Editorial: Pandora Papers should shame NZ to act on foreign trusts

When tax havens are mentioned, territories such as the Cayman Islands spring to mind but the reality is just as likely closer to home. Photo / 123rf

Editorial

EDITORIAL

New Zealanders likes to think we pay our share, and pull our weight. The Pandora Papers this week showed the country is a cog in a global machine that helps many do the opposite.

The Herald, along with 150 other media outlets around the world, has spent months analysing millions of documents leaked from offshore finance providers. The project has pulled back the veil on a netherworld that exists largely to both obfuscate and avoid tax.

New Zealand is a small player in this global game, but our role is far from insignificant and is harming the rest of the world and our own reputation.

Due to quirks in our laws, elaborately engineered foreign trusts can become tax-free vehicles for the globally mobile. This has been a boon for a handful of trust providers, but growing this cottage industry has not been costless.

There is a broader issue of fairness at stake, that between most New Zealanders who diligently pay their taxes while some of their well-off fellow citizens arrange their affairs to pay very little, and also between this country and the rest of the world.

Through New Zealand trusts, billions of dollars have escaped taxation which could have provided hospitals in Moldova, schools in Sri Lanka, or roads in Russia.

New Zealand may not have been formally labelled a tax haven, but this has not stopped our foreign trust industry marketing us as one. It has been jarring to see us appear among the three favourite locations to set up these structures, alongside the Caymans and the British Virgin Islands.

Reforms undertaken in 2016 - the last time this issue reared its head, with the Panama Papers - increasing oversight and requiring operators to properly verify who they were working for, were a good first step.

But they were not the end of the road, and developments this week have shown that good intentions not followed through are simply not good enough.

At that time, the government of the day stalled on the tax issue by saying the matter was best dealt with multilateral action, and New Zealand was already participating in an OCED project to address the issue.

Well, the OECD reached consensus some years ago that foreign trusts should not be able to be exempt from taxation. New Zealand agreed with this, even passing legislation paving the way for action, but now - three terms of government later - the matter remains stalled.

What officials call a "lack of resources" in explaining the lack of progress is more a lack of political will. Closing this loophole should have been enacted years ago, and the national embarrassment of the Pandora Papers could have been largely avoided.

This measure will not financially benefit New Zealand, as the clients and finance involved are all from overseas. It will also likely not immediately help the countries from where the money has flown.

Clients of the New Zealand foreign trust industry will flee to safer havens in the likes of Wyoming, Delaware, or Samoa.

Let them. This issue, much like climate change, requires thinking globally and acting locally.

New Zealand needs its self-perception as a fair country to match the financial reality, and only by first scrubbing our own house can we then in good conscience argue for a cleaner world.