New Zealand – A Tax Haven For Super-Rich Foreigners
- John Minto
Revenue Minister Peter Dunne was all spluttering indignation in early October 2012 when confronted with the fact New Zealand is a tax haven for wealthy foreigners. The scheme was exposed in a TV3 60 Minutes documentary story which showed how New Zealand companies manage financial trusts for super-rich foreigners so these foreigners can avoid paying tax in their own countries (“Treasure Islands”, 7/10/12, http://ondemand.tv3.co.nz/60-Minutes-Treasure-Islands/tabid/59/articleID/8315/Default.aspx).
These “wealthy individuals” are part of a global rort where an estimated $US30 trillion of tax is avoided by having their wealth managed in a third country – New Zealand in this case. The money isn’t invested here; it’s just “managed” here so it doesn’t appear as taxable wealth or taxable income either in the person’s home country or in New Zealand. Dunne said that that while some might call it tax evasion, he described it as “legitimate tax avoidance. I think the term 'tax haven' is a gross exaggeration because it implies illegality, it implies evasion, rather than legitimate tax avoidance”.
However when it was pointed out that our Inland Revenue Department Website says tax avoidance is wrong Dunne went silent and refused further interviews but was backed up by Prime Minister John Key who said Dunne was right. “He'll be using the absolutely correct technical term. There are two things, going back to my days at university – tax evasion and tax avoidance. There is actually quite legitimate business in New Zealand for servicing foreign trusts”.
So there you have it. We ordinary mortals must pay tax on every dollar we earn and every dollar we spend while the rich pay next to nothing via “legitimate tax avoidance”. Even Labour Party Leader David Shearer agrees the distinction is a false one. "Tax evasion, tax avoidance – it’s basically the same thing”. Labour’s Revenue spokesperson David Clark said “There is a serious ethical issue here. These people, who are often rich families in poor countries, aren’t paying their fair share. That’s not something New Zealand should be supporting. It’s not the Kiwi way”. He also pointed out with some indignation that the number of foreign “tax-avoidance” trusts managed in New Zealand had doubled under National. Why wouldn’t it? Labour started the ball rolling.
Meanwhile, On The Home Front…
Here in New Zealand the tax situation mimics our attitude to foreign tax avoiders and evaders. The system is rotten to the core. In 2010 the wealthiest 150 New Zealanders had an increase in wealth of $7 billion – and for the most part they paid no tax on this windfall of unearned riches. But for those on the lowest incomes the tax rates are particularly savage. The lowest 10% of income earners spend 14% of their income on GST while the top 10% spend less than 5% of their income on GST (Goods and Services Tax)..
As well as paying less GST the super-rich pay hardly any income tax either. A recent Inland Revenue sample of the wealthiest 250 New Zealanders (with wealth in excess of $250 million) found only half are paying the top tax rate of 33%, which kicks in at earnings of over $70,000. You are excused it you uttered an expletive at this point. US multi-billionaire Warren Buffet pointed in 2011 that his secretary pays a higher tax rate than he does but in New Zealand it’s even worse – the more money you get the lower the tax you pay.
In 2010 when concern was expressed about the wealthy avoiding paying the top income tax rate of 39% Finance Minister Bill English dropped the rate to 33% to match the rate paid by local trusts. In other words the rich wouldn’t play by the rules so the rules were changed so they didn’t break them. Another expletive understood. The total tax take from our most affluent could be as low as four or five percent while the lowest income New Zealanders pay around 26% when income tax and GST are taken into account.
It’s no exaggeration to say New Zealand is a tax haven for local and foreign elites who grow fat on the hunger and homelessness of the poor. Some have argued that the social value of the work of the rich justifies their higher incomes and lower taxes but this is market myth. A hospital cleaner paid close to the minimum wage does work of high social value. Just think if the job was left undone for a couple of weeks. On the other hand currency speculators, such as Prime Minister John Key in a former life, are paid vastly more but their work contributes nothing of value to society. In fact it’s mostly calculated as a negative.
Ten EU Countries To Adopt FTT
There are some small moves internationally to challenge the tax rip-offs of the rich. One way is through a Financial Transactions Tax on currency trading. In October 2012 ten European Union (EU) countries - France, Germany, Italy, Spain, Austria, Belgium, Greece, Portugal, Slovakia and Slovenia - announced they are introducing a Financial Transactions Tax (FTT). It’s a small start to shift the tax burden onto those who have never paid their way while easing the burden on wage and salary earners.
EU Commission President Jose Manuel Barroso said: "This is about fairness - we need to ensure the costs of the crisis are shared by the financial sector instead of shouldered by ordinary citizens". If fairness were the criteria we’d have had an FTT decades ago and the case for New Zealand to follow the European lead is particularly strong. Not because politicians, financiers, or banks want it but because it would be a significant start in rebalancing our rotten tax system.
Hundreds of billions move in and out of New Zealand banks every year as currency traders feed off the wealth created by workers elsewhere. In fact currency traders have the same role in global finance as a burglar has in our homes – to rip us off. Right now our tax system rewards the idle who trade in wealth created by others while those on low incomes struggle under the heaviest tax burden. Robin Hood would be turning in his grave. Major structural changes to our tax system are needed to bring “economic justice” to our families but a financial transactions tax would be a good start.
The FTT to apply in the ten EU countries will cover transactions on currencies, bonds and shares traded at banks and financial institutions. We need it here. In 2011 the New Zealand dollar was the tenth most traded currency in the world and a 0.5% tax on that trade alone would bring in more than enough to abolish GST, giving a huge boost to families on low and middle incomes. As well getting rid of GST, a tax on currency trading would also reduce the value of the New Zealand dollar by dampening speculation which in turn would bring in more income from exports. This is the direct way of dealing with our overvalued currency rather than the agonised three monthly interest rate decisions of a hobbled Reserve Bank. We should also apply the tax to share trading, such as in the UK where they’ve had such a tax (set at 0.5%) for several decades. An FTT would be a good step away from the tired old neo-liberal polices which tax the poor to death while the super-rich pay peanuts. We should follow the European lead.