Monday, April 11, 2016

National fails with the important stuff

The health and resilience of our economy, our people and our environment are the important stuff any government should have as overarching priorities. The National Party is approaching eight years in government and its record in these three key areas is not particularly good. Our rivers are becoming increasingly polluted, we have one of the lowest GHG reduction targets and almost 1/3 of our children live in relative poverty.

National Governments do not have any historical reputation for championing social causes or lifting environmental standards, but they survive because of the perception that they can be trusted to manage our economy.

Displaying some rational economic vision and leadership is important for our ongoing survival as a nation in an often turbulent global economy. The Great Financial Crisis came about because of loose regulations and giving too much rope to financial institutions. New Zealand came through that crisis relatively unscathed but I would have thought that the lesson to be learned from the GFC would be to avoid regulatory regimes that encourage exploitation and greed.

New Zealand has developed into one of the most accessible economies in the developed world and it is either through extreme naivety, or putting profit before being a good global citizen, that has allowed us to become one of the worlds popular havens for avoiding tax and laundering criminal funds. The National Government ignored 2013 IRD advice about closing loopholes and has even promoted the profits available in the foreign trust industry (around $24 million a year).

We also have increasing numbers of foreign investors who are able to buy New Zealand houses and farms for easy capital gain. Obviously this overseas pressure lifts the price of our houses beyond the budgets of most New Zealanders, making us the most unaffordable housing market in the world. A buoyant housing market that provides good returns for investors (foreign or otherwise) is more important than affordability for this Government. It is also concerning that investment into property is encouraged rather than into productive industries that would increase employment.

Governments should also have a role in determining and supporting broad economic priorities for the country that will generate useful (and hopefully sustainable) economic activity that will benefit the the majority of its citizens.

In 2008 the National Party came into power wanting to emulate the Australian economy. National's "Brighter Future" included increased mining (sexy coal) and oil exploration. Australia's economy had boomed through its coal exports to China and the oil industry was highly profitable. Despite the fact that climate change was a growing issue, and the shift to clean renewable energy was well underway,  the National Government opened up vast areas of our territorial waters and conservation estate for exploration. Solid Energy was encouraged to borrow and think big and oil companies were given tax breaks and subsidies to see what they could find.

The promotion of a future in fossil fuel crashed and burned. Solid Energy collapsed spectacularly owing hundreds of millions and losing hundreds of jobs. Despite tax cuts, subsidised seismic surveys and letting oil companies set their own safety rules the collapse in oil prices and fracking has made off shore drilling unprofitable.

National's generous 2009 and 2010 tax cuts hugely benefited the already rich and were supposed to encourage investment in growing employment. The fact that tax fraud costs us around $8 billion a year and most of our wealthy benefit from untaxed capital gain didn't influence the decision. Little of the tax windfall created more jobs and most was obviously spent on luxury cars and even more property. The average size of the houses we are building are the third largest in the world. The tax cuts also caused a loss of around $2 billion a year in tax income and this loss has had to be made up by demanding more in dividends from SOEs, selling state assets, reducing the investment in Kiwi Saver and cutting expenditure.

National stopped funding the Buy Kiwi Made campaign and Government procurement increasingly favoured cheaper overseas manufacturers. New Zealand has consequently lost previously successful manufacturing businesses, like Dunedin's Hillside Workshops, that employed skilled labour.

In 2011 the National Party promoted a major $11 billion investment into motorways despite no prior cost benefit analysis. Few of the motorways have proved to be cost effective since and instead there has been growing demand for investment into more efficient public transport systems, especially in Auckland.

National abandoned its previous goal of matching Australia by increasing average incomes and Bill English began promoting the advantages of a low wage economy. Over $3 billion is now being spent on the Working for Families tax credit that is necessary to compensate for the low wages that many families struggle to live on.

In 2014 the National Party campaigned with a goal of doubling the value of farm exports with a major focus on increasing dairy production. $800 million was budgeted for irrigation schemes so that dairy farmers could grow herd numbers and intensify the industry further. The advice to spend more on research and development and concentrate on adding value was ignored and growing imports of fertilizer and feed supplements supported a higher input (but more vulnerable) industry, but greater volumes of milk.

Obviously little was learned from the Solid Energy debacle and a glut in the global milk supply saw the bottom drop out of the dairy markets and many who had been encouraged by the Government to invest in ongoing expansion were badly caught out. We have also been left with costly environmental damage (compacted land and polluted rivers) with little income to manage it.

This National Government will go down in history as the one that increased public debt by over $50 billion and substantially increased inequality. It will be known as a Government that was plagued by conflicts of interest and growing our levels of corruption. The historical evidence will also show an inability to build a resilient and sustainable economy and an unhealthy enthusiasm to support sunset industries and 'boom and bust' economics. Rather than lead and manage the economy for the benefit of all it chose to let it be exploited by a privileged few.

This National Government can't be trusted with the important stuff.

Tuesday, April 5, 2016

NZ Tax Haven, "a quiet little achiever"

The Pulitzer Center is a collective of independent journalists dedicated to supporting investigative journalism on issues of global importance. New Zealand's Nicky Hager is a member.

The Panama Papers has exposed one international operation (there may be more) that has been shifting secret funds belonging to corrupt politicians and dodgy companies to hidden trusts in a variety of tax havens. The politicians includes Putin and the King of Saudi Arabia and some of the companies are involved in profiting from the Syrian war. Interestingly New Zealand is listed as one of the significant tax havens where 12,000 foreign trusts have found a home. We share the tax haven status with the likes of the British Virgin Islands and the Sychelles.

The details exposed through leaked documents from the Panamanian law firm Mossack Fonseca make frightening reading as possibly trillions have been hidden away to avoid tax or hide illegally gained funds. New Zealand is referred to as being "quiet little achiever" as a tax haven for criminals.

The response to this embarrassing revelation is interesting. The Government has taken the line that New Zealand was given a clean bill of health for our tax regime by the OECD in 2013 and nothing we are doing is illegal. Key explained that New Zealanders have to pay tax and we expect full disclosure of any economic activity. However, while foreign trusts have to disclose their existence they don't have to declare the real source or amount of money involved. Key promotes the fact that the management of the trusts in NZ earns our industry around $24 million a year. It appears if we can earn money through accepting foreign trusts little else matters.

New Zealand's economy is one of the most open in the world, we are ranked 2nd in the world for the ease of doing business. We allow foreigners to buy property with few restrictions and our current Government has provided tax breaks, free services and lump payments to overseas film companies, oil companies and Rio Tinto. We have it written into law that under table payments are an acceptable part of doing business overseas and have paid around $12 million on a massive bribe to a Saudi businessman so that we can further a trade deal with one of the most morally corrupt countries in the world. It appears that all is fair in war and business under a National Government.

New Zealand has amongst the fastest growing inequality in the world and is complicit in supporting corrupt businesses and individuals globally in avoiding paying tax. The economic activity and profits generated from the efforts of the world's workers are being funneled up to an elite few, who then shift their profits to off shore tax havens. There is less tax money now available to support the hospitals, schools and general infrastructure of developed nations around the world and rather than deal with the loop holes, austerity measures in government spending has become necessary. This is a global problem, but it appears that New Zealand is a major player in supporting tax avoidance and hiding the profits of illegal activity.

One of the reasons that New Zealand is such a popular tax haven is our image as a first world country and our international reputation of honesty and respectability. It appears that this tax haven revelation has exposed the rather grubby underbelly of our 'honest' little nation. We are no longer clean and green and we are no longer a nation built on honesty and integrity. The flag referendum failed so creating a banana republic will become John Key's real legacy.

Postscript: lots of evasive talk and diversionary tactics from Key today in the house including blame for the current legislation shifted to Labour and yet someone found this today that revealed that a 2011 tax change that National instigated was probably a pivotal element in creating our current situation. It also explains why there was a huge increase in foreign trusts since that time.