The Dim-Post

October 8, 2012

Legitimate tax avoidance

Filed under: finance — danylmc @ 5:10 am

Guyon Espiner had a story on 60 Minutes last night about New Zealand’s status as an offshore tax haven for wealthy foreigners. Apparently there are tens of billions of dollars – mostly from high net-worth individuals in South America – sitting in New Zealand foreign trusts. And as part of that story Espiner interviewed Revenue Minister Peter Dunne and asked him if it was moral for the New Zealand government to structure its trust laws in a way that allowed very wealthy people to avoid their tax obligations to their own governments.

Now, Dunne could have said a lot of things here. He could have pointed out that this money mostly seems to come from rich people in developing countries, and that it’s not so much about tax evasion than that it is simply prudent for these people to financialise some of their wealth and stick it someplace safe, so that it can’t be wiped out in a crash, or nationalised by their own government, or whatever. And he could have argued that managing this wealth brings tens of millions of dollars into the New Zealand economy in legal and accounting fees.

But he didn’t. Instead Dunne argued that it’s acceptable for high net worth individuals to practice ‘legitimate tax avoidance’ and do everything they can to minimise their tax exposure. Meanwhile, Dunne has been very active cracking down on tax avoidance by salary earners, introducing a ‘paper-boy’ tax cut, taxing staff car parks, and so on. But oversight of the trust industry (or a Capital Gains Tax) is out of the question. Under this government, tax avoidance is only legitimate so long as you’re already rich.

‘Legitimate tax avoidance’ is an idea that’s prevalent in the finance sector. ‘Taxation is theft. The government takes money off genuine wealth producers and destroys it by spending it on schools or hospitals or welfare services instead of creating more wealth by speculating in commodity or currency markets.’ Dunne’s use of the term suggests to me that he’s been ‘captured’ by the finance sector; which would be completely in character, but isn’t a great quality to have in a Revenue Minister.

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24 Comments »

  1. wow – hes almost an echo of dear ol damien grants column in the sunday herald

    Comment by framu — October 8, 2012 @ 6:37 am

  2. I saw that interview. I would say that almost thirty years of being an opportunist political parasite has completed corrupted Dunne, and he now genuinely has no real idea of right and wrong, replaced with Sir Humphrey Appleby’s worship of status and advantage.

    Comment by Sanctuary — October 8, 2012 @ 6:39 am

  3. Hope poor old Pete George doesn’t put his back out contorting this…

    Comment by MeToo — October 8, 2012 @ 6:50 am

  4. Is more of this sort of thing what John Key means when he says he’d like NZ to develop its financial services industry more?

    Comment by MeToo — October 8, 2012 @ 6:55 am

  5. Disgraceful. And yet if a small % of beneficiaries rort the system its open warfare on all.

    Comment by max — October 8, 2012 @ 7:53 am

  6. I’m amazed there is any of Peter Dunne left to influence, I thought the booze and smoking lobbyists won him over long ago.

    Comment by alex — October 8, 2012 @ 8:59 am

  7. Peter Dunne, captured by wealthy corporate interests? never?

    Comment by richdrich — October 8, 2012 @ 11:15 am

  8. I’m not sure why people should get staff car parks untaxed. It’s a benefit to the individual, and under-pricing parking spaces just causes more people to drive to work. The kind of people who are getting free parking spaces in inner city locations can probably afford to pay the tax. Or take the bus if they don’t want to pay the tax. as an environmental policy this is a good idea.

    Comment by exiledantipodean — October 8, 2012 @ 2:19 pm

  9. @ danyl & rich – For Pointless Peter to have been captured by the finance capitalists, assumes he did not willingly seek them out and whore himself to them at the earliest possible opportunity, like, decades back…

    @ MeToo – brilliant :)

    Comment by bob — October 8, 2012 @ 2:32 pm

  10. This might be morally bad, but I dont think you can argue its bad for New Zealands economy.

    Comment by Hugh — October 8, 2012 @ 3:07 pm

  11. Urrrggh, sticking up for Peter Dunne. I assume what he meant was minimising the tax you pay. Is that really that bad? Here in Australia I frequently buy things over the internet rather than in stores because they’re cheaper. Part of that is if I buy from foreign websites I avoid Australian GST (provided the total value of what I import is less than $750 iirc). So I’m avoiding paying tax. People occassionally argue this is immoral, but it isn’t obvious to me that it is.
    In New Zealand the government has frequently put up taxes on cigarettes. Lots of people stop smoking to avoid paying that tax. Immoral?
    At the other extreme of course is restructuring your finances soley to avoid paying taxes. I’m no fan of that, but the idea that any tax minimisation is wrong seems a bit silly.

    Comment by BeShakey — October 8, 2012 @ 3:26 pm

  12. Peter Dunne could have pointed out ways in which to minimize tax loopholes for the rich going forward, which would’ve been a productive and interesting move, and something not entirely unexpected of a revenue minister. But then again, he is bound by National’s agenda.

    Comment by Dan — October 8, 2012 @ 3:41 pm

  13. I’m sort of with you, BeShakey.

    While I dislike His Royal Quiffness and the tawdry expediency he routinely exhibits, I think people are reading ‘tax evasion’ (naughty) when they hear ‘tax avoidance’ (sensible).

    Comment by Gregor W — October 8, 2012 @ 4:03 pm

  14. I don’t think tax avoidance is sensible because it relies on minimalizing your tax obligations, often through foreign trusts, which takes money out of the country from where it has been earned and is therefore taxable at a fair rate. I think the most prudent thing to be done would probably be to implement Gareth Morgan’s ideas, because they give everyone a standard level of living and don’t unfairly target beneficiaries that may use some of their spare time to volunteer at charities.

    Comment by Dan — October 8, 2012 @ 4:59 pm

  15. captured by finance- he’s their zombie-vote since way back. love how the finance sector (where the real money has been made 1991-2007) consider all other forms of enterprise useless and ‘unproductive’. they need to spend a few months diggin potatoes.

    Comment by rob — October 8, 2012 @ 9:01 pm

  16. I thought the booze and smoking lobbyists won him over long ago.

    That is so not fair. The hunting / deerstalking lobby have bought a slice of him too.
    I recall Paul Callaghan reacting to John Key’s decision to buy Dunne’s loyalty (or at least rent it) by appointing him and his anti-1080 agenda as Associate Minister of Conservation. Tacks were spat: “The only thing Peter Dunne supports is weasels and possums,” was Paul’s response on Radio NZ.
    He was too polite to state that Dunne has to be protective of weasels; it’s a matter of professional courtesy.

    Comment by herr doktor bimler — October 8, 2012 @ 11:00 pm

  17. section BG1 of the income tax act 2007. that is all.

    Comment by stargazer — October 8, 2012 @ 11:49 pm

  18. @ Gregor & BeShakey – I think most are aware of the distinction between evasion and avoidance, and everyone seems happy for ‘minimising tax’ in the sense of making sure we are not accidentally paying too much or getting taxed twice.

    But I think most Kiwis set a higher moral standard that Dunne exhibited – we don’t want our economy boosted by gouging the tax base of other nations. After all, we rightly complained about the Winebox/Cook Islands tax haven scandal.

    @ BeShakey – stopping smoking to avoid paying ciggy tax is fine – no dishonesty there. The comparable behaviour would be for a dairy owner to close her shop to avoid paying GST and company tax; entirely moral to do so if you have a beef with paying those taxes, but a stunningly poor business option to take ;)

    On the GST avoidance by buying goods from overseas – that really is a loophole that should be closed. It stems from times when intl postage was slower and less convenient than now with credit cards and Paypal, etc. Maybe set a $20 threshold to cut compliance costs, but levy GST on anything above that. Helps domestic retailers too – see how I keep thinking of our legitimate business operators ;) Peter Dunne could try that.

    Comment by bob — October 9, 2012 @ 12:09 pm

  19. mmmm we seem to be going backwards don’t we. before long they will saying everywhere they go.. ” no bread, then let them eat cake’ are we tramping towards dangerous ground in NZ??. If this article does not spotlight the great divide between haves and have nots in NZ.. then there are many who have already been blinded!

    Comment by Beverley Ruegg — October 9, 2012 @ 1:22 pm

  20. But I think most Kiwis set a higher moral standard that Dunne exhibited – we don’t want our economy boosted by gouging the tax base of other nations.

    Really? I’d call it competitive advantage.
    If – and that’s a big if – NZ can be shown to be a haven for dirty money then I agree.

    If not, then I’m not sure I understand the moral issue.
    NZers are perfectly happy it seems to seek the lowest price on imported consumer products via direct consumption rather than supporting local business – an inadvertent choice to support a race to the bottom culture which means corners get cut so that profits are maintained; to whit, manufactures seeking desirable taxation in other territories and local retailers getting stiffed in the process.

    Comment by Gregor W — October 9, 2012 @ 2:49 pm

  21. International tax avoidance is small fry compared to the domestic version when the top tax rate was 39%. The biggest loophole was to earn money in a family trust taxable as 33% then in the next year pay it out to yourself as a tax-free capital distribution. It meant that almost no one paid the top rate and John Key used it as a reason for lowering that rate. It would have been as easy to block the loophole.

    Comment by Tobias — October 10, 2012 @ 12:31 pm

  22. Trusts pay a flat rate of tax at 33%, so not a bad result for the NZ taxpayer, if this story is accurate. Of course, those South Americans may be doing something illegal (in their own country) by using these trusts. So their chicks could come home to roost.

    Comment by Clunking Fist — October 10, 2012 @ 5:34 pm

  23. “A tax avoidance arrangement is void as against the Commissioner for income tax purposes.” BG1 Income Tax Act 2007 (cheers stargazer @17)
    See also the Penny & Hooper case

    From part Y of the Act (definitions):

    tax avoidance includes—
    (a) directly or indirectly altering the incidence of any income tax:
    (b) directly or indirectly relieving a person from liability to pay income tax or from a potential or prospective liability to future income tax:
    (c) directly or indirectly avoiding, postponing, or reducing any liability to income tax or any potential or prospective liability to future income tax

    tax avoidance arrangement means an arrangement, whether entered into by the person affected by the arrangement or by another person, that directly or indirectly—
    (a) has tax avoidance as its purpose or effect; or
    (b) has tax avoidance as 1 of its purposes or effects, whether or not any other purpose or effect is referable to ordinary business or family dealings, if the tax avoidance purpose or effect is not merely incidental

    Comment by Clunking Fist — October 10, 2012 @ 5:46 pm

  24. The above is why we have a new phrase “tax minimisation”: i.e. reducing your tax bill by methods which aren’t avoidance or outright evasion.

    Comment by Clunking Fist — October 10, 2012 @ 5:49 pm


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