NZ POLITICS DAILY: Fights over tax and transparency

Remember Dirty Politics? And Dotcom’s Moment of Truth? Both these 2014 scandals contained striking revelations about how the political establishment works. Yet the revelations certainly didn’t appear to have a negative political impact on the National Government. Despite the huge debates and masses of media coverage, these scandals didn’t sink the Government, and in some respects might have helped National shore up its electoral support.

So the foreign tax trust avoidance scandal might well be meaningful and noisy but, as I pointed out in my column yesterday, The war on wealth, although National is vulnerable on this issue that doesn’t necessarily mean the Government will suffer. It might depend on how well the opposition parties handle the scandal, and whether National continues to make missteps over its political management of it. But regardless of who comes out on top over the new wars on tax, the New Zealand political landscape is quickly changing. 

Disclosure wars
Transparency has become the major focus for politicians campaigning on the Panama papers foreign trust funds. Not only do they want reform to tighten up the rules and make trusts provide further information, they also want politicians to provide more information about their own personal finances. This is a global phenomenon.

Labour leader Andrew Little has raised the stakes here in terms of personal financial disclosure, with his own declarations – see Vernon Small’s Andrew Little's tax returns as 'boring' as he promised. 

In terms of politician links to Mossack Fonseca and other foreign trust accounts, the Prime Minister has taken the threat to his reputation very seriously, even admitting to spending “eight hours on Sunday tracking down details about his Singaporean superannuation fund to be certain that all of his investments were above board” – see Isaac Davison’s PM says he has no link to Mossack Fonseca. 

But Key has been adamant that he will not match Little’s levels of disclosure, suggesting that Labour is trying to “concoct some smear campaign” – see Dan Satherley’s Tax demands will go 'on and on' – Key. Key has attempted to justify his decision not to release his own tax records by saying that it would never satisfy his critics: "They'll say, what about filing the tax return of my family trust? And then they'd say, what about filing the tax return of my blind trust? I don't even know what's in that. It just goes on and on and on."

Of interest, in this interview Key also chose to show "solidarity" with beleaguered British Prime Minister David Cameron, explaining, "I've texted him a couple of times just to check he's okay. He's done nothing wrong – handled it in a clumsy way, but he's admitted that himself."

Key has also critiqued the movement towards greater disclosure, and is reported as believing that more disclosure “would lead to increasing creep into MPs' personal affairs, including their spouses” – see Claire Trevett and Isaac Davison’s John Key's embarrassing disclosure: PM reveals link to trust specialist. 

So is Labour’s transparency campaign a smear campaign? Certainly Little’s disclosure release was “a stunt” according to Claire Trevett – see: Little’s stunt leaves PM with finger in the dyke. Trevett also only gave Little “middling marks for transparency, given the extent of his disclosure fell short of those in the United Kingdom”. She points to the dangers for Labour of personalising its campaign on trusts: “He risks looking like he is attacking Key based on his wealth — a technique that has failed miserably for Labour for eight years so far.”

But Key’s links to businesses involved in foreign trust funds were problematic for the Prime Minister when he became linked with the Antipodes Trust Group – see Isaac Davison’s PM says he has no link to Mossack Fonseca. It was in this context that Key became more forthright in his defence of the foreign trusts industry, saying it was "a legitimate business" and not "the devil incarnate". He also began defending the ethics of his associates, claiming his lawyer was “highly ethical”.

And Key’s arguments about the industry are backed up by one of its participants – Dunedin-based trust expert, Nico Francken – who says “he knew Mossack Fonseca well”, and that the scandal “will ultimately blow over and it will be back to business as usual” – see Tim Hunter’s Panama Papers ‘good advertising for us,’ says NZ trust specialist. 

Key purports to be not embarrassed "in the slightest" by the revelations of his links to the foreign trust legal firm, but others disagree. Patrick Gower has labelled Key’s connection to the Antipodes firm as “Hugely embarrassing, incredibly awkward, not a good look” – see: Key's foreign trust link 'embarrassing'.

It’s likely that pressure will continue on politicians to disclose more and more. The escalation is reflected in the Greens “proposing MPs should have to disclose not just the name of any trust they have but also the country in which that trust is registered” – see Benedict Collins’ report, PM's links to trusts 'bad look', say opponents. United Future leader Peter Dunne has given support to the Green idea, but Bill English has poured scorn on it, saying “if the Greens think there are dozens of MPs with trusts all over the world then I think they're chasing shadows.”

Most MPs have financial trusts. In fact according to the Greens’ James Shaw,  “about 70 percent of MPs have trusts” – see Stuff’s John Key's judgement 'skewed' over foreign trusts and tax issues – Opposition. This will be a factor in continued public scepticism about politician integrity over financial matters. 

And yet we still don’t know that much about MP wealth or their trusts. According to Vernon Small, responding to claims from Key about the “strong rules” he has to abide by in making declarations, “Parliament's register of pecuniary interests gives little details of his wealth” – see: NZ PM John Key refuses to release tax records - what do we know of his assets?

Key’s blind trust arrangement continues to be speculated on and critiqued. For instance, Danyl Mclauchlan argues that Key probably knows the general nature of what is in his blind trust: “Key also claims that his assets are in a blind trust, so he doesn’t know what’s in it, so there can’t be any conflicts of interest. That claim has always annoyed me. Key’s trustees don’t liquidate his assets into cash and then reinvest them as soon as they’re signed over to them. If Key owned, say, shares in a property investment company before he became Prime Minister, he still knows that he owns them, even if he doesn’t know their exact worth. But the public can’t see that he does, and Key can pretend that there isn’t a conflict of interest because it is a ‘blind trust’.” – see: Panama Papers thoughts. 

So could Key really have money squirreled away in some dodgy places? Chris Trotter thinks it’s unlikely, arguing that he’s too smart: “Key has spent his whole life working towards the position he now holds, and all along the way he has been extraordinarily careful to avoid doing anything that might come back to bite him when he was Prime Minister…. Would he put everything he’s worked for so carefully at risk by squirrelling away millions in some Caribbean tax haven? I can’t see it, myself” – see: Other People’s Secrets: How important are the Panama Papers to New Zealand. 

Nonetheless, the move towards the expectation of greater personal financial transparency from politicians and other leading public figures is likely to continue. Yet, the Government has already dismissed reforms that would have seen greater transparency demanded of politicians and other public servants – see Bob Gregory’s The Panama Papers and New Zealand's politically-exposed people. 

Journalists will keep asking questions about MPs’ trusts. Jane Patterson has surveyed every single MP about trust involvement, and whether they have trusts overseas – see: Foreign trusts should've been a Labour Shewan. Pressure will no doubt continue to be applied to the 12 National MPs who have not answered the request.

But could it be that we all need to be more transparent in our financial and tax details? Martin van Beynan says: Let's open our tax returns for all to see. He says: “One measure that needs to be seriously looked at is making every taxpayer's return publicly searchable. I don't blame Key for not wanting to reveal his tax returns when no-one else is required too. Such a move should take in everybody or no-one.” As van Beynan points out, such openness is more common in Scandinavian countries like Norway.

Tax inquiry wars
National’s announcement of an inquiry was meant to quieten down the discontent and assuage concerns that the Government wasn’t taking the scandal seriously enough. But it hasn’t convinced many commentators or political opponents. Some have concentrated on the configurations of the inquiry (it’s terms of reference, it’s powers, the timeframe, etc), and others have concentrated on the person in charge – tax expert John Shewan. 

Writing about the new inquiry, Tracy Watkins says “Key must already be regretting he didn't give it stronger powers” – see: John Key's link to foreign trust makes a rod for his own back. 

A number of other tax experts have also been critical – see Vernon Small and Tom Pullar-Strecker’s Government u-turns on review of foreign trust regime but appointment under fire. For example, Auckland University law professor Michael Littlewood says the inquiry was about "saving face".  

And Nicholas Jones reports that “Transparency International New Zealand has called for any review to be undertaken with the help of expertise from an overseas expert” – see: Expert review of New Zealand's foreign trust laws slammed by opposition.

Vernon Small agrees with Labour’s critique of using Shewan, saying “Little's instincts were right. A retired judge - someone with legal and broad public policy background – would have been a better choice” – see: Ten days down the road on Panama papers and NZ is still stalled. 

But the focus and attacks on John Shewan might end up being counterproductive. Certainly attempting to connect Shewan with preserving the tax havens in the Bahamas seems to have backfired – see Jane Patterson’s Tax reviewer allegations a 'storm in a teacup'. 

Shewan’s self-defence has been particularly strong, and you can listen to his interview with John Campbell – see: John Shewan joins Checkpoint. For a transcript, see Pete George’s John Shewan on Radio NZ. 

All this leads RNZ’s Jane Patterson to say, “The Bahamas story was an own goal, and one which has left Labour effectively sidelined this week when the government could have expected to come under real pressure” – see: Foreign trusts should've been a Labour Shewan. Patterson says that Labour’s “ham-fisted attempt to discredit” Shewan has ended up helping National get out of a hole. 

And there have been other signs of Labour going overboard in the campaign against National on tax. For example, Trevor Mallard apparently made a major allegation on Twitter against John Key, about his complicity in tax evasion – see David Farrar’s Mallard defames Key and Pete George’s Media ignore Mallard tweet. 

National’s reform of provisional tax, announced on Wednesday, might end up being of more electoral consequence than any of the scandals over tax avoidance. For details of the changes, see RNZ’s Big tax change for thousands of small businesses. 

While these might appear to be mere tinkering with the tax system, such changes could meaningfully improve the lives of up to 100,000 small business owners. You only have to listen to Gary McCormick on More FM lavish praise on John Key (listen here: Tax demands will go 'on and on' – Key to get a sense that this tax reform might help shore up the support of a huge number of contractors and small businesspeople for National. Labour and much of the media possibly miss the significance of such changes. 

But many will demand bigger changes – and John Shewan would be wise to read tax specialist Martin Riley’s column, Wider tax reform needed. He argues that our tax settings could be described in similar terms to what Eleanor Catton said about New Zealand politicians: “neo-liberal”, “profit-obsessed” and “money hungry”. And Johnny Moore has some similar things to say about how the tax debate illustrates that we are losing our moral compass – see: Short step from greed is good to revolution. 

Finally, for more cutting satire about the tax avoidance issues, see David Slack’s 'Everything you always wanted to know about tax', Toby Manhire’s Peek in the PM's inbox, and my blog post, New Zealand cartoons about tax, transparency and the Panama papers.