Matt Nippert reckons:
A major Herald investigation has found the 20 multinational companies most aggressive in shifting profits out of New Zealand overall paid virtually no income tax, despite recording nearly $10 billion in annual sales to Kiwi consumers.
The analysis of financial information of more than 100 multinational corporations and their New Zealand subsidiaries showed that, had the New Zealand branches of these 20 firms reported profits at the same healthy rate as their parents, their combined income tax bill would have been nearly $490 million.
But according to their most-recent accounts filed with the Companies Office, most covering the 2014 calender year, these 20 companies overall paid just $1.8m in income taxes after several claimed tens of millions of dollars in tax deferments and losses.
It’s a bit weird, on the face of it, that companies pay tax on their profits while workers pay tax on their revenue. If you earn $100,000 a year in salary you don’t get to go on holiday, buy a new car and some jewels and then tell the tax man ‘Sorry, but I broke even this year. I got nothing for you.’
There are good arguments for taxing companies this way but they all rely on businesses actually wanting to make a profit. If many of our largest companies don’t want to be profitable – if they exist to channel revenue directly to parent holders in lower tax jurisdictions overseas and then declare a loss – then the model fails.
Here’s one solution, that I half-thought through while brushing my teeth this morning: give IRD the power to designate deliberate non-profit companies and tax them based on revenue, not profit. Just like the rest of us. This might cause them all sorts of terrible problems during economic downturns but if they’re worried about that then they can shift back to the old model where they declare profits and pay dividends to their parent, not ‘licensing fees’, or whatever, which turn vastly profitable companies into loss-makers.
The Wall Street Journal has the details of the $1 billion dollar loan Goldman Sachs made to Banco Espírito Santo which just cost the New Zealand taxpayer $200 million:
Goldman and Espírito Santo eventually settled on the creation of a company, Oak Finance Luxembourg SA, to raise $835 million for Espírito Santo from Goldman and outside investors. Goldman Sachs International co-heads in London, Michael Sherwood and Richard Gnodde, were briefed on the large transaction, according to a person familiar with it.
Oak Finance’s purpose—providing vital funding for a project aimed at increasing Venezuela’s refined-oil output—also checked off a box for Goldman as it tried to expand its relationship with the Venezuelan government, people familiar with the matter said.
Before the money was raised, Espírito Santo’s problems started intensifying. Its parent company was struggling to repay billions of euros to its creditors, including the bank and its clients. Facing potential losses, the bank was having trouble raising money from traditional market sources.
Goldman, meanwhile, was buying Banco Espírito Santo shares. Regulatory filings show Goldman amassed 2.27% of the bank’s shares as of July 15. It looked like a vote of confidence in the Portuguese bank, whose shares rallied 20% on July 23, the day the holdings were disclosed.
So the New Zealand Super Fund loaned money through a Luxembourg shell company created by a US investment bank to a Portuguese bank to fund the Venezuelan state oil company. Awesome.
The Super Fund gets pretty good returns so we don’t want to second-guess them too much, but related third party loans through tax shelter countries to banks that collapse amid accusations of fraud and tax evasion don’t seem like an appropriate way for a state investor to conduct itself, even if the money doesn’t get wiped out.
Prime Minister John Key said one of the choices that today’s Budget surplus would present was the possibility his party could promise tax cuts in the campaign for the September 20 election.
He even suggested any tax cuts could be aimed at middle New Zealand which “pays a fair bit of tax and often doesn’t get a lot in return”.
Key and English promised ‘tax cuts for middle New Zealand’ in 2008 but went back on that promise as soon as they were elected and in 2010 they bought in tax cuts for high income earners and increased GST for everyone, the great ‘fiscally neutral’ tax switch that cost a billion dollars a year and boosted growth to a staggering 1%. So I’m not going to get too excited here.
Also, when English stopped paying into the superannuation fund back in 2009 – a decision Treasury estimates will have cost the country about $50 billion dollars by 2050 – he promised that payments into the fund would resume when the books got back into surplus. So which takes priority: tax cuts or payments to the super fund? My guess is that Key thinks the idea of paying into the super fund is absurd. Where’s the political benefit to him if some future politician has more money to fund superannuation in a couple decades time? So it’s gonna be tax cuts.
I was involved in a twitter discussion yesterday about Treasury’s economic predictions and how they tend to be overly rosy, and I wondered if that was the case back when Labour were in power. Or were Treasury growth pessimists under a Labour government?
Well here’s the answer, sourced from the HYEFU stats at Treasury. They are mostly pessimists under Labour and mostly optimists under National. Or, to put it another way: when Labour were in government the economy grew faster than Treasury predicted, and under National it under-performed their forecasts. Not consistently though. How about that forecasting for 2010? Dead accurate!
Talking and thinking about the government’s asset sales – sorry: partial privitisation – policy this weekend, the following points seem valid:
- The partial privitisation policy is the Key government’s flagship policy for this term.
- It is a disaster.
- There isn’t much comment on this in the media
Maybe I’m wrong about point 2 or 3? But looking back at the pre-election promises, the intent was to raise up to $7 billion dollars. It looks like Key and English will end up spending hundreds of millions more on the sales process than they promised and end up with less than $5 billion, which is less than their lowest estimate. And yes, you can point to reasons it’s been a disaster. Solid Energy was supposed to be worth billions but is actually worthless, Meridian’s major customer is threatening to close down, and extorted the government out of $30 million dollars, the Greens and Labour have sabotaged the economy by failing to support the privitisation process and having energy policies of their own. But Key and English are supposed to be financial super-geniuses: couldn’t they have NOT, say, mis-managed Solid Energy into the ground, or anticipated the Rio Tinto problem? Like I said, this is their flagship policy, and the last two years have mostly consisted of National failing to anticipate really obvious problems – like the opposition opposing it – until they blow up in their face and cost the taxpayers tens of millions of dollars.
And maybe I’m just being a biased left-winger here, but I don’t really see much media commentary around the signature failure of the government’s signature policy. Seems that if a left-wing government’s biggest initiative fell over this horribly to the tune of billions of dollars it’d be a really big deal.
I think there’s some conventional wisdom involved: the general media impression of Key is that he has magic powers, at least in financial terms, while English is a ‘safe pair of hands’, also ‘dour’, ‘Scottish’ a ‘Southlander’, ‘frugal’ and so-on. The reality seems to be the exact opposite: they’ve hemorrhaged taxpayer money while botching their flagship policy. (If you add up the amount of money ‘dour, frugal’ Bill English has simply given away to the commercial sector in the last five years it’d probably be close to the two billion dollar mark.) But commentators would have to challenge their core assumptions about contemporary politics before the scale of the failure here became obvious.
The Herald reports:
Retail investors in Meridian Energy will pay $1 per share as a first installment and no more than 60 cents per share as a second installment – up to 30 cents less than institutional investors.
At a .30c price differential ‘Mum and Dad’ retail investors would be crazy not to buy a couple of thousand dollars worth of Meridian shares and then flick them on as soon as they float, If you buy $2000 worth of shares and sell them the day of the float at the institutional price you make $400, no risk. Minimum. The shares are probably undervalued, so will probably go even higher than that.
It’s a big loss to the taxpayer of course. Millions of dollars thrown away for nothing except, crucially, Bill English and John Key will get to put out a press release citing the huge number of New Zealand ‘Mum and Dad’ retail investors who pre-bought Meridian shares.
The very pragmatic, fiscally sensible government led by very serious experienced businessman John Key has announced it will extend interest free loans to investors in Meridian Energy for 40% of the share value. Because giving people interest free loans to buy your own dividend returning assets off you is how things are done in the real world.
If you take a look at the share price for Mighty River Power you can see why they’ve come to this:
This also seems like a good time to revisit John Roughan’s column urging the Herald’s readers to buy these shares:
Investors in Mighty River Power should send the champagne next week to Russel Norman, Green Party, Parliament Buildings, Wellington.
The stock looked a good buy even before he talked the Labour Party into threatening price control on electricity. It looks an even better one now.
I hope Roughan put his money where his idiot mouth is and invested heavily.
Ten days ago National’s Housing Minister announced an inquiry into the cost of building materials:
Nick Smith, speaking on “The Nation” said there was significant concern that items “the likes Batts, likes of Gib and concrete” were more expensive than what they were in Australia.
Batts and Gib are Fletcher’s brands and the company is a major concrete supplier.
Here’s what’s happened to Fletcher’s share price over the past thirty days:
According to the Steven Joyce/Fran O’Sullivan theory of political sharemarket vandalism, Nick Smith has ‘destroyed’ about $260 million dollars worth of wealth in the last ten days. I look forward to their columns/press releases warning of capital flight, skies raining blood etc.
I’ve just watched the Q & A section on the Labour-Greens power policy, in which Susan Wood agonised over the massive financial destruction the announcement visited on all the ordinary New Zealanders who have investments in KiwiSaver (and, indirectly, in the Cullen Fund and ACC), so have lost hundreds of millions of dollars over the last week because of the massive market crash.
This is a talking point the government’s shills have been throwing around all week – Hooton claimed the total loss was in the ‘billions’ on National Radio – so I thought I’d take a look and see how the NXZ has actually been performing recently. The red line is April 18th, the day Labour and the Greens launched their announcement.
NZX data on Contact Energy’s share price, which – according to Matthew Hooton and the Herald’s Liam Dann has suffered an unprecedented form of destruction in the wake of the Labour Green power policy announcement:
So Contact’s shares are at their lowest level for like, seven weeks! And still way above their historic average! Hooton is paid to regurgitate preposterous bullshit, and he’s pretty great at his job, but the Herald’s business editor should be a little less gullible.