‘Just because Nicky Hager says New Zealand [is a tax haven], doesn’t mean that it is the case,’ growled New Zealand Prime Minister John Key, after revelations emerged from the Panama Papers – the unprecedented leak of more than 11 million documents from law firm Mossack Fonseca – that New Zealand’s foreign trust system helps the global rich sidestep their local tax obligations.
‘Nicky Hager is a left-wing conspiracy theorist,’ warned Key, echoing his advice in 2014 that New Zealanders ‘discount massively everything you hear from Nicky Hager’.
Hager, New Zealand’s leading investigative journalist, is a kind of softly spoken Seymour Hersh with a habit for uncovering government secrets. In 1996, almost two decades before the Snowden leaks, Hager published Secret Power, an astonishing account of New Zealand’s part in intercepting and processing international communications. In 2006, after one of the most brutal election campaigns in living memory, Hager published the Hollow Men, a book revealing the inner-workings of the centre-right National Party, including the role of the shady political consultancy Crosby Textor.
This is reason enough for a prime minister to dislike Hager, but for Key – it’s personal. In 2014, just weeks before the weirdest general election in New Zealand history, Hager dropped Dirty Politics, a disturbing account of how Key’s government uses attack politics to shape political discourse. The book, based on emails from a blogger close to several National ministers and MPs, landed with a dull thud. One minister was forced to resign after evidence appeared to show she leaked the name of a public servant for the purposes of a vicious smear campaign.
Key took his time responding, but as soon as he figured out his line he went hard. ‘This is a cynically timed attack book from a well-known left-wing conspiracy theorist.’ The book, according to Key, ‘makes all sorts of unfounded allegations and voters will see it for what it is’. Fast-forward two years and Key is running the same lines. Not because it’s true – Hager’s work is published in public and scrupulously documented, hardly the work of a shadowy conspiracist – but because it works. Reducing questions of corruption to mere conspiracy gives the public permission to stop paying attention.
Nothing to see here, mate. Except there is: there are 61,000 references to New Zealand in the Panama Papers and Niue and the Cook Islands – self-governing states that are part of the ‘Realm of New Zealand’ – are tax havens of choice for Mossack Fonseca’s clientele. New Zealand’s offshore trust and company rules are marketed, especially to South American clients in search of a stable financial and political system, as world-leading. ‘New Zealand absolutely, conclusively is a tax haven,’ Hager told media after working through the documents with Television New Zealand and Radio New Zealand, the state broadcasters.
But that conclusion is difficult to support without a tremendous discursive effort, and it seems a little conspiratorial, hence Key’s lines: New Zealand is a tax haven not because a law firm says it is, but because the country sells the promise of secrecy. Under the country’s trust system an overseas settlor can establish a New Zealand-based trust without disclosing his or her country of origin and without naming the beneficiaries. As a bonus, the trust itself is tax free as long as you’re generating no income in New Zealand and paying no local beneficiaries.
This is the loophole. Some jurisdictions tax trusts according to where the trustee lives, rather than where the income was generated or paid, meaning if the trustee of your New Zealand-based trust lives in, say, Auckland, you could avoid paying tax in New Zealand and your home country. It’s a neat little legal device for the global rich to hide their assets from local tax authorities because, in practice, it’s nearly impossible for their home government to inspect the trust. If there are no disclosure requirements where do you start looking?
And all it costs is a modest $4000 lawyer’s fee and an annual $3000 administration charge. Small change for a trust that you could move millions through while avoiding tax (theoretically) in two countries. Yet New Zealanders still think of tax havens as places elsewhere, on tropical islands like the Bahamas or old colonial outposts like Macau, perhaps because it’s difficult to imagine an agricultural economy with a stubborn sense of fair play facilitating rich rip offs from overseas.
But then, the term tax haven is misleading because a tax haven is not just a secretive system in an actual, physical location – it’s a network of rules which, when applied together, become a network of loopholes. Picture a German painting in Malcolm Turnbull’s home. It’s right here, in Australia, but the legal entity that owns it, usually a company, could be based in New Zealand while the trust that owns the company could be based in Jersey and the trustees are registered to an address in Panama. Ownership, and the all-important tax liabilities and benefits, are fragmented in several different pieces spread across the globe.
The geography of tax avoidance and evasion – far-flung yet interwoven – means reform is, in isolation, ineffective. The structures merely move. Gabriel Zucman, an academic from the London School of Economics and the author of The Hidden Wealth Of Nations: The Scourge Of Tax Havens, estimates that $7.6 trillion (8 percent of individual financial wealth) is held in tax havens. That means approximately $190 billion is lost in tax revenue. What an invitation to utopian thought! (Can you imagine what we could accomplish with $190 billion?)
Tax havens, and the wealth they shelter, help uphold our neoliberalism systems, allowing the one – or maybe even ten – per cent to protect their wealth from public hands and collective purposes. But what can we do? The defence from individuals is ‘I did nothing wrong’ – and, legally, that’s probably right – while governments insist ‘we’re doing all we can’ (and, in most cases, they are). The left’s response must be international as opposed to local.
The ‘vile maxim’ to which the ‘masters of mankind’ adhere, wrote Adam Smith in the Wealth of Nations, is ‘all for ourselves and nothing for other people.’ The doctrine is better known as class warfare, waged not in the streets or even parliaments, but in banks and in trusts and in companies. Tax havens are not so much a defect in the system, but the system working precisely as intended.