By Bernard Hickey
Avoiding and minimising tax is almost a national sport in New Zealand. There has been a grudging admiration for those who can get away with sticking it to Te Tari Taake.
Among the more professional and entrepreneurial classes it is seen as par for the course to shelter assets and income in family trusts and company structures that help reduce or avoid tax altogether.
Many of the multi-national companies operating in New Zealand funnel income, assets and debt through various tax havens and vehicles that keep tax paid here to a minimum.
Most of our politicians, city councilors, bankers, accountants and judges use such family trusts and vehicles personally to protect their assets from the prying eyes and bank balances of the Inland Revenue Department, creditors, ex-spouses and ultimately, the courts. New Zealand now has up to 400,000 family trusts.
It means the bankrupted, the convicted, the disbarred and the divorced can stay living in their mansions and driving their flash cars even though they are personally penniless. It means those that stay out of the courts can live freely as part of society, but don't pay their fair share.
It means international companies can out-compete, grow and suck capital out of New Zealand with apparent impunity.
It means the vast majority of taxes are paid by the mugs on PAYE and by those who have to pay GST for their goods and services.
The policy making classes believe this dual tax system will not change because they run it.
But the game is coming to an end and it must if New Zealand Inc is to have any chance of balancing its books and avoiding national bankruptcy.
Anyone looking for a sneak preview of the public pressure to crack down on tax cheats just needs to look to Britain, America and Europe. The public mood is turning feral and the powers-that-be are responding, as much because they are being forced to by their creditors.
The best example is in the UK where a grass-roots campaign called UK Uncut has grown up out of anger at public service cuts and is boycotting and protesting at individuals and companies seen to be avoiding tax. Billionaire shop keeper Sir Philip Green channels his wealth and income through various havens and his Topshop and BHS chains have been targeted by placard waving protesters that have shut stores.
Vodafone and supermarket chain Tesco also face protests for minimising their taxes through various structures.
The British and American governments, both of whom are running budget deficits of around 10% of GDP, are also cracking down on tax havens. This week Britain and Switzerland agreed to charge a 50% levy on assets hidden in Switzerland.
Google does some evil
International pressure is growing on those countries such as Ireland that are seen to be trying to 'beggar thy neighbour' by offering low tax rates or tax havens. Companies such as Google that channel their GST-free revenues from the 'cloud' and through low-tax vehicles in Ireland are now facing growing scrutiny.
So what are the policy-makers in New Zealand doing?
Our government is about to quietly drop its tax on gifting assets into family trusts, which is expected to unleash a wave of transference of assets into these trusts. This week our government agreed to try to set up a tax haven for the administration of pension funds.
This is unsustainable, in part because foreign governments will not allow it and in part because our creditors will not allow it.
It should also be unsustainable because consumers and voters eventually won't allow a large and wealthy swathe of New Zealand to avoid their responsibilities.
How long before an increasingly desperate body of PAYE taxpayers and GST-paying consumers tell their politicians and companies they have had enough?
Or do we have to wait for our creditors to force us to slash public services and wages and sell assets? That's what happened in Ireland and Greece, both of which have deeply ingrained cultures of tax avoidance and both of which ran budget deficits of more than 10% of GDP.
This week our government announced it would borrow 10% of GDP this year to fund its deficit, mostly from foreign creditors.
What are we waiting for?
Peter Dunne interview
PS: I have attached an interview I did with Revenue Minister Peter Dunne above to get a flavour of the sort of tax avoidance going on and what the government is doing or not doing about it.
Dunne mentions plans in the budget to crack down on students living overseas who haven't paid their debts. Initial trials in Australia had recovered a couple of million dollars, he said.
The government will also announce later in the year changes to the child support system to encourage non-payers to pay early and to force the IRD to attach orders to non-payers' bank accounts. He said the government wasn't considering such 'attachments' for other debts owed to governments.
"The whole issue of crown debt and how it is made up is on the agenda," Dunne said.
About NZ$2 billion is owed in child support and interest on non-payments, Dunne said.
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