A culture of tax evasion.

datePosted on 11:25, April 15th, 2016 by Pablo

I do not understand what the fuss is all about when it comes to John Key and the revelations in the so-called “Panama Papers.” So what if he and other Kiwi high rollers shield their incomes and assets from the IRD in assorted trusts, funds, investments and even shell companies? Isn’t it an axiom of capitalism that, as Donald Trump has openly stated, you try to avoid as much tax payment as possible? Forget all this nonsense about “paying one’s fair share of taxes.” Only rubes and idealists do that. Everyone else tries to minimise their tax exposure and the rich pricks just do so on a grander and more elaborate scale.

I say this because the entire NZ economy is riddled with tax avoidance. One of the things that struck me after I moved to NZ is the amount of cash transactions that are done with the explicit intention of avoiding tax. Almost every single tradesperson I have dealt with in the course of my time here has proposed a cash transaction that avoids GST, but more importantly, avoids traceable electronic or paper (cheque) financial transfers. And the offers of non-GST cash transactions are done without shame or concern; it is just part of doing business for many people and everyone knows it and acts accordingly based on their own circumstances.

If what I have seen in the small business trade and service sector is any indication, then it is reasonable to expect that such attitudes percolate upwards into larger corporate structures and repositories of wealth. Since these are too big to hide in a cash-only parallel market, the next best thing is to engage in tax evasion and income-hiding schemes whose complexity is based upon the ability of the tax authorities to uncover them. The move to off-shore trusts and the like is simply a matter of keeping one or two steps ahead of the law and three steps ahead of enforcement mechanisms. If those in government choose to structure the financial regulatory regime in such a way that it keeps the holders of wealth five to ten steps ahead of the tax authorities then, well, you get what you vote for.

The difference between the approach of NZ high and low rollers when it comes to tax evasion is in scale, not kind.

This is one reason why I believe that the Transparency International rankings that have NZ listed among the top three least corrupt nations on earth are rubbish.  Add to that the nepotism, cronyism, shoulder-tapping, sinecure swapping and insider trading of everything from personal and professional favours to board directorships to stock shares, and the picture of NZ is far less rosy and far more, let us say, “pragmatic.”  I am particularly critical of the TI indexes because not only are they mostly based on reputational analysis (mostly offered by those who stand to gain from gaming the system), but because I participated in a TI survey of NZ’s intelligence and defense forces and saw my scores (and those of some others) pretty much discarded in favour of higher scores offered by insiders that led to an overall TI assessment that NZ has the highest standard of professional integrity amongst the defense and intelligence services in the Asia-Pacific.

Even so, I am one of those who are a bit idealistic when it comes to taxes. I understand the concept of public goods and therefore comprehend the rationale behind taxation. In NZ I pay tax more readily at a higher rate than I did in the US because, among other things, I am not paying to support a huge war machine that in turn serves the interests of a taxpayer subsidised military-industrial complex. As a small business owner I feel the burden of taxation more heavily and immediately than the corporate moguls that run the nation’s largest firms and whose bottom lines rest on minimising two things: their tax liabilities and their labour force wage bills. Yet I try to believe that I am contributing my small bit towards maintaining a high standard of public education, health and welfare that will lead to future generations of productive and happy citizens (although my experience with NZ academia suggests seriously diminishing returns in that sector, and I have serious doubts that overall heath, education and welfare outcomes are on the rise rather than in decline as a result of nearly a decade of National government public policies).

In spite of these misgivings, I remain a residual idealist and want to believe that my contributions, when taken collectively with those of others, matter for the present and future well-being of NZ. But I do not expect others to share the same hopelessly naive view of how the systems works, and I therefore do not begrudge them trying to dodge the taxman as much as possible. Because in a country where market-reifying ideologies reign supreme in virtually every facet of life, only a fool like me would think that paying taxes is anything but state-imposed theft levied on the productive in order to buy the acquiescence of the parasitical. I know this to be true because National, ACT and certain elements in Labour tell me so, and who am I to argue with those who dominate our economic, political and social narrative?

12 Responses to “A culture of tax evasion.”

  1. James Green on April 15th, 2016 at 15:48

    Wow, this echoes extremely closely with what I’ve been thinking about the issue too.

    I’ve long had my own doubts about the TI ranking as well. It’s based on perceptions, so if no-one thinks they are engaging in corruption it doesn’t show up in the rankings.

  2. Art Croft on April 17th, 2016 at 10:18

    ” believe that the Transparency International rankings that have NZ listed among the top three least corrupt nations on earth are rubbish. ”

    Can I ask then what countries might make your to 5 TI list? And where would NZ be?

  3. Pablo on April 17th, 2016 at 12:59

    I would rank Uruguay, Iceland and the Nordic countries at the top. Having lived and worked in Singapore, the fact that it and NZ tend to occupy the top two places (and are often tied as co-leaders) reinforces my view that the TI rankings are bogus. Even if there is little street level petty corruption, nothing in SG moves without some form of “contribution” to the PAP and nepotism, patronage and cronyism is rife. Likewise in NZ, albeit here things are done even more discreetly.

    I think NZ is comparable to Canada and Chile when it comes to corruption, which is not bad but is not deserving of the highest TI ranking.

  4. James Green on April 17th, 2016 at 13:26

    I would argue Iceland is a Nordic country ;)

    I had to check when you said Singapore was highly ranked, but it’s true and in 2010 they shared the #1 spot with NZ and Denmark. I think the more straight up corruption of neighbouring Malaysia might be having an effect on how corrupt Singaporeans think their own country is.

  5. Pablo on April 17th, 2016 at 14:17

    Yeah, I was just separating Iceland from its larger Nordic neighbours and grouping it with Uruguay as a small country. Having lived and written about Uruguay, it is a refreshing antithesis to the stereotypes about dishonest and corrupt Latins and to my mind compares quite favourably with NZ.

    The Singaporean government does spend a lot of time comparing SG favourably to Malaysia and Indonesia. But in a sense that would be akin to NZ comparing itself to Fiji, Samoa and Tonga.

  6. Alexander Hunter on April 18th, 2016 at 09:52

    @Pablo: Have you had a good experience of the Nordic countries?

  7. Geoff Fischer on April 18th, 2016 at 10:01

    Corruption in New Zealand goes well beyond tax fraud. This morning the state broadcaster RNZ National ran three news items dealing with corruption: government sanctioned carbon trading fraud (proven); widespread abuse of structural and reinforcing steel standards based on forged documents (proven); corrupt allocation of the Niue hotel management contract (alleged). None of this should surprise us. The realm of New Zealand was founded on the fraudulent treaty of Waitangi (that is fraudulent in intent, and not merely dishonored in practice), and in more recent years the system of governance has been altered in ways that make official and commercial corruption inescapable. Winston Peters has declared that New Zealand has the most corrupt immigration service in the world. He has not produced a cogent argument to justify that claim, but “one of the most corrupt immigration services in the world” would be a fair assessment.

    The carbon trading scheme is the fraud that most interests me, because it fits the pattern of “corruption by design” which has become a feature of the New Zealand way of doing things over recent decades. The carbon trading scheme was put in place by a government which absolutely knew that it would result in fraudulent and therefore cheap credits being imported from offshore to serve the needs of New Zealand industry. The Steel and Tube reinforcing mesh scandal is another case of corruption by design. Government has always known that regulation by “market mechanisms” would result in cheap non-compliant mesh being imported into the country under fake documentation to be used in construction. Almost every engineer in the country has known about fake mill certificates for steel products for the past decade yet this fake steel is used everywhere – from geothermal piping systems to pre-cast concrete panels. I can give other examples within and outside the engineering industry. Corruption by design is, as the phrase suggests, deliberate, considered and founded on statute. As we have observed “Corruption may have been imported into New Zealand, but New Zealanders themselves have embraced it. They have taken it to heart and made it their own”. New Zealand society is now thoroughly corrupt at all levels from the Head of State down. (And yes, I know that John Key is not the Head of State).

  8. Philip Ferguson on April 18th, 2016 at 15:14

    I largely agree with this article. We have a lot of moral outrage about wealthy tax dodgers but, frankly, if you want capitalism this is part of the deal. It’s also good to see some realism about corruption in NZ. A lot of NZers are funny people – we invent all kinds of fictions to make ourselves feel good – and kind of morally superior to Americans, Brits, Aussies etc. There seem to be a whole little raft of such ‘necessary fictions’ which we don’t want disturbed and we tend to turn on people who do disturb them.

    Interesting piece on tax havens as inherent to capitalism:https://rdln.wordpress.com/2016/04/09/tax-havens-natural-and-inescapable-product-of-capitalism/

  9. Andrew R on April 18th, 2016 at 22:54

    Thanks Pablo.

    Nice to know I am not alone in my attitude to tax.

    A form of corrupton that I think is under-rated in NZ is doing right for your mates. It happens commonly at the minor level because for most people their influence doesn’t go beyond that level. But for the powerful ….

  10. Daniel on April 22nd, 2016 at 11:39

    Good post Pablo:

    While I would agree that NZ is corrupt, and far more than our glowing TI ranking gives us, its nowhere near as bad as some of the place is have lived where corruption is a endemic and a way of life (I am not going to name for reasons of politeness).

    In NZ we have a merchant Banker as PM and we express surprise that he runs the country like a Merchant Bank (ie to help the rich get richer). We have had govt after govt take market ideology to the limit and again we wonder why we have a society organised on market principles. We have a small elite who actively seek to run this country and when they get caught out most people just shrug and say meh!

    Yet behind all that, as others above have noted, is a deeply rooted belief held by many NZ that what they can get away with is fair game, specially when it comes to Taxes and government regulation.

    So on a scale of corruption we are not quite like some of the places which rank very high on the TI index but there are enough dirty practices and behaviors at all levels to make us corrupt enough to not deserve our high rankings.

    I think the difference between us and others is that we are in a state of denial or cognitive dissonance about this. We like to be told we are a fair society etc etc, where as in other parts of the world corruption is so institutionalized that its not really corruption, its just practice.

    Also I have lived in Singapore and I would say that apart form the very top where the Lee family certain cronies still rule, Singapore it much less corrupt than NZ.

  11. Geoff Fischer on April 23rd, 2016 at 10:33

    I quoted (without necessarily endorsing) Winston Peters comment that “New Zealand has the most corrupt immigration service in the world” and much of the discussion over corruption in New Zealand seems to revolve around where New Zealand stands in the world rankings – further evidence of a New Zealand obsession with the nation’s relative position in the world in everything from the quality of our pavlovas to the purity of our natural environment.
    However even reliable rankings in the corruption index would not be terribly helpful. They might tell us something about the scale of the problem, but they can tell us nothing about its causes let alone suggest solutions. We really need to understand the mechanics of corruption in New Zealand. I have started upon that exercise in an essay posted to www. republican.co.nz “Corruption by design” but like most of my commentary it is only a work in progress. I hope to add to it later with analysis of the foreign trust phenomenon, and how very wealthy immigrants with dodgy pasts cannot be quarantined from the workings of the political process in this country. (Kim Dotcom is by no means unique in that respect). So if anyone has any further ideas on the subject of what makes corruption work so well in the New Zealand government space, please either post here (with thanks to kiwipolitico team) or email me geoff.fischer@veri.co.nz

  12. Pablo on April 23rd, 2016 at 11:00

    Geoff:

    That looks like an interesting project. You may want to get a hold of Bryce Edwards (the Otago Uni lecturer who does summaries of political commentary for the Herald and NBR) because he is on the Transparency International NZ board and may have access to sources of raw data on matters of transparency and corruption. I am not sure how comprehensive the data is–for example, does it extend to business practices or is it just focused on the public sector and political sphere–but it might be a good start.

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