the history of death duties and gift duty in new zealand staff/academic... · 66 new zealand...

NEW ZEALAND JOURNAL OF TAXATION LAW AND POLICY – Volume 18 66

The History of Death Duties and Gift Duty in New Zealand

MICHAEL LITTLEWOOD

Michael Littlewood is an Associate Professor at the University of Auckland Law School and an Adjunct Research Fellow at the Taxation Law and Policy Research Institute, of Monash University; Michael is also a Fellow of the Law and Economics Association of New Zealand.*

The aim of this article is to provide an account of the history of death duties and gift duty in New Zealand. This is worth doing for two main reasons. First, the story of these taxes’ rise and demise constitutes a significant aspect of the country’s fiscal and political history. It might even be said that the story of New Zealand’s death duties is essentially the same story as the country’s political history, but cut at a novel angle. More particularly, whilst there currently seems to be very little enthusiasm for the reintroduction of death duties in New Zealand (except, perhaps, as a necessary accompaniment to a capital gains tax), these taxes for many years enjoyed broad political support. Indeed, it was widely regarded as obvious that a significant part — perhaps as much as 50 per cent or so — of every large estate ought to go to the State. There seems, then, to have been a profound change in popular attitudes.

Secondly, the reform of the tax system is a process which, it seems safe to assume, will never be completed; even the system’s basic structure seems perennially up for debate. It seems obvious that the process of tax reform might benefit from an awareness of what has gone before, yet the literature on the history of New Zealand’s tax system remains incomplete. One of the aims of the article, therefore, is to make a contribution to the filling of one of the larger gaps in it. More particularly, there has been much discussion recently of the possibility that New Zealand should (like most of the rest of the developed world), introduce a tax on capital gains. If such a tax were to be introduced, it would be necessary, according to the view prevailing in most of the rest of the developed world, to support it with some form of death tax (or, at least, to structure the capital gains tax so as not to exempt inherited capital gains). But this aspect of the question seems to have received relatively little attention. If however, there is to be a capital gains tax, and if it is to be accompanied by the reintroduction of a death tax, it might be useful to take into account the history of this form of taxation, as practised in this country.

1.0 INTRODUCTION This article traces the rise and fall of death duties and gift duty in New Zealand from 1866 (when

death duties were first introduced) until 2011 (when gift duty, the last remnant of the death duties system, was abolished).1 It is a legal history, but seeks to place the development of the law within its

* An earlier version of this article was published in John Tiley (ed) Studies in the History of Tax Law, vol 5 (Hart, Oxford,

2011). I am grateful to Sir Ivor Richardson, John Tiley, David V Williams, Barry Littlewood, Alex Frame and an anonymous


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political and economic contexts. The story has a number of strands largely because there was not just one death duty but several — sometimes simultaneously, sometimes sequentially — namely probate duty, legacy duty, succession duty and, finally, estate duty. These were not merely different names for the same tax; rather, as the names suggest, the scope of each was different. As for gift duty, it was added to the system in 1885 to stop people avoiding death duties by giving their property away, usually to their children or on trust for their children, who would in due course inherit anyway.

In the beginning, from 1866 to about 1890, death duties were intended simply as a revenue measure, but the Liberal Government of 1890–1912 saw them also as a means of breaking up large fortunes and redistributing wealth. The first Labour Government of 1935–1949 was likewise attracted both to the revenue-raising potential of these taxes and to their progressiveness. These Governments significantly increased the rates of tax and were assiduous in confronting avoidance. Right-wing governments were philosophically opposed to taxes on wealth but, prior to the Second World War, reduced neither the scope of the death duties nor the rates at which they were charged.2 For one thing, they needed the money. It seems also, however, that the idea of steeply progressive death duties enjoyed broad popular support and that cutting them back would have been electorally expensive, even for right-wing political parties.

These dynamics changed in 1949, when the National Party — formed in 1936 — won the general election and commenced what in retrospect looks like a long-term programme aimed at the dismembering of the death duties system. Over 40 years, successive National Governments narrowed the scope of the system, progressively reduced the rates of tax, and did next to nothing to contain avoidance. As a result, estate duty — from 1955 the sole remaining death duty — slid into desuetude. Death duties had always been susceptible to avoidance, but as the century progressed estate planning (as it was called) became more common and more sophisticated and was undertaken on a larger scale. Partly for that reason, estate duty produced very little revenue. It was also altogether overshadowed by the colossal revenue-raising capacity of the Income Tax and, later, the Goods and Services Tax. Eventually, once the death duty system had been reduced to an irrelevance, it was easy for the Government — National, again — to abolish it. That happened in 1993. Since gift duty was originally an adjunct to death duties, one might have expected it to have been repealed too — but that was not what happened. Instead, gift duty was left for 18 years as a stand-alone tax. Eventually, in 2011, this vestigial remnant of the death duties system was abolished — again by a National Government.

reviewer for their advice on various aspects of the article, and to Chris Jenkins, Thomas Ebben and Brad Aburn for helping with the research on which it is based.

1 For earlier accounts of the history of death duties in New Zealand, see Anonymous “Death Duties: Streamlining the System of Collection” [1955] NZLJ 193; Taxation in New Zealand: Report of the Taxation Review Committee (RE Owen, Government Printer, Wellington, 1967) (the Ross Report); Lindsay McKay “Historical Aspects of the Estate Tax” (1978) 8 NZULR 1; David Duff “The Abolition of Wealth Transfer Taxes: Lessons from Canada, Australia, and New Zealand” (2005) 3 Pittsburgh Tax Review 72; Aditya Basrur “The Conception and Birth of the Stamp Duties Act 1866” (2008) 14 NZJTLP 45; and Paul Goldsmith We Won, You Lost, Eat That! A Political History of Tax in New Zealand since 1840 (David Ling, Auckland, 2008).

2 In this article, the terms “right-wing” and “left-wing” are used (perhaps anachronistically, but for ease of expression) in accordance with their colloquial meanings. That is to say, a left-wing government is one that tends to favour redistributive public spending and a larger state supported by progressive taxes; and a right-wing government is one that tends to favour a smaller state, to support business interests, to maintain that economic growth benefits society generally, including the poor, and to favour a lesser degree of progressivity in taxation. Thus, Liberal and Labour Governments are characterised as left-wing; and Reform and National Governments as right-wing. The terms are of course relative: by some standards, the New Zealand Labour Party is right wing; by others, the New Zealand National Party is left wing.

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That National Governments should have hollowed out and then killed a progressive wealth tax is unsurprising. What is curious is that successive Labour Governments did almost nothing to reverse this process, or even slow it down.3 The explanation consists of several factors. First, Labour’s last attempt to make something of death duties was an unhappy experience. It happened in 1958, when the second Labour Government effected steep increases in various taxes, including increasing the maximum rate of estate duty from 40 per cent to 60 per cent (the highest it was ever to reach). The consequences of this and other measures included a landslide loss at the next election, which scarred the party badly. Secondly, death duties produced very little revenue, but very considerable vexation for those on whom they fell. Thirdly, since about 1980 there has been a worldwide trend away from progressive taxes and towards flat ones, and the abolition of death duties in New Zealand can be seen as part of that trend. And, last but not least, in 1977 the State of Queensland in Australia abolished death duties, perhaps tempting affluent New Zealanders to retire there, taking their fortunes with them.

The article contains five main parts. Part 1 supplies a very brief overview of the constitutional and political contexts in which the tax system has evolved. Part 2 examines the legislation by which death duties were introduced in 1866 and the refinements effected between then and 1909. Prominent among these was the introduction of a tax on gifts in 1885. Part 3 considers the Death Duties Act 1909, which transformed death duties and gift duty into something resembling their modern form. Part 4 covers the heyday of death duties in New Zealand — the period from 1909–1949, during which death duties supplied a significant though dwindling part of the government’s revenues. Finally, Part 5 examines the decline of estate duty, which began in 1949 and culminated in its abolition in 1993, leaving gift duty as an anomalous stand-alone tax for 18 years until its abolition in 2011. There is also an appendix, setting out the revenues produced by the death duties and gift duty over time, both in absolute terms and as a percentage of the government’s total tax revenues.

Although the article refers to many political and economic events, it generally does not attempt to examine closely the causal connections between them and developments in the law relating to the taxes with which it is concerned (that is, death duties and gift duty). To do so would be a most worthwhile exercise, but one requiring at least a book-length treatment. Rather, the much more modest aims of the article are to provide a narrative account of those taxes’ development and decay, and to place that account in its broader political and economic contexts. Similarly, although the article refers to many individuals (mainly prime ministers and other politicians), it generally does not attempt to trace closely their personal influence on the tax system. Rather, again, the more modest aim is to place legal developments in their political context. One consequence of this approach is that the article contains much that readers familiar with New Zealand’s political and economic history will find otiose. But readers not so familiar will, it is hoped, find the story easier to follow.

3 It might likewise be said that National Governments did not reverse the first Labour Government’s social security measures.

See for example Raymond Miller, “Labour” in Raymond Miller (ed) New Zealand Government and Politics (Oxford University Press, Melbourne, 2003).


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2.0 CONSTITUTIONAL AND POLITICAL CONTEXTS

2.1 The Constitution The Treaty of Waitangi was signed on 6 February 1840 by William Hobson4 (a naval commander

who was to become the Colony’s first Governor) on behalf of the Crown and about 40 Maori chiefs on behalf of themselves and their peoples. Over the next few months, more Maori chiefs signed, bringing the total eventually to more than 500. Some tribes, however, declined to sign.5 The Treaty was in both Maori and English. It was very short, consisting of only three brief articles. Article I conferred on the Crown either “sovereignty” (English version) or “kawanatanga” (Maori version; the word is usually translated as “governorship”).6 Article II guaranteed to the Maori “the full, exclusive and undisturbed possession of their lands and estates, forests, fisheries and other properties”. And Article III extended to Maori “all the rights and privileges of British subjects”. The status and meaning of the Treaty were contentious from the beginning and remain so today.7 But whatever its legal effect, the Treaty marked, more or less, the founding of New Zealand as a British Colony.

For the first few years, New Zealand was ruled by a Governor appointed by the British government. Eventually the Imperial Parliament enacted the New Zealand Constitution Act 1852, which established a partially representative system of government more or less in accordance with the mid-19th century British colonial norm. The Governor was still appointed by London and he still ran the government (meaning the executive), but the legislative function went to a Parliament composed of the Governor, an upper chamber (called the Legislative Council), and a lower chamber (the House of Representatives).8 The House of Representatives was elected (though not, initially, by universal suffrage)9 and the Legislative Council was appointed by the Governor, in the name of the Crown.10 Universal male suffrage was instituted in 1879 and women won the vote in 1893. In the beginning, elections were held rather erratically, but since 1881 there has generally been an election every three years.11

Over a period of years, the New Zealand Parliament gradually came to control the executive. The power of the Governor waned, and that of the Premier (the leader of the House of Representatives) grew. Towards the end of the 19th century the Premier was slowly transformed into the Prime Minister, in 1907 the Colony became a Dominion (a change in name making little difference in

4 William Hobson was born in Ireland in 1792 and joined the British Navy at the age of nine. He served in the Napoleonic

wars and also in the Caribbean before being despatched to Australia and New Zealand in 1836. He was appointed Governor of New Zealand in 1841 but died in 1842. Hobson Bay and Mount Hobson in Auckland are named after him. The biographical data in this article are generally from the Dictionary of New Zealand Biography, www.teara.govt.nz/en/ biographies/>.

5 See generally Claudia Orange The Treaty of Waitangi (Allen & Unwin, Wellington, 1987) and Mathew Palmer The Treaty of Waitangi in New Zealand’s Law and Constitution (Victoria University Press, Wellington, 2008).

6 For example, Palmer, above n 5 at 61–63. 7 See for example David V Williams “The Treaty of Waitangi — A ‘Bridle’ on Parliamentary Sovereignty?” (2007) 22

NZULR 596. 8 New Zealand Constitution Act 1852 (UK), s 32. 9 New Zealand Constitution Act 1852 (UK), s 41. See Neill Atkinson Adventures in Democracy: A History of the Vote in New

Zealand (University of Otago Press, Dunedin, 2003). 10 New Zealand Constitution Act 1852 (UK), s 33. 11 On New Zealand’s constitutional history generally, see Philip A Joseph Constitutional and Administrative Law in New

Zealand (3rd ed, Thomson Brookers, Wellington, 2007), chapters 2–4.

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substance), and in 1917 the Governor became the Governor-General. Over the course of the 20th century, New Zealand’s ties with the United Kingdom gradually weakened, though the British monarch is still the Head of State and the Governor-General her local representative (as in Australia and Canada).

In 1951 the Legislative Council was abolished, leaving New Zealand as one of the few countries in the world with a unicameral Parliament. Over the last 30 years or so the Treaty of Waitangi — regarded by successive governments for the first 140 years as an irrelevant nullity — has been accorded a vague constitutional status, and some effort has been made to redress the government’s breaches of it. In 1996, the “first past the post” electoral system was abolished and replaced by a system of proportional representation. And finally in 2004 the New Zealand Supreme Court was established, replacing the Judicial Committee of the Privy Council as the country’s court of final appeal.

2.2 Political Parties Political parties emerged in New Zealand in the late 19th century. Until then, Members of

Parliament had been either independent or joined in loose ad hoc groupings. The first political party was the Liberal Party, which was formed in 1891 and led by John Ballance.12 The Party evolved out of a group of liberal MPs who had campaigned together for the 1890 election. They won that election, formed the Government and established the Liberal Party. Ballance died in 1893 and was succeeded by Richard “King Dick” Seddon — a large, violent, barely educated publican who became a supremely effective populist politician and New Zealand’s longest-serving Prime Minister.13 The Liberals won six more consecutive elections — in 1893, 1896, 1899, 1902, 1905 and 1908 — and governed until 1912. Thereafter, the Party declined. It never won another election, but it left an enduring legacy. Most pertinently, Ballance may be regarded as the father of the New Zealand tax system. In 1878 (as Treasurer in the administration led by Sir George Grey)14 he instituted a land and property tax and in 1891 (as Premier) an income tax.15 It was also the Liberal Government — though after Ballance’s death — that produced the crucial Death Duties Act 1909.

Also in 1909, the conservative opposition belatedly formed the country’s second political party, the Reform Party. It was initially led by Bill Massey, another large man, a farmer and a frequent citer of the Bible, who became the country’s second-longest serving Prime Minister.16 The Reform Party governed from 1912–1928 (except during the First World War, when there was a coalition Government). The New Zealand Labour Party was established in 1916 and first formed a Government in 1935. Labour’s victory induced the Reform Party to merge with the United Party (effectively the 12 John Ballance was born in Ireland in 1839 and as a young man emigrated to New Zealand, where he became a journalist and

newspaper proprietor before entering Parliament in 1875. He became Premier in 1891 and died in office in 1893. He was an early advocate of female suffrage and, by the standards of the day, Maori land rights. See David Hamer, The New Zealand Liberals: The Years of Power, 1891–1912 (Auckland University Press, Auckland 1988).

13 Richard Seddon (1845–1906) was born in Lancashire, left school at 12 and in 1863 emigrated to Australia in search of gold. In 1866 he continued to New Zealand, became an MP in 1879 and led the Liberal Government from 1893 until his death in 1906. At his peak, he weighed about 125 kilograms.

14 Sir George Grey (1812–1898) was Governor of, in turn, South Australia (1841–1845), New Zealand (1845–1853), the Cape Colony (1854–1861) and New Zealand again (1861–1868), before becoming Premier of New Zealand (1877–1879).

15 See Luke Facer “The Introduction of Income Tax in New Zealand” (2006) 12 Auckland UL Rev 44 and Peter Harris Metamorphosis of the Australasian Income Tax: 1866–1922 (Australian Taxation Research Foundation, Sydney, 2002).

16 William Massey (1856–1925) was born in Ireland, emigrated to New Zealand in 1869 and served as Prime Minister from 1912 until 1925. Massey University is named after him.


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remnants of the Liberal Party) to form the National Party. That happened in 1936. From 1935 until 1996, every government was formed by either the Labour Party (on the left) or the National Party (on the right); that is, one or other of them controlled a majority of the seats in the House of Representatives. Since the introduction of a form of proportional representation in 1996, the Labour Party and the National Party have still dominated the political process, but they have always been obliged to enter into coalitions or, at least, confidence and supply agreements with one or more smaller parties to form a government.

3.0 THE EARLY YEARS: 1866–1909

3.1 The Introduction of Death Duties in 1866 For the first quarter-century of its existence, the colonial Government funded itself mainly by means

of customs duties and land sales.17 Notable, too, was the establishment of an income tax in 1844 — a very early example of a British colonial income tax. But this proved a failure and was repealed only a year later.18 By the early 1860s, it had become apparent that the Government’s revenues were inadequate. The need was exacerbated by the war that had broken out between the colonial Government and some Maori, largely over the latter’s refusal to sell land at a price the former was prepared to pay. To meet the need, the Government proposed to introduce stamp duty; that is, a tax on specified classes of document, payment being evidenced by the affixing of a stamp to the document in question.19 It proposed, too, that the documents specified would include some relating to inheritance. In other words, the proposed stamp duty would incorporate a system of death duties.

As generally happens with proposed new taxes, this one encountered both opposition and prevarication. He would support it, said one legislator, but only if customs duties were reduced.20 Another said that he was unable to endorse the new tax just yet, because the Government had not provided sufficient information as to how it would work. And taxation had already, observed a third, “reached its utmost limits”.21 It was suggested, too, that an income tax might be less objectionable.22 Most of the debate, however, was devoted to the idea that the Government should resolve its financial difficulties by selling land that it had recently confiscated from the “rebel natives”; and that if that proved insufficient, it should confiscate more land, and sell that.23 The “reasonableness” of this proposition, it was agreed, “could not be controverted”,24 but there was nonetheless a problem: the Maori from whom the land had been confiscated were a “bloodthirsty” lot, likely to “come upon” the purchasers “and tomahawk them”.25 Together with the land, said another, “there would be taken a

17 Muriel F Lloyd Prichard An Economic History of New Zealand (Collins, Auckland, 1970), chapters 3 and 4. 18 See Kevin Heagney “The Genesis and Early Evolution of New Zealand Income Tax: An Examination of Governor Fitzroy’s

Experiments with Taxation 1843–1845” (PhD Thesis, Massey University, 2009) and Ogy Kabzamalov “New Zealand’s Forgotten Income Tax” (2010) 16 Auckland UL Rev 26.

19 New Zealand Parliamentary Debates, 15 September 1865 at 545 (Henry Sewell). 20 New Zealand Parliamentary Debates, 22 September 1865 at 590 (Julius Vogel). 21 New Zealand Parliamentary Debates, 22 September 1865 at 591 (Crosbie Ward). 22 New Zealand Parliamentary Debates, 22 September 1865 at 589 (Sewell). 23 New Zealand Parliamentary Debates, 22 September 1865 at 589 (William Reynolds). 24 New Zealand Parliamentary Debates, 26 September 1865 at 592 (Sewell). 25 New Zealand Parliamentary Debates, 26 September 1865 at 595 (Francis Dillon Bell).

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certain number of bullets”.26 The confiscated lands would therefore fetch much lower prices than would otherwise have been obtainable.

For that reason, the Government postponed the sale of confiscated lands. The possibility of an income tax it rejected also, on the grounds that, in the Colony’s rather wild circumstances, it would be difficult and expensive to administer. As for reductions in customs duties, the Government declined to commit itself. Eventually, the Premier, the aristocratic Frederick Weld,27 forced the issue by threatening to resign, observing that it might be better to leave the governance of the Colony to those who thought they could carry it on without money and that he would wish them “all the success their superior cleverness would deserve”.28 This threat worked and the Stamp Duties Act 1866 was duly enacted.

The Act was closely modelled on legislation enacted in New South Wales the year before,29 much of which, in turn, had been copied from relevant United Kingdom legislation — the Stamp Acts, the Legacy Duty Act 1796 and the Succession Duty Act 1853.30 The New Zealand Act was composed of four parts. Part I imposed duty on deeds and various other instruments “relating to transactions between living persons”.31 More specifically, it imposed duty on contracts in writing, bills of exchange, bills of lading, conveyances, cheques, leases, insurance policies, promissory notes, receipts, transfers of leases and transfers of shares. In most instances the duty was one per cent, or less, of the value of the transaction. Various kinds of documents relating to minor transactions were exempt.32

Part II imposed a duty on probates, Part III a duty on legacies, and Part IV a duty on successions. In form, these taxes were all stamp duties; the payment of the tax was denoted by means of a stamp impressed upon or affixed to a document required in connection with the estate or inheritance in question.

3.1.1 Probate duty Probate duty was imposed on both probates and letters of administration. Liability was based on the

value of the personal property (meaning property other than land, but including leaseholds) which the deceased had the power to dispose of by will.33 The duty was £1 where the “effects” of the deceased were worth less than £100, £2 if they were worth more than £100 but less than £200, and so on.34

26 New Zealand Parliamentary Debates, 26 September 1865 at 595 (John Wilson). 27 Sir Frederick Weld (1823–1891) was born in Dorset. In 1844, he travelled to New Zealand, where he became a sheep farmer.

In 1853, when the colony’s Parliament was established, he became a member of it. He was Premier in 1864–1865 and later the Governor of, in turn, Western Australia (1868–1845), Tasmania (1875–1880) and the Straits Settlements (1880–1887).

28 New Zealand Parliamentary Debates, 3 October 1865 at 637. 29 Stamp Duties Act 1865 (NSW). See New Zealand Parliamentary Debates, 29 September 1865 at 632 (Sewell). 30 For instance, s 107 of the New Zealand Act was copied from s 90 of the New South Wales Act, which in turn was copied

from s 18 of the Succession Duty Act 1853 (UK). The New South Wales section suffered from two obvious errors, both of which were replicated in the New Zealand equivalent.

31 Stamp Duties Act 1866, pt I and sch I. 32 Stamp Duties Act 1866, sch I. 33 Stamp Duties Act 1866, s 44. According to the Ross Report (above n 1) at 480, probate duty was calculated on the total

value of the deceased’s estate, both real and personal. But this is difficult to reconcile with the wording of the statute; see ss 44 and 45 and sch II.

34 Stamp Duties Act 1866, sch II.


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3.1.2 Legacy duty and succession duty Legacy duty and succession duty were both imposed on inheritances. The difference, as in the

United Kingdom, was that succession duty was imposed on land (including leaseholds) and legacy duty was imposed on property other than land.35 The rates of legacy duty and succession duty were the same. In both cases, as in the United Kingdom, the rate of tax varied, not according to the value of the property in question but according to the degree of consanguinity between the deceased and the beneficiary. If the beneficiary was a child or other direct descendant of the deceased, the duty was charged at one per cent; if a brother or sister, three per cent; if a niece or nephew, five per cent; and so on. Property left to a spouse was not dutiable at all; and property left to a stranger (that is, a person unrelated to the deceased) was dutiable at 10 per cent.36

Duty was imposed only on legacies and successions worth £20 or more and only if the deceased’s total estate was worth £100 or more.37 How many estates exceeded that threshold is impossible to say, because at that time the economic data published by the Government were rudimentary in the extreme. Indeed, the data generated by the administration of the death duties eventually enabled the Government to compile more useful economic statistics than previously. But in the 1890s (by which point the statistics had improved markedly), of all the adults dying in New Zealand, only about 20 per cent left estates of £100 or more.38 In 1866, the percentage was presumably lower.

There appears to have been no reason for having two taxes (when a single tax imposed on successions of both land and other property would have achieved exactly the same results, with less complexity), other than because that was what was done in the United Kingdom. Similarly, there seems to have been no discussion of the reasons for taxing remoter relatives and strangers more heavily than closer relatives; again, it seems to have been simply assumed that it would be best to do what was done in the United Kingdom.39

3.1.3 Geographical scope Like the United Kingdom and New South Wales precedents on which it was based, the New

Zealand Stamp Duties Act 1866 contained no express territorial limitation; the duties it imposed were not expressly confined to property situated in New Zealand, or to persons resident or domiciled in New Zealand. But the United Kingdom statutes were interpreted on the basis of the situs principle; that is, they were interpreted as only applying to property situated in the United Kingdom. This was however subject to the maxim mobilia sequuntur personam (movables follow the person) — meaning 35 The line between legacy duty and succession duty is not entirely clear, because of weak drafting; for instance the mistakes

referred to above n 31. 36 Stamp Duties Act 1866, schs III and IV. 37 Stamp Duties Act 1866, ss 58 and 107. 38 The New Zealand Official Government Year Book 1898 (Government Printer, Wellington, 1898) at 285. The figures ranged

from 15 per cent in 1894, to 26 per cent in 1897. 39 As regards the United Kingdom, Stephen Dowell explains that bills providing for duties on inheritances of personal property

and land were introduced in the British Parliament in 1796, but only the former was passed into law (as the Legacy Duty Act 1796); and that a duty on inheritances of real property was eventually imposed in 1853, by the Succession Duty Act of that year; see Stephen Dowell History of Taxation and Taxes in England (Longmans Green, London, 1884, republished Frank Cass & Co, London, 1965) vol 2 at 213–214. But he does not explain the reason for having two taxes rather than just one. Nor does he explain why the rates of tax were varied according to the relationship between the deceased and the inheritor. See also Alfred Hanson The Succession Duty Act (Stevens and Haynes, London, 1865) and Charles W Goodwin The Succession Duty Act (John Crockford, London, 1853). For a discussion of attitudes in New Zealand, see David Thomson A World without Welfare: New Zealand’s Colonial Experiment (Auckland University Press, Auckland 1998).

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that movable property should be treated for legal purposes as if situated in the place where its owner is domiciled, even if it is in fact somewhere else.40

The geographical scope of the New Zealand statute seems not to have been litigated, but the combined effect of these two principles would appear to have been as follows.

(a) Land situated in New Zealand was dutiable, even if the deceased was resident and domiciled elsewhere.

(b) Land situated outside New Zealand was not dutiable, even if the deceased was resident and domiciled in New Zealand.

(c) Movable property situated in New Zealand was dutiable if the deceased was domiciled in New Zealand, but not otherwise. That is, if the deceased was domiciled somewhere other than in New Zealand, his movable property was not dutiable even if it was situated in New Zealand and he was resident in New Zealand.41

(d) Movable property situated outside New Zealand was not dutiable, even if the deceased was resident and domiciled in New Zealand. In other words, the mobilia principle worked in only one direction, not both — it exempted movable property situated in New Zealand (if the deceased was domiciled elsewhere), but it did not tax movable property situated outside New Zealand (if the deceased was domiciled in New Zealand).

It seems likely that many of the more affluent settlers retained their United Kingdom domicile, in which case the colonial Government’s losses to the mobilia principle may have been considerable.

3.1.4 Maori At this time, most Maori lived outside the effective control of the colonial Government and their

property rights and inheritances were generally not governed by colonial law. It seems likely, therefore, that the taxes provided for by the Act of 1866 were seldom collected from Maori. As will be seen, legislation enacted in 1909 provided expressly for the taxation of Maori estates,42 but the earlier legislation was silent in this respect.

3.1.5 Avoidance The Act contained a number of anti-avoidance provisions, copied from the United Kingdom via

New South Wales. For instance, one method of avoiding death duties might be to make an inter vivos transfer of one’s property to one’s children, or on trust for one’s children, but retaining for oneself a life interest. The Act contained provisions dealing with this kind of device.43 Another method might be for the property owner to make a gift inter vivos, but on the basis that it not take effect until his

40 See Re Wallop’s Trust (1864) 1 De Gex, Jones & Smith 656, 46 ER 259 (Ch), and Hanson, above n 39 at 2–7. 41 A person does not lose his original domicile (typically his country of birth) merely by residing elsewhere. Rather, he

generally retains it until such time as he evidences an intention to make some other place his permanent home. Thus, for example, a Briton could reside in New Zealand for many years without losing his United Kingdom domicile, if he intended ultimately to return to the United Kingdom. See Winans v Attorney-General [1904] AC 287 (HL) and the cases there referred to.

42 See below at n 114. 43 Stamp Duties Act 1866, ss 96–99, copied from Succession Duty Act 1853 (UK), ss 5–8.


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death (known as a donatio mortis causa).44 The Act dealt with this possibility by deeming such gifts to be legacies.45

A particularly notable anti-avoidance measure was s 99, which provided (among other matters) as follows:46

And where any Court of competent jurisdiction shall declare any disposition to have been fraudulent and made for the purpose of evading the duty imposed by this Act such Court may declare a succession to have been conferred on such person at such time and to such an extent as such Court shall think just and such last-mentioned person shall be deemed to have taken a succession accordingly derived from the person making such disposition as predecessor.

Again, this replicated verbatim a provision in the New South Wales Act,47 itself copied from the United Kingdom Act.48 These provisions were plainly aimed at the possibility that a person might seek to escape succession duty by disposing of his property before he died; and their effect was that in some circumstances such a disposition would be deemed to be a succession, and so would be dutiable. They are, therefore, the seed that ultimately grew into gift duty. Their scope, however, is far from clear. In particular, what was meant by fraudulent and evading? Did fraud mean merely an intention to deprive the Revenue of what might otherwise be due to it? Or did it entail dishonesty? Did evade mean simply avoid, or something else? There appear to be no reported cases on the scope of s 99 (and curiously little authority on the equivalent provisions enacted in other jurisdictions),49 but some years later, as will be seen, the Privy Council was to take a very narrow approach to the interpretation of its successor (s 35 of the Deceased Persons’ Estates Duties Act 1881, see below).

3.2 A Single Succession Duty: 1875 The Stamp Act 1875 repealed the Act of 1866 and in place of the several death duties provided for

by the earlier Act established a single succession duty, charged in respect of both real and personal property. This duty was charged on successions at rates ranging from one per cent to 10 per cent, depending on both the value of the property and the relationship between the deceased and the successor.50 Thus it seems to have been this Act that introduced the idea of progressivity in taxation in New Zealand (16 years before the introduction of income tax in 1891).51 As before, the closer the relationship, the lower the rate of duty. And, as before, successions to a husband or wife were exempt.52 The system’s geographical scope likewise remained unchanged. Since there was now only

44 See Cain v Moon [1896] 2 QB 283. 45 Stamp Duties Act 1866, s 62. 46 Emphasis added. 47 Stamp Duties Act 1865 (NSW), s 83. 48 Succession Duty Act 1853 (UK), s 8. See also Probate and Succession Duty Act 1876 (South Australia), s 27. 49 The United Kingdom section (s 8) was interpreted narrowly in Attorney-General v Noyes (1881–1882) LR 8 QBD 125 at

132–134. 50 Stamp Act 1875, s 106 and Second Schedule. 51 See Facer, above n 16 and Harris, above n 16. 52 Stamp Act 1875, Second Schedule.

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one tax rather than three, the legislation was simpler, and that was presumably what motivated the change, though the proceedings of Parliament do not disclose its thinking.53

3.3 The Introduction of Estate Duty: 1881 The Deceased Persons’ Estates Duties Act 1881 was New Zealand’s first stand-alone death duty

statute, as opposed to stamp duty statutes imposing death duties. It abolished succession duty and replaced it with estate duty. The difference was that succession duty had been imposed on the beneficiaries’ interests separately,54 whereas estate duty was imposed on the net value of the deceased’s whole estate.55 Thus, the total liability to succession duty had depended on how many beneficiaries there were, on how the estate was divided among them, and on the relationship between the deceased and each of the beneficiaries; whereas liability to estate duty depended simply on the size of the estate, the number of beneficiaries, their relationship to the deceased and the manner of the division of the estate among them being irrelevant. This basic principle was, however, subject to two very large exceptions. First, property passing from a husband to his widow was exempt56 (though there was no exemption for property passing from a wife to her widower), and secondly, property passing to the children or grandchildren of the deceased was dutiable at half the rate that would otherwise have applied.57 As before, the rates of duty were progressive, ranging from two per cent (on estates over £100 but less than £1,000) to 10 per cent (on estates over £50,000).58 And as before, the £100 threshold probably excluded at least 80 per cent of estates from liability.59

The reason for switching from succession duty to estate duty is not entirely clear,60 but estate duty was simpler than succession duty, so it seems likely that that was the reason.

3.3.1 Geographical scope and domicile Unlike the Acts of 1866 and 1875, that of 1881 expressly stated its geographical scope; estate duty

was imposed on all of the deceased’s property “situated in the Colony of New Zealand” notwithstanding that the deceased “had at the time of his death a foreign domicile”.61 In other words, the mobilia principle was excluded.62 This would have been a substantial expansion in the scope of the system if, as seems likely, it was common for affluent New Zealand residents to retain their United Kingdom domicile. But property outside New Zealand remained beyond the scope of the tax, even if the deceased was resident and domiciled in New Zealand.

53 New Zealand Parliamentary Debates, 10 August 1875 at 233–239, 14 September 1875 at 340–342, 14 October 1875 at 442–

443. 54 Stamp Act 1875, s 106 and Second Schedule. 55 Deceased Persons’ Estates Duties Act 1881, ss 7 and 5. 56 Deceased Persons’ Estates Duties Act 1881, s 36. 57 Deceased Persons’ Estates Duties Act 1881, s 37. 58 Deceased Persons’ Estates Duties Act 1881, Schedule. 59 The New Zealand Official Government Year Book 1898, above n 38. 60 New Zealand Parliamentary Debates, 16, 17 and 20 September 1881. 61 Deceased Persons’ Estates Duties Act 1881, s 8. 62 See Re Thomas Greenwood (Deceased) (1888) 6 NZLR 737 (CA) at 742 and Hay v Commissioner of Stamps (1902) 22

NZLR 716 (CA).


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3.3.2 The anti-avoidance rule Curiously, the anti-avoidance rule contained in s 99 of the 1866 Act (and recited above)63 was

dropped in 1875, but revived in a refined form in 1881. It was now s 35 and it was worded as follows:64

It shall be lawful for any Court of competent jurisdiction, on the application of the Commissioner, to declare any disposition of real or personal property to have been made for the purpose of evading the duty imposed by this Act, and also to declare that duty is payable on the property comprised in such disposition ….

Thus, it was no longer necessary for the Commissioner to show that the impugned disposition was fraudulent, but he still had to show that it was made for the purpose of evading duty. What this meant was considered by the Privy Council in Minister of Stamps v Townend.65 This was the third in a trilogy of Privy Council decisions, the first two of which — Simms v Registrar of Probates66 and Payne v The King67 — involved very similar provisions contained in statutes enacted in the colonies of South Australia and Victoria respectively. All three cases were about death duties; in all three, the deceased had sought whilst still alive to escape the duty by giving property to his children, and in all three the statute in question contained a rule extending the duty to property disposed of for the purpose of evading it.

The Privy Council held: (a) that evasion requires “underhand dealing”68 and (b) that disposing of property with the intention of escaping duty is not in itself underhand and therefore not evasion.69 The three cases are important for three reasons. First, their consequence was that s 35 and its Australian equivalents failed to prevent the mischief at which they were aimed, and that some other remedy was therefore required. As has been intimated, the remedy adopted in New Zealand was simply to tax gifts, irrespective of the motives of the donor and irrespective also of the period elapsing between the making of the gift and the death of the donor. Secondly, these cases seem to be a significant step in the evolution of the modern distinction between tax evasion (misrepresenting or failing to disclose the facts relevant to a liability to tax) and tax avoidance (arranging the facts with a view to producing a lesser liability than might otherwise arise). And, thirdly, it seems to have been the Privy Council’s narrow reading of these rules against evasion that prompted the New Zealand and Australian legislatures to incorporate in their income tax statutes the general anti-avoidance rules for which these statutes are famous (or perhaps, infamous).70

3.4 Deed of Gift Duty: 1885 The cumbersomely named Deceased Persons’ Estates Duties Act 1881 Amendment Act 1885 made

two main changes. First, the burden of estate duty was increased. In particular, whilst the maximum rate of duty remained at 10 per cent, the threshold at which it applied was reduced from £50,000 to £20,000. There was also added a surcharge of three percentage points on all inheritances going to 63 See above n 46. 64 Emphasis added. 65 Minister of Stamps v Townend [1909] AC 633 (PC). 66 Simms v Registrar of Probates [1900] AC 323 (PC). 67 Payne v The King [1902] AC 552 (PC). See also Bullivant v Attorney-General of Victoria [1901] AC 196 (HL). 68 Simms v Registrar of Probates above n 66, at 334. 69 Minister of Stamps v Townend, above n 65. 70 See Michael Littlewood “The Privy Council and the Australasian Anti-Avoidance Rules” [2007] BTR 175.

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strangers; so the highest rate of duty was 13 per cent (payable on a gift to a stranger out of an estate of more than £20,000).71 Property passing to the deceased’s spouse was exempt.72

Secondly, the Act of 1885 introduced a tax on gifts. Its aim was to protect estate duty. The problem was that a man (or a woman, but it seems usually to have been a man) could avoid estate duty by giving his property to his children before he died. As the Premier, Sir Robert Stout73 put it, “some people spend the last days of their lives considering how they may rob the state of revenue”.74 The anti-avoidance rules contained in the earlier legislation seem already to have been regarded as inadequate, though it would be some years yet before that was confirmed by the Privy Council (in the Simms, Payne and Townend cases discussed above). But what inspired the new tax — beyond the problem it was designed to solve — is unclear, for in the United Kingdom there was no tax on gifts at that time. Nor it seems, was there anything comparable elsewhere in the Empire. During the American Civil War, the Union had enacted a statute deeming gifts of land to constitute successions, thus rendering them subject to estate duty.75 But this provision was confined to real estate and was repealed at the end of the war. It is possible that the New Zealand tax was copied from the American one, but there seems to be no evidence of this.76 If it was an indigenous initiative, it is possible that the credit for it should go to Stout, who seems to have been a thoughtful and creative lawyer.

In any event, the scope of the new tax was rather limited: it was only imposed on deeds of gift,77 and so was colloquially known as deed of gift duty. Gifts effected by other means — delivery or instruments other than deeds — remained untaxed, and so presumably tended to be used instead. The duty was charged at the same rates as estate duty, except that the rate of duty was determined by and applied to the value of the gift, rather than the value of the donor’s entire estate. A gift of less than £20,000 would therefore have been taxed at a lower rate than an estate of more than that amount; so considerable scope remained for taxpayers to reduce their overall liability to duty by means of inter vivos gifts. This problem was to persist until the abolition of estate duty in 1993.

71 Deceased Persons’ Estates Duties Act 1881 Amendment Act 1885, Schedule. 72 Deceased Persons’ Estates Duties Act 1881 Amendment Act 1885, s 18. 73 Sir Robert Stout (1844–1930) was born in the Shetland Islands and emigrated to New Zealand in 1863. He practised law

before becoming an MP in 1875. He became Attorney-General in 1878, but resigned from Parliament in 1879 after falling out with the Premier, Sir George Grey (see above n 15). He re-entered Parliament in 1884 and a month later became Premier after organising a vote of no confidence against the incumbent, Harry Atkinson. Two weeks later Stout lost a vote of confidence and Atkinson regained the Premiership. A week later, Atkinson was removed by yet another vote of no confidence. Stout became Premier again and remained in that position until 1887, when he lost his seat. He became an MP again in 1893 and remained in Parliament until 1898. In 1899, he was appointed Chief Justice and served in that capacity until 1926. He was a friend and ally of John Ballance (see above n 13) and shared similar political views, with particular interests in land reform, education and women’s suffrage. He is the only person to have been both Premier of New Zealand and Chief Justice.

74 New Zealand Parliamentary Debates, 17 July 1885 at 84. 75 Internal Revenue Act 1864 (US) 13 Stat 223, s 132. 76 On the United States tax, see Horace Dresser Internal Revenue Laws: Act Approved June 30, 1864, As Amended, and the Act

Amendatory Thereof, Approved March 3, 1865, with Copious Marginal References, a Complete Analytical Index, and Tables of Taxation (D Appleton & Co, New York, 1865) at 79; Edwin Harold White (ed) Fundamentals of Federal Income, Estate, and Gift Taxes, with Emphasis on Life Insurance and Annuities (4th ed, Insurance Research & Review Service, Indianapolis, 1958) at 183; and Jeffrey A Cooper “Ghosts of 1932: The Lost History of Estate and Gift Taxation” (2010) 9 Florida Tax Review 875.

77 Deceased Persons’ Estates Duties Act 1881 Amendment Act 1885, s 10.


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The threshold beneath which no gift duty was payable was the same as for estate duty — £100. That in 1885, was still sufficient to permit the affluent to achieve substantial reductions in their liability to estate duty without incurring any liability to gift duty.78 Moreover, there was no provision for aggregation. Thus it would appear to have been possible to alienate any amount of property without incurring any liability by making any number of gifts of £100 each, simultaneously or in quick succession. Whether the Act was administered so as to permit this is unclear but later, as will be seen, rules were introduced requiring the aggregation of gifts, thus preventing, or at least limiting, this form of abuse.

In 1891, the legislation was amended so as to impose deed of gift duty not only on deeds, but on other instruments also.79 But gifts effected by delivery, without any form of documentation, remained beyond the scope of the tax. This method was not confined to chattels; gifts of cash and some securities — for example bearer shares and deeds acknowledging debts — can also be effected by delivery. The problem was therefore a large one.80

In 1895 the Act was amended again so that the applicable rate of duty would no longer be determined by the value of the gift, but by the total wealth of the donor.81 The logic of this is apparent, given that the purpose of deed of gift duty was to protect estate duty. Even so, this approach would seem to have entailed an extraordinary compliance burden, in that it would have required any person making a dutiable gift to determine the extent of his wealth, to disclose it to the Revenue, and to supply evidence in support; and to do so again, the next time he made a dutiable gift. How this was administered is unclear.

Also in 1895, the Family Homes Protection Act of that year introduced an exemption from death duties for registered family homes worth up to £1,500,82 presumably exempting many estates altogether and significantly reducing the duty on many more. This exemption was amended from time to time83 and remained an important feature of the system until death duties were abolished in 1993.

4.0 THE DEATH DUTIES ACT 1909 In 1909, the Liberal Government then in office, led by Sir Joseph Ward (a generally successful but

at one point bankrupt entrepreneur who was Prime Minister from 1906–1912, and again from 1928–1930),84 procured the enactment of completely new legislation — the Death Duties Act 1909 — transforming both estate duty and gift duty into something resembling their modern form. As regards

78 See above n 38. 79 Stamp Acts Amendment Act 1891, s 7. 80 See New Zealand Parliamentary Debates, 10 December 1909 at 908–909 (John Findlay). 81 Stamp Acts Amendment Act 1895, s 6(2); see also the Ross Report (above n 1) at 483. 82 Family Homes Protection Act 1895, s 30. 83 Joint Family Homes Act 1950, s 16; Joint Family Homes Act 1964, s 22; Joint Family Homes Amendment Act 1972, s 3;

Joint Family Homes Amendment Act 1974, s 12. 84 Sir Joseph Ward was born in Melbourne in 1856. His father died of alcoholism in 1860 and in 1863 Ward emigrated to New

Zealand with his mother. He became an MP in 1887 and held a number of posts in the Liberal administrations headed by John Ballance (above n 13) and Richard Seddon (above n 14). He was Prime Minister from 1906–1912 and the wartime coalition’s Minister of Finance from 1915–1919. He became Prime Minister again in 1928, as head of the United/Labour coalition, but his health failed him and he resigned and then died in 1930. He was a Minister of the Crown (holding a variety of portfolios) for 23 years, which is still a record.

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estate duty, the Act was closely based on the United Kingdom legislation. The politics also resembled what had happened in the United Kingdom some months earlier. There, a Liberal Government had been elected in 1906, and in 1909 David Lloyd George85 as Chancellor of the Exchequer, had delivered his famous “War Budget on Poverty”, in which he had proposed a progressive income tax for the purpose of financing the expansion of the welfare state. This Budget had been rejected by the Lords, prompting a constitutional crisis, culminating in the emasculation of the Upper House as a political force.86 Similarly, many of the members of New Zealand’s Upper House — the Legislative Council — were opposed to Ward’s proposals. No doubt they would have been loath to vote against a revenue measure in any event,87 but their cognisance of what had happened in the United Kingdom added to their reluctance88 and they refrained from voting against the Bill.

Before examining the terms of the 1909 Act, it is apposite to note that it was a qualitatively superior piece of legislation to those that had gone before. In the late 19th century and the early 20th, the New Zealand Government’s legislative drafting capacity was, to put it kindly, rudimentary; and the standard of drafting was generally what one would expect of a small, remote Colony. In 1907, however, the standard of drafting improved dramatically when the Attorney-General, John Findlay,89 himself unusually competent, appointed as chief draftsman John Salmond, perhaps the strongest jurist New Zealand has ever produced.90

4.1 Death Duties The first change effected by the 1909 Act was that it reintroduced succession duty, on top of estate

duty. Consequently, there were two death duties; the whole of the deceased’s dutiable estate was chargeable to estate duty91 and, in addition, each beneficiary was charged succession duty.92

85 David Lloyd George (1863–1945) was a Liberal MP (1890–1945), Chancellor of the Exchequer (1908–1915) and Prime

Minister (1916–1922). He is widely regarded as a key figure in the First World War and the subsequent peace talks and was central to the establishment of the welfare state in the United Kingdom. He is the only British Prime Minister to have been Welsh.

86 Martin Daunton Trusting Leviathan: The Politics of Taxation in Britain, 1799–1914 (Cambridge University Press, Cambridge, 2001) at 364–365.

87 See William Jackson The New Zealand Legislative Council (University of Otago Press, Dunedin, 1972) at 104 ff. 88 New Zealand Parliamentary Debates, 10 December 1909 at 912 (Robert Loughnan); 13 December 1909 at 972 (George

Smith). 89 John Findlay (1862–1929) was a prolific author and, before becoming a politician, had practised law in partnership with Sir

Robert Stout (see above n 74). In 1906, Ward appointed him to the Legislative Council so that he could serve as Attorney-General (1906–1911). After several unsuccessful attempts, he was elected to the House of Representatives in 1917 and served until 1919.

90 John Salmond (1862–1924) was born in Northumberland and emigrated to Dunedin with his parents in 1875. He studied law at Otago and University College London, practised law for 10 years and in 1897 was appointed Professor of Law at the University of Adelaide. In 1906 he returned to New Zealand to take up the foundation chair in law at what is now Victoria University of Wellington and in 1907 he was appointed as Counsel to the Law Drafting Office, where he remained until 1911, when he became Solicitor General. He was made a King’s Counsel in 1912, knighted in 1918 and appointed a judge of the High Court (as it is now called) in 1920. His major works are Jurisprudence or the Theory of Law (Stevens and Haynes, London, 1902) and The Law of Torts (Stevens and Haynes, London, 1907), both of which are regarded as classics. See generally Alex Frame Salmond: Southern Jurist (Victoria University Press, Wellington, 1995).

91 Death Duties Act 1909, s 3. 92 Death Duties Act 1909, ss 14 and 15.


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Secondly, the 1909 Act increased both the rates at which estate duty was charged and also the exemptions. The threshold beneath which no estate duty was payable was increased from £10093 to £500.94 The Government had estimated the private wealth “per head of total estimated population” in New Zealand at £335,95 so presumably many estates escaped duty entirely and many more were dutiable at the lower rates. Also, if an estate was worth £10,000 or less, the first £5,000 going to the deceased’s widow was free of duty.96 Widowers, however, received no such relief. Under the 1881 Act, the highest rate of estate duty had been 10 per cent. In 1885 it had been increased to 13 per cent,97 and in 1909 it was increased again, to 15 per cent (on estates of over £145,000: a threshold high enough to exclude all but a tiny number of estates).98

As for the reintroduced succession duty, it was charged at rates ranging from two per cent to 20 per cent, depending on the value of the property and the relationship between the deceased and the successor. If the successor was the wife of the deceased, or a child or other descendant, no succession duty was payable if the value of the property was £20,000 or less; if the value of the property exceeded £20,000, the whole of it was dutiable at two per cent (except that the amount of duty could not exceed the amount by which the value of the property exceeded £20,000).99 If the successor was the husband of the deceased, the first £20,000 was dutiable at two per cent and the balance at four per cent. If the successor was any other relative of the deceased “in any degree not exceeding the fourth”, the first £20,000 was dutiable at five per cent and the balance at 10 per cent. In all other cases, the first £20,000 was dutiable at 10 per cent and the balance at 20 per cent.100 Succession duty was charged on the whole of the succession, not on only what was left after the deduction of estate duty, so the maximum combined rate of duty was 35 per cent (15 + 20 = 35).101

One of the Government’s aims was to increase its revenues, but the reintroduction of succession duty was intended to fulfil other objectives also, as Ward explained:102

The considerations to be kept in view in framing this kind of legislation are the total amount of wealth left by a deceased person; the relationship of the beneficiary — whether dependant, relative, or stranger; and the amount left to any one person, whether related or not. For example, if the total estate is £500,000 it should pay at a higher rate than an estate of £5,000, and a graduated scale should be imposed increasing with the value of the estate; if the beneficiary is a total stranger or distant relative he should pay on the share coming to him at a higher rate than a dependant — like a wife or child; and if a fortune is left to one person — whether a dependant, relative, or stranger — it should be taxed at a higher rate than a small share going to the same person.

93 Death Duties Act 1908, Second Schedule. 94 Death Duties Act 1909, s 12. 95 The New Zealand Official Yearbook, 1908 (Government Printer, Wellington, 1908) at 537. The estimate related to 1906.

Later, the Government acknowledged that its calculations were rather imprecise: The New Zealand Official Yearbook, 1911 (Government Printer, Wellington, 1911) at 656–657.

96 Death Duties Act 1909, s 13. 97 Deceased Persons’ Estates Duties Act 1881 Amendment Act 1885, Schedule. 98 Death Duties Act 1909, s 4 and First Schedule. See Anonymous, above n 2 at 194. 99 Death Duties Act 1909, s 16. 100 Death Duties Act 1909, s 18. 101 Re Holmes (1912) 32 NZLR 577 (CA). 102 New Zealand Parliamentary Debates, 29 November 1909 at 442.

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Moreover, the Government thought it desirable, as an end in itself, to attack large fortunes, as Findlay explained:103

Surely there may be a good deal to be said for the view expressed by John Stuart Mill that it is unwise in most cases that any one man should be endowed with wealth to such an amount as to place him entirely beyond the need of earning his own living…. More young men have been made shipwreck by having too much wealth left to them than from any other cause.

George Laurenson, another Liberal MP, spoke to similar effect:104

[T]here is an opinion rising up not only in this country, but in Great Britain, and also in America and Germany, that all taxation should aim not only at the raising of revenue, but also at the more equitable distribution of the wealth which the community produces…. After all, what good does money do for those who inherit it? If you want to see a failure in life, give me the case of the son of a wealthy man.

Thirdly, the 1909 Act contained much more elaborate provisions — copied from provisions in force in the United Kingdom and familiar to the modern eye — clawing back into the deceased’s estate property which he had sought to put beyond the reach of the tax. Most pertinently, a deceased person’s estate was deemed to include (for the purposes of duty): (a) any gift made by the deceased in the last three years of his life;105 (b) any gift made by the deceased at any time unless “bona fide possession and enjoyment” had been

assumed by the donee at least three years before the death of the deceased;106 and (c) any property the subject of a donatio mortis causa made by the deceased at any time.107

Fourthly, the Act expanded the territorial scope of the system. The basic rule remained the same: that duty was only imposed on property “situated in New Zealand”.108 Thus, duty was payable on the property of the deceased that was situated in New Zealand at the time of his death, and also on gifts clawed back into his estate if the property gifted was situated in New Zealand at the time of the gift.109 These rules applied to both estate duty and succession duty. But there was also added a rule, s 7, that movable property would be deemed to be situated in New Zealand if the deceased was domiciled in New Zealand.110 This, too, applied to both estate duty and succession duty. It seems reasonable to suppose that the principal purpose of s 7 was not to extend what might be thought of as the natural scope of the system, but to prevent avoidance. It had previously been possible to avoid estate duty and succession duty by shifting movable property offshore. This was so not only of chattels but also, more importantly, of money and various kinds of security. For example, it seems to have been accepted that

103 New Zealand Parliamentary Debates, 10 December 1909 at 907. See also 13 December 1909 at 973. Similar logic lay

behind the land tax introduced in 1891: see Facer, above; and Harris, above n 15. 104 New Zealand Parliamentary Debates, 29 November 1909 at 449. 105 Death Duties Act 1909, s 5(1)(b); compare Customs and Inland Revenue Act 1881 (UK), s 38(2), as amended, and Finance

Act 1910 (UK), s 59. 106 Death Duties Act 1909, s 5(1)(c); compare Customs and Inland Revenue Act 1889 (UK), s 11. 107 Death Duties Act 1909, s 5(1)(d). See above at n 45. Curiously, although the Acts of 1866 and 1909 dealt with donationes

mortis causa, those enacted in between — the Acts of 1875, 1881, 1885, 1891 and 1895 — did not. 108 Death Duties Act 1909, s 5. 109 Death Duties Act 1909, s 5(1)(a), (b), (c) and (d). 110 Death Duties Act 1909, ss 7 and 2 (definition of “personal property”).


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a simple debt (such as a bank account) is situated where the debtor (the bank) is resident111 and that shares in a company are situated where the share register is situated.112 The enactment of s 7 would seem to have prevented this kind of avoidance.

Fifthly, the Act provided for relief against double taxation where property situated outside New Zealand was subject both to New Zealand death duties (as would be the case with movable property if the deceased was domiciled in New Zealand) and also to duty in the country in which the property was situated. In such cases, the foreign duty was to be deducted from the duty payable in New Zealand.113 In other words, the Act provided for what we would now call a tax credit.

Sixthly, the Act made special provision for Maori. It exempted from death duties — both estate duty and succession duty — “any property included in a succession order made by the Native Land Court or Native Appellate Court”. Instead, such property would be chargeable to a special tax called native succession duty, which was charged at two per cent on property worth £200 or more.114

Finally, the 1909 Act did not re-enact s 35 of the 1881 Act, that is, the section imposing duty on property disposed of “for the purpose of evading” it.115 Presumably the Government had concluded, in light of the Privy Council’s decision in Townend,116 that legislating against tax evasion (or avoidance, as it would now be called) was doomed to failure, and that broadening the tax on gifts was the best available solution to the problem.117

4.2 Gift Duty The 1909 Act also extended gift duty, so as to impose it on gifts effected by delivery, as well as

those made in writing.118 As in 1885, this seems to have been a purely indigenous initiative, for there was still no tax on gifts in the United Kingdom at that time (other than the claw-back provisions referred to above). As mentioned above,119 a tax on gifts had been introduced in the United States in 1864; but that was a temporary wartime measure, confined to gifts of land. The New Zealand gift duty, in contrast, was a permanent peacetime measure, imposed on gifts generally, of both land and personalty. Also, the New Zealand tax was imposed on gifts as such, rather than by deeming them to be successions. Many countries — for example the United Kingdom, the United States, and Australia — were later to impose taxes on gifts: the New Zealand tax, if it was indeed the first tax of this kind, was therefore a significant contribution to the development of tax law worldwide. The credit for it presumably goes to Salmond and Findlay. 111 Byron v Byron (1596) 1 Cro Eliz 472, 78 ER 709 (KB); English Scottish and Australian Bank Ltd v Commissioners of Inland

Revenue [1932] AC 238 (HL). 112 Attorney-General v Higgins (1857) 2 H & N 339, 157 ER 140 (Exch); Brassard v Smith [1925] AC 371, [1925] 1 DLR 528

(PC). 113 Death Duties Act 1909, s 32. 114 Death Duties Act 1909, s 80. The Native Land Court was established in 1865. Its main function was to convert customary

Maori land ownership into titles recognized by the colonial legal system. The Court still exists but since 1954 it has been called the Maori Land Court.

115 See above n 64. 116 Minister of Stamps v Townend [1909] AC 633 (PC). 117 The legislation was consolidated in 1908 but s 35 of the 1881 Act had been preserved as s 32 of the Death Duties Act 1908. 118 Death Duties Act 1909, ss 37–40. 119 Internal Revenue Act 1864 (US) 13 Stat 223, s 132.

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Gift duty’s function was simply to protect estate duty, which the Dominion’s richer residents were routinely avoiding by making undocumented gifts to their children.120 As some of the legislation’s critics observed, taxing undocumented gifts would present considerable difficulty of enforcement. In particular, the Revenue would have no effective means of discovering a gift of cash, unless the parties chose to report it.121 The Government acknowledged that that was so,122 but proceeded regardless. Its approach was vindicated in that gift duty, in its extended form, clearly reduced the level of death duty avoidance, though it by no means eliminated it.

“Gift” was defined as generally including “any disposition of property without fully adequate consideration”123 (though the Revenue generally refrained from querying transactions between unrelated parties).124 Like estate duty and succession duty, gift duty was only charged on property “situated in New Zealand” (at the time the gift was made); but if the donor was domiciled in New Zealand, any personal property included in the gift was “deemed to be situated in New Zealand”, and therefore dutiable.125 The latter part of this rule was a necessary anti-avoidance measure; without it, a person domiciled in New Zealand could have avoided the duty by removing property from New Zealand and then giving it away. The donee would then have been able to return the property to New Zealand without paying duty on it. Again, this technique would have worked not only with chattels but with money and securities also; so anyone game to use it would typically have been able to reduce his dutiable estate considerably without exposing himself to gift duty. In some circumstances property was chargeable to both gift duty and death duties. Most obviously that was so if a person made a dutiable gift and then died within three years. In such cases, the gift duty paid was set off against the death duty payable.126

Gift duty was charged at a flat rate of five per cent.127 Since the top rate of estate duty was 15 per cent and succession duty was imposed on top of estate duty, there was enormous scope for the affluent to reduce their overall liability by giving their property away, even where their gifts were subject to duty. Gifts worth £500 or less were exempt,128 so the duty was effectively confined to the affluent.129 To prevent abuse of the exemption, gifts from the same donor to the same donee were aggregated if made within six months of one another.130 Thus, the donor could not defeat the rule by making a number of gifts of £500 each simultaneously or in quick succession. He could, however, make the most of the exemption by making the largest possible non-dutiable gift (that is, £500) to each of 120 New Zealand Parliamentary Debates, 29 November 1909 at 442 (Ward); 8 December 1909 at 807 (Ward); 10 December

1909 at 908–909 (Findlay). 121 For example New Zealand Parliamentary Debates, 29 November 1909 at 446 (Thomas Wilford); 8 December 1909 at 799

(James Allen) and 803 (William Herries). 122 New Zealand Parliamentary Debates, 10 December 1909 at 909 (Findlay). 123 Death Duties Act 1909, s 38. If the donee provided partial consideration, the gift was measured by the extent of the

inadequacy. 124 ILM Richardson Adams and Richardson’s Law of Estate and Gift Duties (4th ed, Butterworths, Wellington, 1970) at 11. 125 Death Duties Act 1909, s 41. 126 Death Duties Act 1909, s 59. 127 Death Duties Act 1909, s 46. 128 Death Duties Act 1909, s 44. 129 The New Zealand Official Yearbook, 1908, above n 95. 130 Death Duties Act 1909, s 44.


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numerous donees every six months. Since the Act aggregated gifts only where both the donor and the donee were the same, it incentivised donors to make gifts to as many donees as possible; for example, to grandchildren as well as children.

This problem became apparent almost immediately, and two years later in 1911 the rule was amended: instead of imposing a limit of £500 on the value of gifts going duty-free to each donee every six months, it now imposed a limit of £1,000 on the total duty-free gifts made by the donor every 12 months.131 This was a much more serious constraint and gave rise to what became known as gifting programmes. That is, the affluent took to systematically making gifts to the value of £1,000 per year (or whatever the threshold was; it was changed from time to time) so as to minimise their liability to death duties. Sometimes they gave away more, if the gift duty payable was less than the death duty saved.132 This depended on whether the taxpayer was married or not, how many children he had, and so on. Usually such gifts went to a discretionary trust established for the benefit of the donor’s children. Sometimes gifting programmes took the form of a series of simple gifts; more commonly, the taxpayer sold property (typically real estate) to the intended donee at market value, left the price outstanding and then forgave the debt by a series of annual gifts of the maximum non-dutiable amount.

5.0 DEATH DUTIES AT THEIR PEAK: 1909–1949 The 1909 Act was a tremendous success, for the system’s basic shape remained mostly intact until

death duties were abolished in 1993. There were changes of course, but most were trivial. Even those that could be counted as structural, — of which there were several — were more in the nature of technical refinements than radical change. But although the system’s structure remained largely unchanged, there was considerable volatility in the rates of tax, apparently driven for the most part by party politics.133

5.1 The Reform Government of 1912–1928 The Liberal Party remained in office from 1890 until 1912. It was then replaced by the right-wing

Reform Party, led by its founder, Bill Massey.134 The Reform Party remained in government from 1912 until 1928 — except for the period from 1915–1919, during which the Reform Party and the Liberal Party formed a wartime coalition, with Massey as Prime Minister and Ward135 as Minister of Finance. Massey served as Prime Minister from 1912 until 1925. He set the tone of his administration at the outset, in 1912 and 1913, with the brutal suppression of strikes — though whether this ultimately weakened or strengthened the New Zealand labour movement is debatable.

131 Death Duties Amendment Act 1911, s 8. 132 See Lindsay McKay “The Estate and Gift Duties Act 1968 — Time for a Change of Concept” [1977] NZLJ 97. 133 Why right-wing Reform and National Governments left the system’s structure mostly unchanged is an interesting and

important question, but one beyond the scope of this article. 134 See above n 16. 135 See above n 84.

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5.1.1 Modifying the exemptions: 1915 In 1914, the New Zealand Government enthusiastically joined in the First World War. According to

Massey, “All we are and all we have are at the disposal of the Imperial Government”.136 Conscription was nonetheless highly controversial. In 1915 the Coalition Government amended the Death Duties Act. First, it reduced the exemption from succession duty for successions to the children of the deceased from £20,000 to £5,000,137 but extended it to cover other descendants (grandchildren and great grandchildren). Secondly, it was problematic to send a man to war and then, when he was killed, tax his estate; so where the deceased died while on military service, there was an exemption from estate duty of £5,000 for his widow and for each of his descendants.138

Thirdly, the 1915 Act introduced an exemption from gift duty for gifts from the same donor to the same donee not exceeding £20 per year in aggregate, if made “in good faith as part of the normal expenditure of the donor”.139 This was copied from an exemption contained in the United Kingdom claw-back provisions.140 Finally, there was also a new exemption for any gift made “towards the maintenance of the wife, husband, or any relative of the donor”, so long as it was “not excessive in amount, having regard to the legal or moral obligation of the donor to afford such maintenance”.141 This seems not to have been copied from anywhere, but devised locally. It would seem to be problematic in that any gift could be said to be “towards the maintenance” of the donee, and opinions differ as to moral obligations. It was interpreted as exempting gifts made out of income, but not gifts of capital.142 Six years later, this aspect of the rule evidently having proved problematic, there was added to the legislation the following solution:143

The determination of the Commissioner that a gift is not entitled to exemption under this section shall be final and conclusive.

5.1.2 Shifting the burden upwards: 1920 In 1920, the higher rates of estate duty were increased, the maximum going from 15 per cent to 20

per cent (on estates of over £100,000).144 This was a revenue measure, undertaken by the right-wing Reform Government with some reluctance.145 At the same time, the threshold beneath which no estate duty was payable was increased from £500 to £1,000 and the lower rates of duty were decreased.

136 Quoted in GH Scholefield The Right Honourable William Ferguson Massey, MP, PC, Prime Minister of New Zealand,

1912–1925: A Personal Biography (HH Tombs Ltd, Wellington, 1925) at 24. 137 Finance Act 1915, s 92; New Zealand Parliamentary Debates, 28 September 1915 at 291 (Ward). 138 Finance Act 1915, s 93. 139 Finance Act 1915, s 101(1)(a). 140 Finance Act 1910 (UK), s 59(2). 141 Finance Act 1915, s 101(1)(b). 142 EC Adams The Law of Estate and Gift Duties in New Zealand (3rd ed, Butterworth & Co, Wellington, 1956) at [29]. 143 Death Duties Act 1921, s 44(2). 144 Death Duties Amendment Act 1920, s 3 and Schedule. 145 New Zealand Parliamentary Debates, 15 October 1920 at 620–624 (Massey).


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These seem to have been simple vote-winning measures; their effect was that about two-thirds of estates were excluded from liability and most of the rest were taxed at the lower rates.146

The rates of succession duty were changed too, but the changes were more complex, varying with both the size of the succession and the relationship between the deceased and the successor. Some of the rates were increased, but not all, and some were decreased. For instance, the maximum rate applicable where the successor was the wife or a descendant of the deceased was increased from two per cent147 to four per cent.148 The 1920 Act changed not only the rates of succession duty, but also the thresholds at which they applied.149 Consequently, the combined effect of the changes is not easily summarised. Overall the burden of succession duty was probably increased, but not by much.

The 1920 Act also transformed gift duty — which under the 1909 Act had been a flat tax charged at 5 per cent150 — into a progressive one. The threshold beneath which no duty was payable remained at £1,000 per year;151 gifts totalling £1,000 to £5,000 within 12 months were taxed at five per cent; £5,000 to £10,000, at 7.5 per cent; and more than £10,000, at 10 per cent.152 These changes lessened the scope for avoidance, but the £1,000 exemption and the fact that the rates of gift duty were all much lower than the top rate of estate duty (20 per cent) meant that they by no means eliminated it.

5.2 The United Governments of 1928–1935 In 1928, the Reform Party’s long term in office eventually came to an end. The new Government

was formed by a coalition of the United Party (an offshoot of the disintegrating Liberal Party) and the Labour Party (at this point a rapidly-growing political force). The Prime Minister was United’s Sir Joseph Ward, in his second term in that role; as is recounted above, it was during his first administration that the landmark legislation of 1909 had been enacted. Ward’s health deteriorated however, and in 1930 he resigned to be succeeded by George Forbes.153 A few months later the United/Labour Government increased the rates of estate duty, raising the maximum from 20 per cent to 30 per cent (on estates of over £100,000).154 The aim was merely to raise revenue; the earlier objective of breaking up large fortunes seems to have been forgotten.155 The rates of succession duty were left unchanged, as were the rates of gift duty, except that the threshold — that is, the total value

146 The New Zealand Official Yearbook, 1920 (Government Printer, Wellington, 1920) at 381–383. See also New Zealand

Parliamentary Debates, 15 October 1920 at 625 (Thomas Wilford). 147 Death Duties Act 1909, s 16. 148 Death Duties Amendment Act 1920, ss 4(2)(c) and 4(4)(f). 149 Death Duties Amendment Act 1920, s 4. 150 Death Duties Act 1909, s 46. 151 Death Duties Amendment Act 1920, s 5. 152 Death Duties Amendment Act 1920, s 5. 153 George Forbes (1869–1947) entered Parliament in 1908 as a Liberal and was Prime Minister from 1930–1935. In 1892 he

was the captain of the Canterbury rugby team but he seems to be generally regarded as an ineffectual politician. 154 Finance Act 1930, s 29. 155 New Zealand Parliamentary Debates, 18 August 1930 at 339–342, 406–407 (Forbes).

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of gifts a person could make each year before exposing himself to duty — was cut from £1,000 to £500.156

In 1931 the agreement between the (now centrist) United Party and the (left-wing) Labour Party broke down, and United formed a new Government in coalition with the (right-wing) Reform Party. Forbes continued as Prime Minister. These arrangements lasted until 1935 — a period during which there was no significant amendment of the Death Duties Act.

5.3 The First Labour Government: 1935–1949 New Zealand’s first Labour Government was elected in 1935 and remained in office until 1949.

Initially the Prime Minister was the charismatic Michael Joseph Savage, who died of cancer in 1940 and was given the extraordinary accolade of a large park-like mausoleum with a splendid view of Auckland Harbour.157 He was succeeded by Peter Fraser, a notably principled man who had been imprisoned on a charge of sedition for his opposition to conscription during the First World War.158

Under Savage’s leadership the Government greatly expanded its spending on health, education and welfare and embarked on a large public housing programme. It also engaged in extensive economic regulation; imports, exports, industrial relations and currency exchange were all much more comprehensively regulated than before.159 But despite massive increases in public spending, the death duty system remained for several years unchanged.

Then, in August 1939, a week before the Second World War was declared, the Labour Government increased the rates of all three duties — estate duty, succession duty, and gift duty. The maximum rate of estate duty remained unchanged at 30 per cent but the lower rates and the thresholds were adjusted so as to produce increases in liability of about 20 per cent for medium-sized estates.160 Succession duty was likewise increased. If the successor was the husband or wife of the deceased or a direct descendant, the new top rate of duty was five per cent (up from three per cent for husbands and four per cent for wives and descendants); in the case of other relatives “in any degree not more remote than the fourth”, 12 per cent (previously 10 per cent); and for strangers 25 per cent (previously 20 per cent).161 The rates of gift duty were increased also, with the highest rate (applicable where the donor made gifts totalling more than £10,000 within 12 months) being raised from 10 per cent to 12 per cent.162

Both the Government and the public were acutely aware of the imminent prospect of increased military spending, but curiously little was said about it in Parliament. Instead, Fraser (as Acting Prime

156 Finance Act 1930, s 30. These increases were consistent with the then consensus that emphasised the need for prudence and

for a balanced budget; see Malcolm McKinnon Treasury: The New Zealand Treasury 1840–2000 (Auckland University Press, Auckland, 2003) at 11–21, 116–24.

157 Michael Joseph Savage (1872–1940) was born in Australia and emigrated to New Zealand in 1907. He became a Labour MP in 1919, leader of the Labour Party in 1933, and Prime Minister in 1935.

158 Peter Fraser (1884–1950) was born in Scotland and emigrated to New Zealand at the age of 26. He became an MP in a by-election in 1918 and was Prime Minister from 1940 (when Savage died) until 1949 (when Labour, under his leadership, lost the election).

159 Michael Bassett The State in New Zealand, 1840–1984 (Auckland University Press, Auckland 1998), chapters 7 and 8. 160 Finance Act 1939, Schedule; compare Death Duties Act 1921, First Schedule. 161 Finance Act 1939, s 26; compare Death Duties Act 1921, s 17. 162 Finance Act 1939, s 27; compare Death Duties Act 1921, s 46.


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Minister, Savage being by now on his deathbed) justified the tax increases by reference mainly to spending on public housing, railways, schools, police stations, hospitals and so on.163 On 3 September, Britain declared war on Germany and New Zealand did the same. Savage, in one of his last public acts, declared:164

With gratitude for the past and confidence in the future we range ourselves without fear beside Britain. Where she goes, we go; where she stands, we stand. We are only a small and young nation, but we march with a union of hearts and souls to a common destiny.

Later that month, the War Expenses Act 1939 increased the rates of all three duties by a third.165 Thus the maximum rate of estate duty rose from 30 per cent to 40 per cent; the maximum rate of succession duty rose from 20 per cent to 26.66 per cent; and the maximum rate of gift duty rose from 12 per cent to 16 per cent. This Act also increased every liability to income tax by 15 per cent.166 It provided for the revenues it produced not to be paid into the Consolidated Account, but kept in a separate War Expenses Account and devoted to military spending.167

The Finance Act 1940 effected further increases in the rates of estate duty, succession duty and gift duty. Liability to estate duty was increased substantially at all levels. Also the threshold below which no estate duty was payable was reduced from £1,000 to £200.168 Thus very modest estates now became dutiable,169 though the burden on them was relatively light. The top rate of estate duty stayed at 40 per cent, payable on estates of £100,000 or more. But this 40 per cent rate was now applied to the whole of the estate rather than, as before, only the excess over £100,000.170 The increases in the rates of succession duty were more complex. As before, there were different schedules of rates for wives, husbands, children and so on; all were increased significantly.171 For instance, where the successor was a child of the deceased, the maximum rate of duty was increased from 6 ⅔ per cent172 to 16 per cent.173 The increases in the rates of gift duty were substantial, too. For instance, the highest rate — payable by persons making gifts of more than £20,000 per year — was increased from 16 per cent174 to 25 per cent175 (still much lower than the top rate of estate duty, and therefore still allowing

163 New Zealand Parliamentary Debates, 24 August 1939 at 519. 164 Quoted by Barry Gustafson From the Cradle to the Grave: A Biography of Michael Joseph Savage (Penguin, Auckland,

1988) at 251. 165 War Expenses Act 1939, s 7. 166 War Expenses Act 1939, s 4. 167 War Expenses Act 1939, s 2. 168 Finance Act 1940, s 26 and First Schedule. 169 The New Zealand Official Yearbook, 1941 (Government Printer, Wellington, 1941) at 668–670. 170 Finance Act 1940, s 26 and First Schedule. 171 Finance Act 1940, s 27 and Second to Seventh Schedules. 172 The rate of tax provided for by the Finance Act 1939 was 5 per cent, to which the War Expenses Act 1939 had added one

third, making 6 ⅔ per cent. 173 Finance Act 1940, s 27 and Fourth Schedule. 174 The rate of tax provided for by the Finance Act 1939 was 12 per cent, to which the War Expenses Act 1939 had added one

third, making 16 per cent. 175 Finance Act 1940, s 28.

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much scope for avoidance). As the Minister of Finance Walter Nash176 explained, the reason for these increases in taxation was to finance military spending.177

But increasing death duties whilst asking people to put their lives in jeopardy was problematic. In 1943 the exemption for servicemen’s estates was extended to cover the merchant marine.178 And in 1944 partial relief was provided from the double death duties that arose where a serviceman inherited property from another serviceman and then died.179

6.0 THE DECLINE AND ABOLITION OF DEATH DUTIES: 1949–2011 The right-wing National Party, successor to the Reform Party, won the 1949 election and governed

for most of the rest of the 20th century. Part of its programme was to cut death duties as circumstances permitted. As the century progressed, estate planning became more and more prevalent and was met with what one commentator described as a “virtual complete absence of legislative counter measures”.180 The National Party was naturally content to see the duties atrophy and eventually Labour lost interest in saving them. The taxes’ susceptibility to avoidance, in turn, made them inequitable. Those who got rich quickly and died young tended to suffer their full impact, as did those few who were reluctant to engage in avoidance. But wealthy families burdened by no such qualms were invariably able to mitigate their liability to a considerable degree. Moreover the middle class were less able than the rich to afford the advice required to mitigate liability. The duties’ inequity was thus accentuated. Partly for these reasons and partly because of the enormous growth of income tax, the death duties wasted away and became increasingly unimportant. In 1915, they accounted for 13.5 percent of the government’s revenues; in 1935, 8.8 percent; in 1955, 4.0 percent; in 1975, 1.4 percent; and in 1990, just 0.3 percent.181

6.1 The National Government of 1949–1957 The National Government elected in 1949 remained in office until 1957. The Prime Minister for the

whole of that period was Sydney Holland, an ebullient debater and effective organiser who had led the National Party since 1940 and built it from troubled beginnings into the country’s dominant political force.182 One of his main contributions was to abolish the Legislative Council (the upper house of Parliament), which was dominated by members appointed during Labour’s 14 years in office. Holland appointed 25 new members — enough to constitute a large majority — who then voted the Council out of existence. Like Massey,183 Holland took a confrontational approach to industrial disputes: in particular the 1951 waterfront dispute — the largest industrial dispute in New Zealand’s history — 176 Walter Nash was born in England in 1882, emigrated to New Zealand in 1909, and entered Parliament in a by-election in

1929. When Labour won the 1935 election under Savage, Nash became the Minister of Finance; when Fraser died in 1950, Nash became the leader of the Labour Party (in opposition); and when Labour won the 1957 election, Nash became Prime Minister; see below. He remained in that position until the 1960 election, which Labour lost. He remained in Parliament until he died in 1968, aged 86.

177 New Zealand Parliamentary Debates, 18 July 1940. 178 Finance (No 3) Act 1943, s 7; New Zealand Parliamentary Debates, 24 August 1943 at 988 (Nash). 179 Finance (No 3) Act 1944, ss 19 and 20; New Zealand Parliamentary Debates, 13 December 1944 at 726 (Nash). 180 McKay, above n 1 at 24. 181 See the Appendix to this article. 182 Sydney Holland (1893–1961) became an MP in 1935 and was Prime Minister from 1949 until 1957. 183 See above n 16.


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which he resolved by using the military to load and unload ships. Later the same year, he called a snap election and was returned to power with an increased majority. It was during his term in office, in 1951, that the ANZUS (Australia-New Zealand-United States) military alliance was established.

6.1.1 The 1952 tax cuts In 1952, the National Government cut the rates of estate duty and succession duty by 20 per cent

across the board.184 The maximum rate of estate duty was thus reduced from 40 per cent to 32 per cent. These were the first reductions in death duties since their introduction in 1866, and marked the beginning of the system’s decline. The rates of gift duty, and the thresholds, were left unchanged. The main reason for the cuts in estate duty and succession duty was simply that the National Party was philosophically in favour of cutting taxes, especially on farmers and the affluent, wherever possible.185 There was also a change in rhetoric; there seems now to have been virtually no support, even from Labour, for the theory that the tax system (or any other means) should be used to break up large fortunes.186

6.1.2 The abolition of succession duty: 1955 Towards the end of Holland’s term as Prime Minster, the 1909 Act was repealed and new

legislation was enacted: the Estate and Gift Duties Act 1955. As its title suggests, the Act made a fundamental change; estate duty and gift duty were preserved, but succession duty was abolished. This simplified the system — which, according to the Government, was its aim187 — but it also lightened the burden.

To compensate for the abolition of succession duty, the Act increased the rates of estate duty; to compensate for the abolition of the preferential treatment of widows and children built into succession duty, the exemptions built into estate duty were refined. By modern standards, the schedules of rates for estate duty and gift duty were bizarre. There were 39 different rates of estate duty, from four per cent to 59 per cent.188 These were structured so as to produce a maximum total liability (on estates of £100,000) of 40 per cent. Estates of more than £100,000 were taxed at a flat rate of 40 per cent from the first pound.189 Although the rates of estate duty were increased, the abolition of succession duty reduced the overall burden on estates of up to about £12,000 in value. In other words, the burden on many of the National Party’s supporters was reduced. The burden on larger estates remained about the same. Estates worth less than £1,000 — about a quarter of the total190 — were exempt. Overall, revenue from death duties was calculated to fall by 17.5 per cent.191

184 Death Duties Amendment Act 1952, s 2(1). 185 New Zealand Parliamentary Debates, 23 October 1952 at 2,073–2,076 (Charles Bowden). 186 New Zealand Parliamentary Debates, 23 October 1952 at 2,076–2,077 (Nash). 187 New Zealand Parliamentary Debates, 27 October 1955 at 3,462–3,464 (Jack Watts, Minister of Finance). See also

Anonymous, above n 1. 188 For much of the 20th century, income tax, too, was charged at what by modern standards seems an excessive number of

rates. For example, income tax legislation enacted in 1954 provided for 37 different rates of personal income tax: Land and Income Tax Act 1954 First Schedule.

189 Estate and Gift Duties Act 1955, First Schedule. 190 The New Zealand Official Yearbook, 1957 (Government Printer, Wellington, 1957) at 1,133–1,135. 191 Watts, 1955 Budget Speech, 21 July 1955.

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The 1955 Act provided for exemptions from estate duty for the deceased’s widow and “infant children” (meaning under the age of twenty-one) and also for any other person accepted by the Commissioner as dependant on the deceased.192 These exemptions were so structured as to cover the whole of the deceased’s estate, if it was worth £12,000 or less and he left all of it to his wife and infant children. To the extent that the estate was worth more than £12,000, the amount of the exemptions was progressively reduced. The Act also provided for quick succession relief: if A died leaving property to B, and B died within five years of A, then the duty payable on the part of B’s estate that he had inherited from A was reduced. The extent of this relief varied, according to the period elapsing between the two deaths. The maximum was 50 per cent (if B died within one year of A); the minimum was 10 per cent (if B died between four and five years after A).193 If B died more than five years after A, no relief was provided for.

The 1955 Act also modified the rates of gift duty.194 The threshold below which no duty was payable was £500. Thereafter, as with estate duty, the number of brackets was by modern standards excessive: there were 22 of them, from five per cent to 39 per cent, but subject to an overall maximum of 25 per cent. Thus, the highest rate of duty remained the same as before. Previously, however, that rate had applied where the donor made gifts worth more than £20,000 within a 12-month period; now the threshold was raised to £30,000. The overall effect of the new rates was that where the donor made gifts sufficient to attract tax at the heavier end of the scale, the burden remained unchanged; at the lighter end, however, the new rates produced reductions in liability. Overall, the revenue from gift duty was expected to fall by 20 per cent.195

6.2 Labour’s Last Hurrah: 1957–1960 In 1957 there was a change of government, Labour winning the election with a majority of two.

This second Labour Government was led by Walter Nash, then aged 75.196 Labour had campaigned on the basis that it would introduce PAYE, as planned by the National Government, but that in the first year of PAYE every taxpayer would get a rebate of £100. Although derided by National as a bribe, this manoeuvre proved successful. But within a year of taking office, the new Government faced a balance of payments crisis.197 It was reluctant to cut spending or break its expensive election promises, so was obliged to increase taxes. In his 1958 Budget, the Minister of Finance, Arnold Nordmeyer,198 effected steep and unpopular increases in the taxes on beer, cigarettes, cars and petrol.199 He also drastically increased estate duty: not only was the maximum rate increased sharply from 40 per cent to 60 per cent (the highest it was ever to reach), but the level at which the top rate applied was slashed from £100,000 to £30,000.200 The maximum rate of gift duty likewise reached its 192 Estate and Gift Duties Act 1955, s 17. 193 Estate and Gift Duties Act 1955, s 19. 194 Estate and Gift Duties Act 1955, Second Schedule. 195 Watts, above n 191. 196 See above n 176. 197 Basset, above n 159 at 293. 198 Arnold Nordmeyer (1901–1989) was a Presbyterian minister before becoming a politician. He entered Parliament in 1935

and held various offices in the first Labour Government before becoming Minister of Finance in the second. In 1963, he succeeded Nash as leader of the Labour Party (in opposition).

199 New Zealand Parliamentary Debates, 1958, Appendix B6. 200 Estate and Gift Duties Amendment Act 1958, s 2 and First Schedule.


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highest ever point — 30 per cent, if the donor made gifts within 12 months totalling more than £40,000.201 But these were desperate short-term moves, akin (as the economist Henry Simons said in a similar context) to “dipping deep” into large fortunes “with a sieve”.202 Nordmeyer might have done better to leave the rates of duty as they were, and concentrate on combating avoidance. The Budget was characterised by the Opposition as the Black Budget and the name stuck, blighting Nordmeyer’s political future.203

6.3 The National Government of 1960–1972 In 1960, there was another change of government — National, led by the pompous but effective

Keith Holyoake, winning by 46 seats to 34.204 Labour’s loss was widely attributed to the tax increases of 1958. Holyoake won another three elections consecutively — in 1963, 1966 and 1969 — and National remained in office until 1972. It was during this period that the New Zealand military joined the United States’ venture in Vietnam.

6.3.1 The 1961 tax cuts Again, the new Government wasted no time in amending the rates of tax in accordance with its

basic philosophy. In 1961 it reduced the rates of both estate duty and gift duty. As regards estate duty, the Government simply reversed the increases effected by the Labour Government three years earlier: the maximum rate of duty was cut from 60 per cent to 40 per cent and the size of estate to which the top rate applied was raised from £30,000 to £100,000.205 Similarly, the maximum rate of gift duty was cut from 30 per cent to 25 per cent, though the threshold at which that rate applied was reduced from £40,000 to £30,000,206 making gift duty a marginally more effective anti-avoidance measure.

6.3.2 Basing the system on domicile: 1968 In 1968 the legislation was again consolidated. The new Act — the Estate and Gift Duties Act 1968

— made numerous trivial improvements in the system and also one fundamental change: the basis of the charge to tax (both estate duty and gift duty) was changed from situs alone to situs plus domicile. Thus estate duty was imposed on all of the deceased’s property “wherever situated” if he was “domiciled in New Zealand at the date of his death”, and also on all of the deceased’s property “situated in New Zealand”, even if he was domiciled elsewhere.207 Similarly, gift duty was imposed

201 Estate and Gift Duties Amendment Act 1958, s 3 and Second Schedule. 202 Henry Simons, Personal Income Taxation: The Definition of Income as a Problem of Fiscal Policy (University of Chicago

Press, Illinois, 1938) at 219. 203 The Black Budget might better be seen as an ill-fated, short-term, and poorly-executed response to a crisis than as standard

Labour Party policy — Holyoake’s rhetoric notwithstanding. 204 Keith Holyoake (1904–1983) entered Parliament in 1932 as its youngest member and left it in 1977 as its oldest. He was

Prime Minister for two months in 1957 and from 1960–1972 and also Governor-General from 1977–1980. He is the only person to have been both Prime Minister and Governor-General of New Zealand (though Sir George Grey was both Premier and Governor — see above n 14). See generally Barry Gustafson Kiwi Keith: a Biography of Keith Holyoake (Auckland University Press, Auckland 2007).

205 Estate and Gift Duties Amendment Act 1961, s 2 and First Schedule. 206 Estate and Gift Duties Amendment Act 1961, s 4 and Second Schedule. 207 Estate and Gift Duties Act 1968, s 6.

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on all gifts, wherever situated, if the donor was domiciled in New Zealand at the date of the gift and also on all gifts of property situated in New Zealand, even if the donor was domiciled elsewhere.208

Basing estate duty and gift duty on domicile as well as situs constituted a fundamental reconceptualisation of both taxes but its practical import was less than that might suggest, for two reasons. First, as has been explained, the charge already covered personal property situated outside New Zealand, if the deceased or the donor was domiciled in New Zealand.209 Thus, the only real difference produced by the change was to bring land outside New Zealand within the scope of system. Secondly, the 1968 Act, like the previous legislation, provided for relief from double taxation where the deceased was domiciled in New Zealand and died leaving assets elsewhere.210 Thus, the extension in the geographical scope of estate duty effected in 1968 would generally have made a significant difference only if the deceased was domiciled in New Zealand and owned land situated in some territory that did not impose a death tax (or imposed a tax, but at a significantly lower rate than would have applied in New Zealand). Similarly, the extension in the geographical scope of gift duty effected in 1968 would generally have made a difference only if the donor was domiciled in New Zealand and made a gift of land situated in some territory that did not tax gifts. How much use had been made of these gaps in the system is unclear, but attaching liability to domicile would seem to have closed them.

The 1968 Act also refined the rates of duty, but these changes seem not to have made any significant difference in the burden, though the scales of rates now referred to dollars rather than pounds, the currency having being decimalised and renamed in 1967. For estate duty, the first $8,000 of the deceased’s estate attracted no liability. This seems to have exempted just over half of all estates.211 Thereafter, there were 41 rates of tax, ranging from less than one per cent (on estates marginally exceeding $8,000) to 40 per cent (from the first dollar on estates exceeding $200,000).212 As for gift duty, the Act increased the non-dutiable threshold from $2,000 to $4,000 per year and reduced all the rates of duty on gifts of up to $60,000 per year. There were 21 rates of gift duty, ranging from less than one per cent (where the donor’s gifts for the year marginally exceeded $4,000) to 25 per cent (where they exceeded $64,000).213

6.3.3 Shifting the thresholds: 1970 In 1970, the Government — still National, still led by Holyoake — reduced the rates of estate duty

again. The threshold beneath which no duty was payable was raised from $8,000 to $12,000 (a much larger increase than was necessary to compensate for inflation)214 and reductions were effected for most estates. The top rate of duty was 40 per cent as before, and the threshold above which it applied was lowered from $200,000 to $150,000, but this rate now applied only to the excess over the

208 Estate and Gift Duties Act 1968, ss 61 and 63. 209 Death Duties Act 1909, ss 7 and 2 (definition of “personal property”). 210 Estate and Gift Duties Act 1968, ss 40 (estate duty) and 77 (gift duty). See above at n 113. 211 In 1967, 53 per cent of estates were worth less than $8,000: The New Zealand Official Yearbook, 1969 (Government Printer,

Wellington, 1969) at 767. 212 Estate and Gift Duties Act 1968, First Schedule. 213 Estate and Gift Duties Act 1968, Third Schedule. 214 According to the Reserve Bank of New Zealand Inflation Calculator, available at www.rbnz.govt.nz/>, inflation from 1968

Q1–1970 Q1 was 10.5 per cent.


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threshold, whereas it had previously applied from the first dollar.215 Again, in other words, the burden on many National supporters was lightened. The rates of gift duty remained unchanged.

6.4 The Third Labour Government: 1972–1975 The 1972 election was won by the Labour Party under Norman Kirk, an authentic working-class

boy who had left school at 12 and made good.216 The third Labour Government, like the second, lasted only a single three-year term; perhaps partly because Kirk died in office in 1974, at the age of 51. During those three years, there were no significant amendments to the Estate and Gift Duties Act. One reason for this was Kirk’s concentration on foreign policy; for instance, sending two frigates to Mururoa (an atoll about halfway between New Zealand and Mexico) in protest at French nuclear weapons testing there. Labour seems also to have concluded that death duties were not an effective method of engineering a wholesale redistribution of wealth. Perhaps, too, the Party was no longer so enthusiastic in its pursuit of that objective. And 1960 had left it acutely aware of the way in which unpopular taxes can cost elections.

6.5 The National Government of 1975–1984 The 1975 election was won by National, led by the rather demagogic Robert Muldoon.217 His

administration remained in office until 1984. It attempted to repair the country’s economic woes by enacting legislation “freezing” wages and prices and by injecting substantial government funds into industrial projects, such as an oil refinery, but these measures were unsuccessful.

6.5.1 The 1976 tax cuts In 1976, in accordance with its pro-business and pro-farming philosophy, the Government again

reduced the burden of estate duty. The rates of duty remained much as before, but the thresholds at which they applied were raised. The threshold beneath which no duty was payable was raised from $12,000218 to $25,000,219 exempting roughly two-thirds of estates from duty.220 The threshold above which the maximum rate (still 40 per cent) applied was raised from $150,000221 to $255,000,222 concentrating the burden on larger estates. Whilst these increases seem large, it is necessary to note that inflation in the 1970s was generally much higher than in other periods.223

As regards gift duty, the 1976 Act compressed the schedule of rates by raising the threshold below which gifts were not dutiable (from $4,000 per year to $8,000 per year) but lowering the point at

215 Estate and Gift Duties Amendment Act 1970, First Schedule. 216 Norman Kirk (1923–1974) entered Parliament in 1957 and was leader of the Labour Party in opposition (1965–1972) and

Prime Minister (1972–1974). 217 Robert Muldoon (1921–1992) became a National MP in 1960, a member of the Cabinet in 1963, Minister of Finance in

1967, Deputy Prime Minister in 1971, leader of the National Party (in opposition) in 1972, and Prime Minister in 1975. 218 Estate and Gift Duties Amendment Act 1970, First Schedule. 219 Estate and Gift Duties Amendment Act 1976, First Schedule. 220 The New Zealand Official Yearbook, 1977 (Government Printer, Wellington, 1977) at 681. 221 Estate and Gift Duties Amendment Act 1970, First Schedule. 222 Estate and Gift Duties Amendment Act 1976, First Schedule. 223 According to the Reserve Bank of New Zealand Inflation Calculator, see n 214, inflation from 1970 Q1–1976 Q1 was 85.5

per cent.

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which the maximum rate applied (from $64,000 per year to $40,000 per year). The maximum rate of gift duty remained unchanged at 25 per cent.224 The main consequence of these measures was that raising the threshold beneath which no duty was payable permitted larger duty-free gifting programmes than had been possible before.

6.5.2 The “virtual abolition” of death duties: 1979 Muldoon won the 1978 election and in 1979 his Government dramatically simplified the rates of

duty and massively raised the thresholds beneath which no duty was payable. In the case of estate duty, the multiple rates of tax were abolished and replaced by just one — 40 per cent — charged on the excess of the estate over $250,000.225 The threshold beneath which no estate duty was payable was thus increased tenfold, from $25,000 to $250,000, so the tax was now confined to the unambiguously wealthy. As for gift duty, the threshold beneath which no duty was payable was increased from $8,000 to $15,000 per year, permitting significantly larger gifting programmes. On gifts exceeding $15,000 per year, duty was charged at progressive rates ranging from five per cent to 25 per cent (on gifts totalling over $40,000 per year).226

According to the Government, these changes were necessary to alleviate estate duty’s unduly harsh impact on farmers, for, it maintained, the burden of the duty was rendering some family farms uneconomic and even forcing young farmers to sell their inheritances to pay the duty.227 But, as one contemporary commentary convincingly asserted, it is difficult to take this argument seriously.228 For one thing, such consequences were in fact extremely rare. Moreover, even if estate duty had been inequitable in its effect on farmers, the 1979 reforms were far broader than was necessary to overcome that problem; their effect was to reduce the number of dutiable estates from about a third229 of the total to about 1.7 per cent and to cut the revenue produced by the Act by “at least 85 per cent”.230 Consequently, estate duty and gift duty combined would account for only 0.2 per cent of the Government’s total revenues. As the authors observed, this amounted to the “virtual abolition” of death duties.231 They pointed out, too, that the rationale for reducing the burden — that a tiny number of young farmers were obliged to sell their inheritances to pay the duty — was the exact opposite of the argument upon which the duties had been increased in 1909 (that it is desirable to break up large fortunes and that inherited wealth harms those who receive it). Of course, the National Party and the interests it represented had been opposed to death duties all along, but even the Labour Party seems to have forgotten that it had once been opposed to large concentrations of wealth. Indeed, it supported the Bill. There would seem to have been a sea change in popular attitudes.

224 Estate and Gift Duties Amendment Act 1976, Second Schedule. 225 Estate and Gift Duties Amendment Act 1979, First Schedule. 226 Estate and Gift Duties Amendment Act 1979, Second Schedule. 227 New Zealand Parliamentary Debates, 27 June 1979 (Duncan MacIntyre). 228 RA Green and Lindsay McKay “The Estate and Gift Duties Amendment Act 1979: the Demise of Wealth Transfer Taxation”

(1980) 10 VUWLR 227. 229 The New Zealand Official Yearbook, 1977, above n 220. 230 Green and McKay, above n 228 at 229. 231 Green and McKay, above n 228 at 227.


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6.5.3 Raising the thresholds: 1983 In 1981 the governing National Party, still led by Muldoon, won a third term in office and 1983 saw

further amendments to the Estate and Gift Duty Act. The rates of duty remained the same, but the thresholds were greatly increased again, lessening the burden and simplifying the process of estate planning. For estate duty, the threshold beneath which no duty was payable was increased from $250,000 to $450,000. To the extent that an estate exceeded $450,000, it was dutiable at the same rate as before — 40 per cent.232 As regards gift duty, the 1983 amendment raised the threshold beneath which no duty was payable to $27,000 per year and the point at which the maximum rate of duty (25 per cent) was payable to $72,000 per year.233

6.6 The Fourth Labour Government The Labour Party, led by the obese and boisterously eloquent David Lange, won the 1984 election

and remained in power for six years.234 This was a curious period in New Zealand history. On the one hand, Lange instigated a policy of not permitting nuclear arms into the country. This policy, which is still in force today, won widespread support domestically and much admiration internationally, though it also prompted the United States and Australia to expel New Zealand from ANZUS (the military alliance to which the three countries had, until then, belonged). On the other hand, the Labour Government’s economic policy was hijacked from within by its own Minister of Finance, Roger Douglas, who unexpectedly turned out to hold extreme right-wing views.235 He persuaded the Cabinet to institute large income tax cuts — reducing the top rate from 66 per cent to 33 per cent — and to make up the shortfall by introducing GST.236 He also initiated a policy of selling state assets and deregulating much of what had previously been regulated.237 Unsurprisingly, given his economic philosophy, he made no attempt to repair the failing estate duty system.

6.7 The National Government of 1990–1999 In 1990 the National Party, led by Jim Bolger, a gentlemanly farmer, was returned to power.238 He

led his party to victory again in the 1993 election, the last to be held using the “first past the post” system. Proportional representation — introduced in 1996 — produced a very different outcome: for the first time since 1935, no party held a majority of the seats in Parliament. National won 44, Labour 37, and various other smaller parties 39 between them. Bolger remained in office by entering into a coalition with the largest of the small parties, New Zealand First — a populist, xenophobic party, 232 Estate and Gift Duties Amendment Act 1983, First Schedule. 233 Estate and Gift Duties Amendment Act 1983, Second Schedule. 234 David Lange (1942–2005) was a graduate of the University of Auckland Law School and practised law before becoming a

Labour MP in 1977. He became Prime Minister in 1984 at the age of 41 (making him the youngest New Zealand Prime Minister of the 20th century) and continued in that office until 1989, when he resigned following serious discord within the Cabinet. He remained an MP until 1996.

235 Roger Douglas (1937– ) entered Parliament as a Labour MP in 1969. When Labour won the 1972 election, he became a member of the Cabinet at the age of 34. In 1984, he became Minister of Finance under Lange, but the two fell out badly because of what Lange (and many Labour voters) saw as Douglas’s betrayal of Labour’s values. Douglas later left the Labour Party and founded the far-right ACT Party. After several years away from politics, he re-entered Parliament in 2008 and retired again in 2011.

236 Goods and Services Tax Act 1985. 237 Jane Kelsey The New Zealand Experiment (Auckland University Press, Auckland, 1995). 238 Jim Bolger (1935– ) entered Parliament in 1972. He was a member of the Cabinet (1975–1984); leader of the National Party

in opposition (1986–1990); and Prime Minister (1990–1997).

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which specialised in appealing to elderly voters and won 17 seats. A year later, however, he was forced by his own party to resign and Jenny Shipley, a former primary school teacher, became New Zealand’s first female Prime Minister.239

6.7.1 The abolition of estate duty In the 1990 election campaign, National promised, among much else, to abolish estate duty, and in

1993 the National Government fulfilled that promise. The justification offered by Wyatt Creech,240 the Minister of Revenue, was that estate duty was easy to avoid and therefore capricious.241 That was true, but he neglected to mention that one of the reasons the duty was easy to avoid was that successive governments — mainly his own party — had failed to enact appropriate anti-avoidance measures.

The Government would seem to have had several other reasons for abolishing estate duty, though these were not mentioned by Creech. Mainly, the ruling National Party was, as ever, philosophically opposed to taxes on wealth. Also, estate duty was by this time producing hardly any revenue — only 0.3 per cent of the Government’s total tax revenues.242 Abolishing it was easily affordable and made virtually no difference to the state of the public finances. Moreover, most voters seem to have been unconcerned about the fate of estate duty because it played an insignificant role in the public finances, whereas the tiny minority who were obliged to pay it were affluent, influential and resented it bitterly. There was a risk, too, that estate duty would encourage wealthy retirees to emigrate (having first sold their dutiable New Zealand assets) — in particular, to Queensland (for New Zealand citizens have an unrestricted right of residence in Australia), where the warm climate made for a pleasant retirement and estate duty had been abolished in 1977.243 Last but not least, various other countries — most pertinently, the United States — appeared to be in the process of abolishing their estate duties. Thus the New Zealand Government’s abolition of estate duty could be portrayed as being in accordance with an emerging worldwide norm.

Labour opposed the abolition of estate duty, on the ground that the small affluent elite paying it were not the sector of society most deserving of a tax cut. But there was no talk of the deleterious effect of inheritance on those who inherit, of the desirability of breaking up large fortunes, or even of the merits of large-scale redistribution.244 Nor was there any discussion of the theory — orthodox, in the rest of the world — that, if liability to tax is to be based on ability to pay, the income tax should be supported by both a capital gains tax and some form of death duty.245 Indeed, one Labour member oddly asserted that abolishing estate duty would make it harder for families to retain their farms, though he did not explain why.246 Another bizarrely argued that the abolition of estate duty favoured 239 Jenny Shipley (1952– ) became an MP in 1987, a member of the Cabinet in 1990 and Prime Minster in 1997. She continued

as Prime Minister until the 1999 election, which National lost, and retired from politics in 2002. 240 Wyatt Creech (1956– ) became a National MP in 1987. He held various ministries in the National Government of 1990–

1999, including revenue, health and education and was Deputy Prime Minister (under Shipley) in 1998–1999. He retired from politics in 2002.

241 New Zealand Parliamentary Debates, 30 March 1993 at 14,458. 242 See the Appendix to this article. 243 Succession and Gift Duties Abolition Act 1976 (Queensland). See, generally, Duff, above n 1. 244 New Zealand Parliamentary Debates, 30 March 1993 at 14,459–14,467 (Michael Cullen, David Caygill and Richard

Prebble). See above at nn 102–104. 245 The classic statement is Simons, above n 202. 246 New Zealand Parliamentary Debates, 30 March 1993 at 14,466 (Prebble).


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the dead over the living.247 Evidently death duties had so declined in importance that the issue was no longer deserving of speeches prepared in advance.

The National Government did not, however, simply repeal the legislation (that is, the Estate and Gift Duties Act 1968, as amended). Instead, it enacted the Estate Duty Abolition Act 1993, which left the 1968 Act intact but suspended the operation of estate duty. Section 3 of the Act provided:

No estate duty shall be payable under the Estate and Gift Duties Act 1968 in respect of the estate of any person who dies on or after the 17th day of December 1992.

Why the Government did not simply repeal the principal Act (or, at least, Parts 1, 2 and 3 of it, which provided for estate duty) is unclear. Perhaps it was to allow time to collect the duty on the estates of those who had died before 17 December 1992. Six years later, in 1999, the Government (still National, but now led by Shipley) repealed Parts 1, 2 and 3.248

6.7.2 Gift duty as a stand-alone tax Curiously the Acts of 1993 and 1999 only abolished estate duty. Gift duty was left intact.249 Indeed,

the 1999 Act even contained a number of provisions aimed at improving the administration of gift duty. For example, it contained new rules relating to the valuation of land and shares.250 Thus, whilst the principal Act was still called the Estate and Gift Duty Act 1968, it now provided for only one tax, namely gift duty. It had the appearance of a heavy tax, being charged at rates of up to 25 per cent on the value of the gift, but despite its formidable appearance, it was a strange and vestigial thing; the fiscal equivalent, perhaps, of the human appendix. It produced virtually no revenue because it was easily avoided (mainly through the use of trusts and gifting programmes) and, like the appendix, it seemed to serve no useful purpose. Most of the populace lived their lives completely unaffected by it, though it was a significant irritant for the substantial minority who incurred expense (mainly professional fees in connection with administering trusts and gifting programmes) in avoiding it. And like the appendix, it was on occasion acutely painful.251

As has been explained, the purpose for which gift duty was established was to protect death duties. That gift duty was left standing when estate duty — the last surviving death duty — was abolished, therefore requires an explanation. The reason was that the Government thought it possible that gift duty might incidentally serve other useful functions also, in particular, that it might deter people from transferring their assets to trusts with a view to: (a) avoiding income tax or; (b) circumventing the rules relating to various means-tested social welfare benefits or; (c) escaping their creditors. The Government therefore wanted to keep gift duty in place as a temporary measure while it investigated this possibility.252 Ultimately it concluded that gift duty served no useful purpose; but before getting

247 New Zealand Parliamentary Debates, 30 March 1993 at 14,468 (Clive Matthewson). 248 Estate Duty Repeal Act 1999. 249 Estate and Gift Duties Act 1968, pts 4, 5 and 6 (as amended). 250 Estate Duty Repeal Act 1999, s 8. 251 See Policy Advice Division, Inland Revenue Department Regulatory Impact Statement: Gift Duty Repeal, 4 October 2010 at

[28] and Begg v Commissioner of Inland Revenue [2009] NZCA 160, [2009] 3 NZLR 353 (CA) an unusual case in which the Inland Revenue unsuccessfully challenged the efficacy of a gift duty avoidance scheme supplied by the Public Trust — a Crown entity — to some of its elderly clients.

252 Policy Advice Division, above n 251.

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round to repealing it, that Government was voted out of office and the abolition of the tax was consequently deferred.

6.8 The Fifth Labour Government: 1999–2008 Labour won the next three elections — in 1999, 2002 and 2005 — and, with the support of various

minor parties, remained in office until 2008. The Prime Minister throughout this period was Helen Clark,253 the first woman to be elected to that office.254 Her Government increased the maximum rate of income tax from 33 per cent to 39 per cent but made no attempt to revive any form of death duty. Nor, however, did it abolish gift duty. This anomalous tax therefore remained in force, producing hardly any revenue but causing considerable inconvenience for the significant minority who would have been obliged to pay it had they not avoided it.

6.9 The Present National Government: 2008–present In 2008, a National Government — supported by the right-wing ACT Party and also, curiously, the

generally left-wing Maori Party — was elected under the leadership of John Key, a cheerful, one-time investment banker.255 He had campaigned promising tax cuts, and duly reduced the maximum rate of income tax from 39 per cent to 33 per cent. To make up the loss in revenue, GST was increased from 12.5 per cent to 15 per cent.256 The Government then conducted a review of gift duty, concluded that it served no useful purpose,257 and procured the enactment of legislation abolishing it with effect from 1 October 2011.258 The history of death duties in New Zealand was thus brought to a close.

7.0 CONCLUSION Death duties played an important role in New Zealand’s public finances for over a hundred years,

from 1866 (when they were first introduced) until the mid-1970s, (when the yield of estate duty declined to the point where it was no longer significant). This strand of the country’s fiscal history raises several questions. Was the abolition of death duties a good idea? If not, would it be a good idea to reinstate one? Is there something about New Zealand that makes death duties less advantageous here than elsewhere? More generally, is estate duty, or any other form of death duty, a good tax?

New Zealand’s estate duty was not a good tax, because it was too susceptible to avoidance; mainly because Parliament failed to enact appropriate countermeasures. The experience of other countries — for example, the United Kingdom — seems to demonstrate that a well-designed death tax can be worthwhile. Such taxes are progressive and can make a useful, if modest, contribution to the public finances. And death is a relatively convenient time to impose a tax, so long as reasonable allowance is

253 Helen Clark (1950– ) lectured in political studies at the University of Auckland before becoming a Labour MP in 1981. She

was Prime Minister from 1999–2008 and in 2009 became the Administrator of the United Nations Development Programme. 254 As mentioned above, Jenny Shipley, n 239, was New Zealand’s first female Prime Minister, but following the resignation of

Jim Bolger. 255 John Key was born in 1961. His father died in 1967 and he and his two sisters were brought up by his mother, living in a

state house in Christchurch. Before entering politics, Key worked as a foreign exchange trader for Merrill Lynch. He became a National MP in 2002 and Prime Minister in 2008. With a fortune of NZ$50 million, he is New Zealand’s richest MP.

256 Taxation (Budget Measures) Act 2010, ss 31–37 and 45. 257 Policy Advice Division, see above n 251. 258 Estate and Gift Duties Act 1968 s 61, as amended by Taxation (Tax Administration and Remedial Matters) Act 2011, s

245(3).


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made for the deceased’s spouse and dependants. Death taxes are prone to avoidance, but they are nonetheless reasonably straightforward and economical to administer. In New Zealand’s case, however, there is a particular problem: Australia has no death tax. The reintroduction of estate duty or any other death tax in New Zealand would therefore tend to motivate the affluent elderly to migrate, taking their wealth with them; and the New Zealand Government already regards the loss of people to Australia as a significant problem.

New Zealand is unusual in that not only are there no death duties, but there is also no comprehensive capital gains tax, and never has been. Thus, two taxes that are both progressive (in the sense that the rate of tax increases with wealth) and common in other comparable countries, are conspicuously missing. Perhaps this is a coincidence. But it is tempting to wonder whether there is something about the political process in New Zealand, or perhaps even something in the national psyche, that works against the taxation of wealth. And, as noted above, the maximum rate of income tax is currently only 33 per cent — lower than in many other countries. One possible factor explaining the lack of wealth taxes in New Zealand is that many of the country’s richer citizens have emigrated; wealth taxes would presumably tend to exacerbate this problem.

Finally, and most importantly, according to orthodox tax theory, capital gains should be taxed, and the tax should not exempt inheritances (though it might well be desirable to defer liability until the property inherited is disposed of). In other words, the conventional wisdom is that if New Zealand were to introduce a capital gains tax (which according to the conventional wisdom it should), it should also introduce some form of death tax (or at least, structure the tax on capital gains so as to catch inherited capital gains). There has recently been much debate as to the possibility of a capital gains tax, but not much has been said (either by the advocates of taxing capital gains or by their opponents) as to the appropriate tax treatment of inherited capital assets. If a capital gains tax were to be introduced, it would obviously be necessary to deal with this problem, one way or another; in which respect, there is much that might be learned from the past.

Accepted for publication on 11 January 2012

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APPENDIX: REVENUES FROM DEATH DUTIES AND GIFT DUTY Combined revenue from death duties and gift duty

Tax year ended Revenue from death

duty (000,000) Revenue from

gift duty (000,000) Absolute value

(000,000) % of Total Tax

Yield % of GDP

2010 $2 0.004% 0.001%

2005 $2 0.006% 0.001%

2000 $2 0.006% 0.002%

1995 $3 0.009% 0.003%

1990 $79.6 0.30% 0.11%

1985 $31.7 0.27% 0.08%

1980 $49.7 0.83% 0.24%

1975 $41.1 1.43% 0.41%

1970 $26.3 2.23% 0.48%

1965 £18.84 £2.12 £21 2.49% 0.55%

1960 £10.593 £1.742 £13.823 4.65% 0.52%

1955 £8.48 £0.91 £9.39 4.00% 0.50%

1950 £5.32 £0.39 £5.71 4.21%

1945259 £5.06 4.66%

1940 £1.54 £0.22 £1.76 3.95%

1935 £2.16 £0.045 £2.21 8.92%

1930 £1.66 £0.065 £1.73 8.87%

1925 £1.45 £0.074 £1.52 9.19%

1920 £0.92 £0.054 £0.98 6.02%

1915 £0.80 13.54%

1910 £0.19 4.59%

1905 £0.17 4.66%

1900 £0.08 2.84%

Notes

(1) The data in this table are from the New Zealand Official Yearbook Series. Each figure was obtained from the most recent yearbook that stated the figure for that tax year as often the figures were revised in subsequent years. No figures for the revenues produced by death duties and gift duty were given for years prior to 1900. Rather those revenues were bundled together with revenues produced by stamp duties.

259 Figure presented as part of War Taxation.


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(2) Most years only recorded death and gift duty as one collated figure. Where more detail is available it is presented in the table.

(3) GDP figures are only available post-1950 as this was when New Zealand switched to using GDP instead of GNP to record national income.

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