Pat Pilcher: Labour considered banning Internet for tax avoiding multinationals

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Photo / Thinkstock
Photo / Thinkstock

Back in the 70's Cambodia descended into chaos. This was thanks to the Pol Pot regime, whose crackpot ideologies saw some brutal policies put into practice. The upshot is now well known, many died and Cambodia is recovering.

Sometimes political madness starts from a single crazy idea with little thought given to issues such as feasibility or what the impacts are likely to be.

I raise this because of a bizarre policy idea floated by Labour (who've also since stomped the policy out of existence). The proposed policy would have involved a Labour government preventing tax avoiding multinationals from accessing the Internet in New Zealand.

Even though the thought of multinationals setting up shop locally and not paying their fair share strikes me being somewhat repugnant, the proposed policies really gave me pause for thought, leaving me wondering if Labour had really thought through just how it'd work or if they'd finally lost the plot completely.

There's no shortage of companies that are not paying their way - the most widely cited example is Facebook whose New Zealand operations are said to have reported revenues of just over $790,000 in 2012, and only paid a mere $28,000 in tax.

With corporates who seemingly have the morals of a dog on a croquet lawn, it isn't hard to see how such a policy could be attractive to Labour - it's a potent threat to have in your back pocket as a government negotiating outstanding tax payments with lawyered up corporates.

There is however a multitude of reasons why it wouldn't work, and these are probably why Labour shut the idea down.

Take Facebook as an example. Banning them from the Internet in New Zealand would most probably see them pulling the plug on their NZ presence, moving to friendlier shores. Most of what they need to do in NZ can be easily handled out of Australia, doing so would also probably have the side benefit of reducing operating costs.

Facebook would also continue to operate Facebook.com anyhow, as it is hosted offshore. Because of this, a Labour government would have to block access to Facebook from within New Zealand. Odds are that any such move would be a double-edged sword for Labour in that most voters would take a particularly dim view of any attempt to block sites such as Facebook.

Even if Labour did decide to disregard voter sentiment and blocked access to Facebook in New Zealand, they'd soon find out that they were onto a hiding to nowhere as both the UK and Dutch governments are now realising thanks to their own ineffectual Internet censorship policies.

If the whole concept strikes you as being just plain wrong, you're not alone. Internet New Zealand have also strongly objected, saying that "InternetNZ does not support filtering of the Internet in any kind".

Most multinationals headquartered offshore tend to be little more than branches of a Sydney, Melbourne or Singapore regional head office. Most could probably operate fine with no New Zealand presence at all.

It isn't however just greedy multinationals that could find themselves running afoul of this policy. Local companies who are in startup mode, growing and paying minimal taxes could also find their Internet presence and access blocked. For tech centric start-ups who are reliant on the net this could prove to be very dire indeed.

Then there's the prickly issue of impacts to New Zealand's economy. New Zealand needs multinationals if Kiwis are to be employed in skilled jobs and enjoy a reasonable standard of living.

Should multinationals begin to leave, the number of skilled jobs is guaranteed to shrink pretty darned quickly. The really crazy thing is that under this scenario, that not much more corporate tax would be paid anyhow.

Worse still, the governments of the nations where these multinationals are headquartered are also likely to be lobbied and could in turn react unfavourably, and this would jeopardise trade.

So there you go. Had Labour actually decided to implement this madness and been elected, we could've ended up with unworkable Internet censorship, disgruntled voters, corporate flight, unemployment and deteriorating trade. Thankfully Cunliffe was smart enough to see that aside from the policy being somewhat loopy, the negatives vastly outweighed the positives. Thank goodness for that.

Debate on this article is now closed.

- NZ Herald

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