government. I mean, there was the tax switch, where the top 10 percent of income earners received over 40 percent of the tax cuts. Somehow—

💬 Dr Rajen Prasad: Dummy pass.

Yes—dummy pass again. We were told that those wealthy people would invest their money, jobs would be created, and somehow the rest of the nation would receive the benefits of the tax cuts that had gone to the rich. Well, the reality is that we have high unemployment, a high cost of living, and families who are struggling.

We can look at GST. Before the election in 2008 we were sold another dummy pass. We were told that GST would not be increased to 15 percent. Then it was increased to 15 percent and we were told that no one would be worse off. Well, the reality is that the highest 10 percent of wage earners pay 7 percent of their after-tax income as a proportion in GST, while the lowest 10 percent of earners pay an additional10 percent more than that in GST as a proportion of their after-tax income.

With the Taxation (Tax Administration and Remedial Matters) Bill the proposal by the Government to abolish gift duty is another dummy pass that we have been told about. Supposedly the proposal is because gift duty generates only $1.5 million, but the reality is that the Government is doing this because the duty imposes a high level of compliance costs on the private sector. That is the Government’s wording. We have been told another dummy pass: somehow, again, this is good for the private sector.

But let us be quite clear. Why is the gift duty imposed? It is to prevent tax avoidance and structuring. So when we remove gift duty, it opens up our economy to tax avoidance and structuring. When we listen to the New Zealand Institute of Chartered Accountants, we hear that the institute outlines that a number of tax-avoidance opportunities will arise in the absence of gift duty. Those opportunities include the ability for people to split incomes with those on lower incomes, the ability to transfer incomes to loss-making entities, the ability to transfer assets in order to meet minimum thresholds for financial arrangement rules and foreign investment fund rules, the ability for those with a tax liability to divest themselves of the means to pay and then to claim hardship, and the ability to make charitable donations via others so that a higher tax rebate may be claimed. That is mind-boggling. We have been told that this legislation will be good, yet you have—

The CHAIRPERSON (H V Ross Robertson): Order!

Sorry. The New Zealand Institute of Chartered Accountants has outlined that tax-avoidance opportunities will arise as a result of the removal of gift duty. We have the regulatory impact statement by the Inland Revenue Department officials, who say that “it is not possible to … determine the extent to which gift duty alleviates issues such as income tax minimisation,”. In other words, the removal of gift duty will give rise to tax avoidance.

Not too long ago I asked a question of the Minister of Revenue: “What was the total amount of company tax, if any, written off by the IRD for each month since January 2009?”. I will tell members the answer I received. In January 2009, $9.8 million worth of company tax was written off. In March 2009, $30.7 million worth of company tax was written off. In May 2009 it was $8.9 million, in June it was $38.8 million, in July it was $12.2 million, and so the list went on to June 2011, when it was $11.758 million.

I move, That the question be now put.

I have to say that I am disappointed. I am disappointed that the Government is trying to shut down the debate on this Taxation (Tax Administration and Remedial Matters) Bill already. I am quite fascinated, as well, because this bill is tidying up the tax system and making it simpler, and dealing with a number of remedial issues is something that we on this side of the Chamber would normally support. We do support the vast bulk of provisions in this bill, but when we get to Part 3, “Remedial matters and abolition of gift duty”, we see that it is just tacked on in there as if it is a remedial matter. It is actually a pretty big deal.

I have to say that my impression of Parliament, having been here 2½ years—going on toward 3 years now—is that we can tell a lot about a Government’s priorities by the legislation it chooses to push through under urgency. Here we are, under urgency, abolishing gift duty, which is a tax cut by stealth for the wealthiest New Zealanders. It is a tax cut by stealth—[Interruption] Members are getting very excited over there, because those members on the other side of the Chamber are all about privilege, and all about protecting their mates, and making life easier for their mates.

They talk about the fact that the people at the bottom of the heap, unemployed people, need to pick themselves up by their bootstraps. Apparently the kids of the wealthiest New Zealanders do not need to do that; they can expect a free lunch under this National Government. This is a National Government that introduced hereditary entitlement to school attendance, and now, through abolishing gift duty, it wants to make life a heck of a lot easier for those at the top of the heap while it pulls out the ladder for those at the bottom. It is yet another example of National’s priorities being all about the people at the top of the heap and not about the people struggling to get by and struggling to make a living. It is all about making it more possible for people to avoid paying their fair share of tax, which is what this Government is all about.

In fact, it is not me who is saying that; the Institute of Chartered Accountants said that about this legislation. It argued that the absence of gift duty creates the potential for people to split their income with people on lower incomes in order to avoid paying their fair share of tax. It is another example of National promoting those at the top of the heap by letting them not pay their fair share, while those at the bottom of the heap continue to get whacked. Those people who are doing a hard day’s work and flogging their guts out to make this country a better place to provide for their families get whacked with higher tax under this National Government through increases in GST and the like, while the Government is going to help those people at the top of the heap who want to give their money to their kids in order to avoid paying their fair share of tax. That is what it is going to do.

The other thing is the ability to transfer income to loss-making entities. It is another example of National providing a loophole to allow those on the highest incomes and with the most assets to avoid paying their fair share of tax. It creates the ability to transfer assets in order to meet minimum thresholds for the financial arrangement rules and the foreign investment fund rules. It is another example of National doing its bit so that its wealthy mates can avoid paying their fair share of tax. It creates the ability for someone with a tax liability to divest themselves of the means to pay and then claim hardship. They can give everything away to their kids instantly and then say: “Oh my goodness me! I can’t afford to pay any more, so you are just going to have to do whatever you do—bankrupt me, even. That’s OK; I am not going to pay my fair share of tax. In fact I am not going to pay my fair share of anything.” That is what people can do if we abolish gift duty. They can give all their money away instantly in order to run away from their problems, and to run away from their tax liabilities. That is what this National Government is all about—giving it out to the people who have the most assets and the most income and making life a bit easier for them, while the people who are working hard, who are scraping to get by, and who are paying their fair share get clobbered with paying more under this National Government.

This abolition of gift duty very clearly sets out what this National Government’s priorities are all about, and it is not about the hard-working New Zealanders, it is not about the people who are trying to pull themselves up by their bootstraps to make life better for themselves and better for their families; it is all about the people who have the most already—the top 10 percent of New Zealanders who have the lion’s share of the tax cuts under this National Government. That is who it really represents. That is who it is here for. Those are the people who support National and fund its election campaigns, and they are the people whom this National Government is happy to work in the best interests of. It is not the people who are working hard, who are doing their fair share, and who are willing to pay their fair share of tax; they get to pay more through things like the increase in GST. I think that says an awful lot about this Government’s priorities and that is the reason—

I move, That the question be now put.

As someone who sat on the Finance and Expenditure Committee that reviewed this Taxation (Tax Administration and Remedial Matters) Bill, I say that there is a lot of good stuff in here. Of that there is no doubt; there is a lot of good stuff in here. As I think I said in my first reading speech on this bill, it is a real shame that the abolition of gift duty provision sort of snuck into the end of the bill. As my colleague Mr Hipkins has said, a remedial matters bill is really not the place to insert this sort of legislation.

What we have in front of us is a bill that runs to about 128 pages, so it is quite a substantial bill. As mentioned, there is a lot of good legislation in there, but about one-fifth of a page is filled by clause 110, “Estate and Gift Duties Act 1968”, on the abolition of gift duty. The clause is about 10 lines long, and begins “(1) No gift duty is payable under the Estate and Gift Duties Act 1968 in relation to a gift made on or after 1 October 2011.” With those two lines, a tax is removed that has been in place for a very, very long time.

I am not saying—and Labour made this clear at the Finance and Expenditure Committee—that we are necessarily against the abolition of gift duty. But we have said that the analysis has not been undertaken to prove that this is the right thing to do. I acknowledge that gift duty is collecting only about $2 million a year. I also acknowledge that it is costing the Inland Revenue Department over $70 million a year. So on the surface there appears to be a little bit of discrepancy around that. But a lot of submitters came to the Finance and Expenditure Committee to say “Hold on a second. This has not undertaken a rigorous analysis to check that the unintended consequences of removing gift duty will not be dire for the country.”

There are a whole lot of unintended consequences of removing gift duty. Let me list just a couple. The first one is the hiding of matrimonial property. When we quizzed the Inland Revenue Department about that in the select committee, its officials said: “Well, it’s been looked at by another agency and we think it should be fine. But what we will do is take a look at it a couple of years down the track just to make sure that it is working.” Well, that is simply not good enough. It is simply not good enough.

There is the ability to avoid creditors, but I suggest that when this bill goes through tonight, when it is signed off, there will be an absolute rush to lawyers and accountants by everyone who has a trust and who has not gifted all their assets across to that trust. That is what they will do. I know there are legal precedents that allow creditor courts to look back into gifting, and into those trusts, to see whether there is any sort of ill purpose there. But I suspect that every single person in business at the moment who has not completed their gifting programme will do so, in the knowledge that if everything is working well at the moment but turns to custard in 2 years’ time, they will be fine.

The thing that concerns me about the removal of gift duty in Part 3 is that a hell of a lot of legislation and precedents will be set, which will be decided through the courts. They will be decided through the courts, because the law is not strong enough and there are too many holes. We have already talked about that. In my first reading speech I talked about the ability to avoid paying tax through continual gifting, and through gifting from one entity to another. One person I had an email from outlined how easy it would be to launder money.

I suspect that the vast majority of people who are going to take advantage of this legislation are good, law-abiding New Zealand citizens. I suspect that the vast majority of them are going to undertake a gifting programme because they can. But there will be elements—and the Minister of Revenue knows this—of the business society who will take advantage of this legislation, and who are just waiting for it to come through to say: “Now is my opportunity.” They will grab that opportunity with both hands, and there will be tax avoidance as part of that. Even the Trustees Association said that it believed that a significant number of trusts had not met legal requirements.

I move, That the question be now put.