Urgent Debates — Government Inquiry into Foreign Trust Disclosure Rules—Release of Report

I have received a letter—[Interruption] Order! I have received a letter from Andrew Little seeking to debate, under Standing Order 389, the release of the report on the Government Inquiry into Foreign Trust Disclosure Rules. The release of the report is a particular case of recent occurrence for which there is ministerial responsibility. The subject of the report is a significant one, and the Government has stated it will implement most of its recommendations. It is not clear, however, from the Government’s response which recommendations it will implement and whether it will involve changes to legislation. Therefore, this may be the only occasion for the House to debate this issue. The matter has attracted significant media and public attention in the past few months, raising potential risks to preserving New Zealand’s reputation. Having carefully considered this application, I believe it does require the urgent attention of the House. I therefore call on Andrew Little to move that the House take note of an urgent matter of public importance.

I move, That the House take note of a matter of urgent public importance. John Key and the National Government have had to be dragged kicking and screaming to do anything about the dodgy foreign trusts regime that they have set up, and to ensure that, at last, New Zealand gets to preserve—or at least try to restore—its international reputation on tax matters. This is not a question or matter of recent occurrence; it has been going for some time. The Government was told in 2013 that there were problems that the Inland Revenue Department and Treasury saw with our foreign trusts regime. They did not like what they saw. It is interesting to note that by 2013 we had 7,700 of these foreign trusts operating in New Zealand. They had more than doubled since 2008—more than doubled since this Government took office. That was between 2008 and 2013. I have to say that since 2013 they have nearly doubled again. They are nearly up to 12,000—they have nearly doubled again.

This Government has had repeated advice from the Inland Revenue Department and from Treasury saying that our foreign trusts regime is not good and it is not adequate. The disclosure rules are hopeless, they do not know what is going on, and they cannot assure the Government that the regime that is in place is not harbouring ill-gotten gains and dodgy people—which might be the company that the National Party keeps from time to time. But that is not the point. When you are in Government your foremost duty is to preserve the interests of New Zealand. That is what New Zealand Government Ministers are meant to do: to put the New Zealand people and their Government and their sovereign interests first. That is what was demanded of them, but, starting in 2013, they got these reports and they did not want to act on them.

Finally, the Inland Revenue Department decided it would make it part of its work programme and it told the Minister: “We are making this part of the work programme.” The Minister obviously let it go because the Minister then received a couple of updates saying that it was on the work programme and that work was under way reviewing and having a look at our foreign trusts regime because of the concern that good, honest, hard-working public servants at the Inland Revenue Department, and Treasury for that matter, had about the regime—because they did not like it.

Then what happened? Mysteriously, the Inland Revenue Department review was stopped in its tracks. Oh! It stopped in its tracks. No notice; just a report from a deputy commissioner saying—for whatever reason—“We no longer are devoting resources to this review.” Something had happened. And we now know what happened, thanks to the Panama Papers. Oh, the Panama Papers. They have shone a light on our tax system and its administration. They have shone a light on what Ministers in the National Government knew but did not want anybody else to know. Those papers have shone a light and have shown that New Zealand has been operating a dodgy foreign trust regime.

How did the Inland Revenue Department review come to a grinding halt? We now know that the chap described as the Prime Minister’s “close personal adviser”—because he does not have a practising certificate any more, although he was qualified in the law—and sometime investment manager of some of the Prime Minister’s personal funds wrote a letter representing a thing called the “foreign trust industry”. Who knew we had that? It has not appeared in any New Zealand Trade and Enterprise report about economic development or any Ministry of Business, Innovation and Employment report about the way to a bounteous growth in the future. Anyway, we do have this thing called the foreign trust industry and it wrote to the Minister of Revenue and the Minister of Finance and said “You shouldn’t really touch this.”, or words to that effect—that is not a direct quote. They stopped it. The then Minister of Revenue, within days of having received this letter, stopped the review. It was that quick. Has there ever been a lobbying effort that has had an effect that efficiently?

💬 Grant Robertson: Ordinary people in the Koru lounge.

Ordinary people in the Koru lounge were talking to the Prime Minister about it too—ordinary Kiwis, middle New Zealand—because of course they want a foreign trust regime where there is no disclosure and people can hide their ill-gotten gains and they can rip off the countries that they come from! Of course we all want that. It is just rubbish—it is just rubbish—and Chris Bishop, the sometime representative of the tobacco industry who sits in his corner up there looking like he has been quaffing on nicotine for centuries, is not disturbed about it. He does not care about it. He is waiting to launch the assault on plain packaging—that is what he is here for, to make sure that plain packaging does not proceed.

In the meantime, the rest of New Zealand is concerned about the reputation that our country is gaining abroad for being the host for dodgy tax regimes. It is not who we are. It is not who we are as a country. We are better people than that. New Zealanders to a person are hard-working, honest, and expect the same of others. But not this Government—not the wide boys in the National Government. Not those people who rub shoulders with the rich and the powerful from overseas and grant any favour going. That is because it is the grace-and-favour Government. It does not care about that.

It was John Key’s dream to have a financial services industry with zero rating, tax instruments, and all that sort of stuff. That was his dream. He said that it was going to add billions to the New Zealand economy. What has the foreign trust regime added to the New Zealand economy? It has added $27 million and that $27 million is the billings of the lawyers and the accountants who set these things up. They are the ones with the websites that sell this stuff and say that New Zealand is a tax haven—but the Prime Minister does not accept it is a tax haven. Even the independent reviewer struggled to shuck off the label “tax haven”. He said: “Oh! According the OECD definition we are not a tax haven.” But then he very quickly had to say “But anyway, it is an outdated term and let’s not look at it too closely.”—because, actually, the fear is that we might actually be one. We might be one. When everybody else describes us as one, then we probably are one. It is the old duck test: if it waddles, quacks, and it has feathers, then it probably is one of those that waddles, quacks, and has feathers—that is the duck test.

This Government has been embarrassed and caught short by the Panama Papers, by whichever public-spirited person hacked into Mossack-Fonseca’s computer system and found this treasure trove of information that showed the world just who we are. It showed the world just who we are. The information revealed showed just how this Government operates, and just how much it cares, or actually does not care, about those things that actually are important to our identity as a nation and our reputation abroad. We knew about this and about our Government’s failure only because of international reportage, particularly through the Australian Financial Review.

There is one respect of the John Shewan report that I do not agree with—when he tried to analyse whether or not our reputation had been damaged. He had done a Google search or gone on to international media and said that there was not much coverage of it. But that is not the reputation we are talking about. The rest of the world—6 billion other people, or however many it is—do not spend their time talking about the tax regimes of the world. I am not sure that many people in the Brexit vote last week were thinking about tax regimes of the world. But there is a cohort of people in different parts of the world—accountants, lawyers, and those dealing with the huge wealth of very rich people—who do think about tax systems and they do look at what happens in other parts of the world. It is our reputation amongst them that counts, and amongst international bankers, and amongst international organisations—Public Service organisations, whose job is to keep track of what is happening with tax regimes and the flow of finance and money around the world. That is where the reputation counts. That is where our reputation has to be above board. That is where it counts most.

With all due respect to Mr Shewan, he got that wrong. Our reputation has suffered. We have been the subject of headlines around the world and of international reportage in newspapers, and we are the subject of comments and websites around the world, including websites hosted here, which describe us as a tax haven. So let us not be cute about it. Our reputation has suffered. But, to his credit, John Shewan has had a look, using his formidable, technical, tax brain, and said that the disclosure requirements are inadequate. But, of course, that is directly contrary to what the Prime Minister spent weeks telling New Zealanders. He said: “There’s nothing to see here; nothing to worry about. We have full disclosure; we have full disclosure.” But John Shewan did not say that. He said the opposite: “The disclosure requirements are inadequate.” He has now recommended a set of significant disclosure requirements that should be met. The Government has said it is not quite sure which recommendations it is going to take up.

It is a pity that Mr Shewan did not go further and say that not only should the Inland Revenue Department be collecting the significant additional data, but it should be publicly available. As so many business records in New Zealand, for those who do business in New Zealand and are domiciled in New Zealand, already face, there should be public access to the details and the information applying to foreign trusts. It is not unreasonable. Why would we grant ever more privilege to the rich and the powerful of the world, because they are going to set up a trust here, usually to use it to avoid tax obligations in their home country. Why would we? Why would we keep it secret to our agencies here, when there will be good, innocent tax authorities in other parts of the world that will want to know what information our Inland Revenue Department holds about foreign trust settlors and those who are connected with them? Why should they not know? Why should they have to know the precise information before they can ask for it and get it from our Inland Revenue Department?

That is not right. It is not Kiwi rules, and it is not Kiwi standards. It might be Bill English’s standards, it might be John Key’s standards, but I think New Zealanders have already arrived at the conclusion that those are not standards that we ought to live by; that, actually, we represent something better. We represent something more wholesome. It is about openness and transparency and honesty, and doing business the right way, and doing good business the right way. That is what New Zealanders demand. That is what this Government, in spite of its repeated opportunities to do so, has singularly failed to uphold—good, honest business principles. Instead, it has shacked up with the world’s rich and powerful. It is looking after those at the top, because it has long given up on middle New Zealand, and everybody else.

The Government just does not care. Perhaps it never did. But it does not care now. The Government has been caught short, and we have been caught embarrassed, and it is not right. Good on John Shewan for coming up with the recommendations that he did. But, actually, if this Government wants to meet New Zealand’s expectations and do the right thing for all New Zealanders, do the Kiwi thing, then it will go beyond John Shewan’s recommendations and will follow the advice of various other independent experts who have said that there is more that is needed.

Why does the Government not follow the advice of Deborah Russell, a well-known tax expert at Massey University, and go beyond the recommendations of John Shewan? Why does the Government not do that? That will be the test for this Government. Is it a good, wholesome, honest Government that believes in good, wholesome, honest business? Or is it just rubbing shoulders with those whom it prefers to favour—the privileged and the powerful and the elite—at the expense of everybody else? So far, that is the track record the Government has set for itself. It is not good enough.

We can do better, but when it comes to ministerial decisions, that responsibility is reposed in that side of the House, in those people, and in people like Bill English, and the floundering Minister of Revenue, whom we only expect a straight answer from. They are the people in whom we repose the responsibility of maintaining New Zealand’s reputation. So far, they have failed. They have a chance to get it right and to serve New Zealand better and to serve New Zealand well. Let us see whether they take it; let us see whether they take it. New Zealand expects nothing less.

I raise a point of order, Mr Speaker. I am sorry to interrupt the Minister. During the contribution by Andrew Little, David Bennett interjected an unparliamentary comment. I could tell from your body language that you did not hear it, but I certainly did. I ask you now to call on him to withdraw and apologise.

Unfortunately for the member raising the point of order, it is a requirement for points of order of that type to be taken immediately; therefore, I am not going to require Mr Bennett to withdraw and apologise. He may want to anyway.

There is one comment from the Leader of the Opposition that I will strongly agree with, which was when he said something to the effect of: “When one is in Government, the foremost duty is to preserve the reputation of the country.” But I find it really rich coming from that member, whose Greens-Labour coalition has been at the forefront of the biggest attack on this country’s reputation, and that is the continued and relentless description of New Zealand as a tax haven. It is scurrilous, it is wrong, and it is also consistent with a pattern, I think, of derogatory comments coming from the Leader of the Opposition, particularly in respect of the author of the Government inquiry into foreign trust disclosure rules.

The Leader of the Opposition accused Mr Shewan of helping tax havens, and took weeks to withdraw those comments—2 hours before a rugby test. The one thing I will disagree with the Prime Minister on—in his comments during question time—is that Mr Little still has not apologised. He could not bring himself to say those two simple words “I’m sorry.” and “I made an accusation about Mr Shewan—a scurrilous accusation. That was wrong. It was probably libellous.” He withdrew it, but he could not bring himself to say sorry, and that is consistent with a pattern of attack on this country’s reputation and on that author’s reputation that is wrong, wrong, wrong.

Let me tell the House what the report said about New Zealand as a tax haven. It is quite simply this: we are not—by any measure—a tax haven. When one considers the attributes that contribute to that reputation, New Zealand has none of them—none whatsoever. Mr Shewan then goes on to say that the issue of tax havens is somewhat passé these days; the more common nomenclature is around things on tax systems that are preferential or harmful. He then says New Zealand’s tax system cannot be categorised that way. In no other aspect of the tax system could it be considered to be preferential or harmful. What is harmful is the relentless attack on this country’s reputation.

But let me just touch on another issue that was raised by Mr Little, both in question time and in his interview on breakfast television this morning. That was the question of the degree to which record-keeping requirements are robust. Mr Shewan concludes this: “The record keeping requirements for foreign trusts are … quite extensive,”—quite extensive—“and include constitutional documents …, particulars of settlements or distributions, and the name and address … of settlors and recipients of distributions.” He goes on to say: “IRD advised the Inquiry that … requests [for that information] are typically met without difficulty, and that the standard of records provided is consistent with the standard for business taxpayers.”

So I am trying to reconcile this comment—these accusations: (a) we are a tax haven, and (b) the record-keeping requirements are poor. But as has been said, the question is not what record-keeping requirements there are—and all of them not only have to be kept but have to be kept in English, regardless of where the settlor and the beneficiaries are from—

💬 Grant Robertson: I can’t find it.

I can refer the member to paragraphs 6.6 and 6.7 on page 22, for his benefit, under the term “Record keeping requirements”. They are extensive, he said. In fact, he said they are quite extensive.

💬 Hon Annette King: Can you read the whole lot. Keep reading.

Why would this member want to be held to a different account? If that member will cherry-pick, so will this.

💬 Hon Annette King: Very selective.

Very. Yes, we have been, have we not, Mrs King? Because there was a lot said about this that says they were extensive—of their own volition. While there were 142 comprehensive disclosures of information to foreign jurisdictions, 80 percent of them were provided on the initiative of the Inland Revenue Department (IRD) and I think 42 or 43 were provided at the request of the foreign jurisdiction. The system provided for a comprehensive sharing of information, proactively or on request.

Why would the system be so proactive? Why would 80 percent of them be proactive? Well, primarily because the IRD’s main interest in preserving the tax base is to ensure that New Zealand tax residents are not hiding behind foreign trusts as a way of avoiding paying New Zealand tax. This goes to another point that Mr Little made on television this morning. He believes—he honestly believes—that the whole taxing of foreign trusts should be reviewed. Never mind that a very, very thoughtful policy position was put in place by the fourth Labour Government in 1988 because of the propensity of New Zealand tax residents to shelter their income behind trusts where the trustee was offshore, because the tax point until that point was the trustee. I can tell this House without fear of contradiction that a return to that framework would have a massive negative effect on the New Zealand tax base. If he believes that our first priority is to preserve our reputation, one very high priority has to be to preserve the New Zealand tax base. The change back to the old days would do quite the opposite; it would have a very, very detrimental effect on that.

The other matter that the Leader of the Opposition has raised is the question of the public register of foreign trusts. Mr Shewan is unambiguous about that—at paragraph 10.14, for Mr Robertson’s benefit—“The Inquiry is [specifically] not recommending that the information obtained by IRD would be automatically exchanged with foreign tax authorities.” This is for the simple reason that those authorities may use them for other purposes. That is a bit of code for the very legitimate reason that one might actually use a foreign trust for the protection of their family and their asset base—

💬 Hon Annette King: How many of those are there? Give us a number.

Well, that is a very good question. I wonder whether that member has a domestic trust. I am sure I could search the Register of Pecuniary and Other Specified Interests of Members of Parliament, because as a publicly elected official she is held to a different standard—that is fair enough; we all are. But I wonder whether that member’s family has a family trust? Why? The protection of an asset, probably, and the risk of litigation that could result—

💬 Grant Robertson: They pay tax on it.

Well, probably on the income and on the distributions, of course.

💬 Grant Robertson: That’s right. They probably do pay tax on it.

Well, what I’m saying is that Mr Shewan has made a very thoughtful recommendation not to have the register public, and I agree with that recommendation. Any suggestion that the salacious searching of the public register would be necessary or appropriate is just inappropriate.

One of the things, of course, in the many incorrect claims that the Opposition has led on this is that—

💬 Hon Annette King: I’m glad we’ve led on it. We’ve exposed you for what you are.

Really? What is that?

💬 Hon Annette King: Supporting the rich and privileged who hide their tax.

OK, so we are supporting the rich and the privileged.

💬 Hon Annette King: Who hide their tax.

OK—only here is the thing, right? There have been, what—how many million papers in the Panama Papers? Do you know what? My IRD officials, for all the breathless descriptions of this, have not been able to access the Panama Papers. The International Consortium of Investigative Journalists (ICIJ) has had these papers for a year. It has a register of names, a register of references to New Zealand, but nobody outside the ICIJ has seen the Panama Papers. But that member determines that means that we are helping our rich mates. I would love to know who these rich mates are. I would love to know how we are all flying around in Learjets and somehow in cahoots with these rich mates.

You know what? Our No. 1 priority is to protect the New Zealand tax base. These are offshore individuals using legitimate vehicles for whatever purposes. Mr Shewan has said, and I agree, that with 11,000 of these trusts it is probably likely that not all of them are absolutely squeaky clean in all of their affairs in relation to tax in their foreign jurisdictions. They have no obligation to the New Zealand tax base, because they do not have assets here, they do not have income here, and the money is not coming through New Zealand’s banking system—and I know that the Minister of Justice will touch on this in respect of the anti – money-laundering recommendations that are highlighted in the report. But it is simply not true to say—and that party has made very strong inferences that this is the case—that there is somehow money washing through the New Zealand banking system from foreign trusts on which tax should be paid in New Zealand but is not. That is just not true.

There are a number of other things, of course, that we have heard about in respect of matters that the Government has already responded to. Minister Adams will talk about anti – money-laundering. I want to talk about look-through companies. There is one area where there was international media around it, and that was with an Australian Business Review report that was critical of the frameworks that were revealed in the Panama Papers but focusing not on foreign trusts but on look-through companies. The Government has already got a solution to that. It put a bill into the House that will mean that a look-through company that has the greater of either $10,000 or 20 percent of its turnover earned from foreign sources loses its right to have that tax set off against other individuals. That will, effectively, mean that the look-through companies have to pay company tax here in New Zealand regardless of where that income is earned. That is going to be a significant barrier to anybody who is using these vehicles to shelter or avoid income tax.

This is a good report. This is a report that says—

💬 Grant Robertson: But there’s no problem—so why is it a good report?

💬 Hon Annette King: You said there was no problem.

I never said that.

💬 Grant Robertson: Yes, you did. You’ve spent 8½ minutes saying it.

💬 Hon Nathan Guy: They weren’t listening.

No, they were not. Why would anything be different? This is a solid report that highlights an area of potential reputational risk—and it is going to be removed. And it is going to be removed, I have to say, at a significant impost on the resources deployed by IRD, Treasury, and other agencies on a massive business transformation project that will be going on for the next 4 years. That was the issue that Minister McClay, as my predecessor, had to consider when he asked officials what would have to give in order for the foreign trust review to take place. They were reluctant to say anything about that. So the question answered itself. I maintain that the priority has to be the preservation of the New Zealand tax base. Obviously, there is a reputational issue here as well. Although the record-keeping requirements were robust and there were plenty of examples of the sharing of information, it is appropriate to beef that up and to put information into the custody of the IRD.

So I want to thank Mr Shewan, despite the scurrilous attacks on him by the Opposition parties. He has done a very good job. That is one individual whose reputation is certainly enhanced by this report. The Government, obviously, has to take advice on it, but there is no recommendation that I can say we will not be following. There are a couple of areas around anti – money-laundering in that, and although we have already announced, effectively, the remedy that Mr Shewan recommends, the method, obviously, and therefore, as a consequence, the timing do need to be reconsidered. And there is an issue around whether or not the fee that would be charged for registration is consistent with other fees charged by the Government for similar registrations. But those are the only two things that spring to mind as possible nuances against the recommendations. Overwhelmingly, I expect to be able to take recommendations to Cabinet that will support this, and I want to do that in as timely a manner as I can. I thank Mr Shewan for this work.

The Government has been caught out. This National Government has been caught out helping an industry that exists only to help the global wealthy elite hide their assets so that they can avoid paying taxes and potentially engage in even more nefarious activities. I have to congratulate the Minister of Revenue and the Prime Minister on accepting the very reasonable recommendations of the Shewan report, because when those recommendations were made by Opposition parties like the Green Party the Government described them as “barking mad”. It is amazing that when something comes as a proposal from the Opposition the National Government refers to it as barking mad, but when it is in a report that it has commissioned from a tax expert it is willing to accept it. So that is great. But I have to say that the Minister is being a little bit misleading when he says that the Opposition parties are the ones making scurrilous attacks, when in fact it has been the National Government that has been accusing everyone else of making attacks on it—when in fact the truth is it was wrong and it has been caught out.

Let us start at the beginning. At the beginning, when the Panama Papers were released and a number of tax experts were saying that, in fact, New Zealand has a number of loopholes and our foreign trust regime could be used for tax dodging purposes if the settlors were not resident in New Zealand and Australia, what did the Prime Minister say? The Prime Minister said there was nothing to worry about, that “New Zealand has full disclosure of information.” In fact, the Shewan report says disclosure is “inadequate”, “not fit for purpose”, “light-handed”, and therefore likely to be abused. That is from this report—it is right here in paragraph 1.2 of the conclusions, in the executive summary: “The Inquiry concludes that the existing foreign trust disclosure rules are inadequate.” How, Minister, can they be inadequate and yet full disclosure at the same time? How can they be inadequate and not fit for purpose, and yet be “broad and deep” at the same time? Well, the truth is, they cannot be all of those things, and I suppose it is very indicative of this National Government that it cannot own up to its mistakes—that it would prefer to mislead the New Zealand public rather than be honest about the fact that there were—

The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! One has to be very careful when one uses the word “misleading”. When one says that someone “prefers” to do it, that means that they are doing it deliberately, and that, of course, would be a breach of privilege. The member cannot imply that in the House in that way.

Key then said that the requirements on form IR 607 were broad and deep. The Shewan report says that the IR 607 registration requirements are absolutely “minimal”, “extremely limited”, and tell nobody anything. Minister Woodhouse said our foreign trust laws are “world class”, but the Shewan report says “the risk of use of foreign trusts for inappropriate purposes is high.” Minister Woodhouse says the Inland Revenue Department (IRD) can get the information at any time from the trustee; the Shewan report says: “Foreign tax authorities will typically not know how to ask for information about a New Zealand foreign trust … because they have no way of knowing if it exists.”

So I congratulate the Government on accepting the findings of the Shewan report, which are very, very close to what Opposition parties—like the Green Party—have been saying for the last few months. Our goal is not to damage New Zealand’s reputation, it is to identify a serious deficiency within our law and provide some constructive solutions, because we know that New Zealanders do not think it is right or fair that New Zealand’s foreign trust laws should be used by wealthy people from overseas to avoid paying taxes in their home countries. I would be the first to say that I do not think this National Government is entirely responsible for those loopholes—because they have existed for a very long time—but it was under the National Government’s watch that the loopholes really started to be exploited and the number of New Zealand foreign trusts registered in New Zealand went through the roof.

Then there is the whole issue of whether or not it knew it was a problem at the time. If we go back in the time line, we have a report from August 2013 where the IRD warned the Government about the high risks of New Zealand foreign trusts. The report says: “our foreign trust rules continue to attract criticism, including claims that New Zealand is now a tax haven in respect of trusts. … the mismatch between our rules and those of other countries may result in income not being taxed either in New Zealand or offshore. To protect our international reputation, it may be necessary to strengthen our regulatory framework for disclosure and record-keeping.” That was in August 2013.

In December 2014 an unnamed person from the Antipodes Trust Group wrote to Minister McClay on behalf of the foreign trust industry concerned about the IRD’s change of view of their industry. He claimed that he had spoken to the Prime Minister, and the Prime Minister said he had no plans to change the status quo—pretty typical of this Prime Minister. That person also claimed the Prime Minister encouraged a meeting with a small group of foreign trusts and the Minister at the time, who was Todd McClay. The attached industry briefing paper claimed that 300 people work in the industry and this was a big risk for jobs here in New Zealand, so what they would like was for the Government not to make any changes around disclosure of foreign trusts so they can continue to make money from those wealthy individuals from offshore who want to hide their assets in a New Zealand foreign trust. The very next day Minister McClay expressed his concern to IRD officials that their report might include removal of the foreign trust regime—so it is pretty clear where the direction to not pursue reform of the rules came from, and it was not coming from IRD. It came from this Government because it was lobbied by the foreign trust industry. I think that is something else that New Zealanders should be very concerned about. This National Government is open for business, and it is quite open to being persuaded by members of that wealthy elite class of New Zealanders, but it is not open to the interests and values of your average New Zealander, who would say: “Actually, we don’t want New Zealand being used as a tax haven.”

About 9 days later—12 December 2014—we have an IRD report on foreign trust rules. The IRD found that our approach to taxing trusts differed from the international norm and had attracted criticism internationally. Our regulation is not good enough and it is difficult to enforce compliance with the rules. Being perceived as a tax haven is damaging our international reputation. IRD questioned the adequacy of our disclosure and record-keeping requirements, and suggested that, perhaps, they did not have the ability to ensure compliance. Just a few days later Minister Todd McClay met with representatives of the foreign trust industry in Auckland. On the agenda: that the industry feared moves to have greater disclosure of foreign trusts would close the industry down, and they sought commitment from the Government as soon as possible that it would not conduct a public review of foreign trust tax laws. And that is exactly what happened.

It took the Panama Papers, and it took that enormous public exposure and scrutiny for this Government to undertake the review that should have been done several years ago. It took that exposure and the continued scrutiny from Opposition parties demonstrating that the Government was not being completely transparent about how our foreign trust rules work in their answers to questions—that is what it took for this Government to undertake a review and to propose the sorts of recommendations that the Green Party proposed in our bill and in my Supplementary Order Paper to one of the tax bills. All that we recommended was that there was a register, and that it was required for the settlors to disclose their foreign address, country of tax residence, information about non-resident trustees, and information about who the beneficiaries were. That is exactly the strengthened disclosure that has been recommended by the Shewan report.

I think the issue here that should really concern New Zealanders is the fact that the National Government is willing to turn a blind eye to activities that most New Zealanders would consider unfair and wrong. It is willing to do that when the right people with the right money and the right connections lobby it, and it is only when there is persistent scrutiny from international and domestic media, and the Opposition parties, that this Government will actually listen to reason and start to do the right thing.

When this inquiry was first set up, Transparency International and the UK Tax Justice Network said it would not allay the fears and the claims being made about New Zealand’s position as a tax haven. There are two groups that are experts—not like the so-called expert they chose for this inquiry.

The Prime Minister announced this review at the same time he asserted, again, the integrity of the New Zealand trust laws when it came to taxation. If our system had any integrity, this review would not be required. The fact is our system and its integrity were under grave question from expert international comment, and this emerged from the Panama Papers, which the Prime Minister sought to deny the import of. Mr Key knew about this a long way back.

In 2011, Mr Key knew of the Santa Tereza case, when Geoffrey Taylor linked New Zealand company SP Trading to smuggling 35 tonnes of North Korean weapons into Iran. Mr Key knew when Minister Simon Power alerted him back then to what was going on in New Zealand entities, back as far as 2011. And a principal of Santa Tereza, in a plea bargain in Brazil, where he was picked up purely by mistake, admitted the money-laundering operation that he was involved in.

So the Prime Minister decides to carry on with his bluster. First of all, he was going to have an inquiry by a man in the Inland Revenue Department (IRD). The problem with the man in the IRD: his reputation lasted exactly 24 hours, until it was unearthed that, in the wine-box inquiry, which some members of this House do not want to remember, he was debunked as being an expert. He was seriously exposed as not knowing what his job was. He was a person who seriously believed that form was far more important than substance, and as a consequence, within 24 hours, the Prime Minister was talking about getting an overseas expert—not a New Zealand expert; no, an overseas one. And then that got flicked for a man called Shewan—in fact, John Shewan—who, we are told by the media of this country, and I love that expression, is a tax expert. Really? When the Westpac Banking Corporation ended in a Westpac Banking Corporation IRD dispute, which ended with four Australian banks settling for $2.2 billion in December 2009, guess who he was involved for? The banks.

Second, he gave expert advice in the Penny and Hooper case, and the Court of Appeal and Supreme Court, two of the highest courts in our land, dismissed his evidence as being inappropriate from an expert witness. So it is not me saying it, it is not New Zealand First saying it; it is two of the highest courts in our land now saying it. Third, he was dismissive over the Cook Islands wine-box allegations, preferring form over substance, a misguided view overruled by the Privy Council, the Court of Appeal—that is the Privy Council in London, by the way—and the New Zealand High Court. And, fourth, Mr Shewan had been giving advice to the New Zealand Government for years.

He is no tax expert. And so he came out with a report. Before we get to the report, anyone who was an expert, seeking to do his job by his country—that is, clean up the country’s reputation—would have first asked to see the terms of reference, and demand that they gave him or her the power to get to the truth. Well, apparently, he had a discussion about the terms of reference with Mr Key, and as for the powers to get to the truth, he did not ask for them. He did not ask for them. And out comes his report, telling us less than we already know.

Let me tell you a couple of the principal statements that came out of his report. He said: “In theory”—listen to this—“the current rules should be sufficient to deter tax abuse.”

💬 Ron Mark: In theory.

In theory.

💬 Ron Mark: In theory—ha, ha! Pure theory.

Ha, ha! Well, you know, that is astonishing from a professional. He is not talking about practice, what is actually happening, what is going on behind closed doors, what is not transparent, what is secret. No, he says: “In theory”.

Then he went on to say this, to this extent: “anti-money-laundering rules should ensure funds held [by foreign trusts] are from legitimate sources.” I have seen some naive people in my time, I can tell you—a lot of them from across the aisle over there—but I never thought that someone calling himself an expert could write something like that: “anti-money-laundering rules should ensure funds held [by foreign trusts] are from legitimate sources.”

We are not interested in the theory. This inquiry was meant to be about what was going on, or the practice that was ripping this country’s reputation apart. Mr Shewan did not find any direct evidence of illicit funds, because he never had the powers to find out the truth and he never asked for them—he never asked for them. To say that the Panama Papers’ reputational damage to New Zealand will be offset by any future moves to tighten disclosure rules means, in reality, that the Government gets away with another cover-up.

The Government itself could not have written a weaker report. It did not give the inquiry the powers to get to the truth, and Mr Shewan, who is a “tax expert” did not ask for them. So what we had was merely a completion of the circle: the Government in denial, an inquiry that did not get at the facts, and then someone saying: “I’ve got a few things you should do.” Given Mr Shewan’s background, New Zealand First, unlike the other parties, did not support his appointment. And it is wrong for the Green member Julie Anne Genter to say that we supported his appointment—no, we did not. We knew we would get a soft report that would never get at the truth and would not finger anybody who would be of embarrassment to the Government. This is despite the fact that the trusts were building up in recent years by 500 percent. The number of trusts flocking here in their thousands to be formed was building up by a factor of 500 percent in recent years.

As I said at the time, Mr Key looked like some boy who had been widdling behind the couch, and he is trying to tell mum: “The cat did it.” It is pathetic in the extreme that this came from a First World democracy—from a man who came from Merrill Lynch, who is meant to be an expert in finance. Mind you—

💬 Hon Member: No, he’s a dealer.

It is just because he is a money dealer. And who is Merrill Lynch? Why, they are a corrupt bunch of American Wall Street thieves who went belly up and had to be bailed out, by whom? By the American taxpayer. That is no training school for someone to be able to understand integrity and honesty. That is Merrill Lynch. And, by the way, they are back again, Merrill Lynch—all the same old feet in the same old troughs, screwing the American public, and they wonder why Donald Trump is winning on one side and Bernie Sanders almost won on the other side. The American system, when it comes to these matters, is crook.

What did Mr Key say? This is what he said this morning: “I basically said New Zealand is not a tax haven.” That is what he said this morning. He said “Well, he”—he is talking about John Shewan—“agrees with that perspective. I said there is a full disclosure of information. There is, when it is asked for.”, Mr Key said. What a duplicitous, deceiving mind. So here you have got all these trusts set up. No one knows what their names are, who is connected with them. You have to have a New Zealand name attached to them, but as to who is behind them, no one knows. And Mr Key says that it is adequate that the information will be disclosed when it is asked for. In short—

💬 Tracey Martin: Is he a psychic?

That is right. My colleague Tracey Martin very wisely says you have got to be a psychic, you have got to be a soothsayer, or, more important, you have got to be someone with practical knowledge who knows that some people in this world, befriended by the National Party, are a bunch of crooks, like they were in the Cook Islands, like they were with the wine-box inquiry, and like now.

Can I just say this: this morning I happened to listen on the way to the airport to the most painful interview. It was Mr Woodhouse being interviewed. I have never seen someone make such a sorry, sad—I cannot use the word to go with it—fool of himself. It was an unbelievably—torturous is a word, is it not? It was torturous, tortuous, turgid in the extreme, a fabrication of nothing on behalf of a man who claims to be a professional. Frankly, we do not need Ministers like that in charge of the Inland Revenue Department. We need to do what you say, Mr Assistant Speaker: wind them up, take them out, get somebody who is responsible—in fact, listen to a party called New Zealand First, which said from the word go that this would be a whitewash, and it is.

I noted in listening to the Speaker when he granted the urgent debate that he made particular reference to wanting to clarify the comments of the Prime Minister when he talked about most of the recommendations being given effect to. I want to speak specifically to that point because the comments the Prime Minister made were around simply the way in which the changes to the anti - money-laundering laws (AML) were going to be delivered, and I want to be really clear about that.

There was certainly no intention that we will not be making the changes to the anti - money-laundering law, but, actually, I think this urgent debate gives us a very good opportunity for me to clarify to this House exactly how that process is intended to happen and why we do think that there is a need to depart, not on substance but on process, from what the report said in this regard. Mr Shewan, in the report, indicated that, in his view, to bring lawyers and accountants into the AML regime was a reasonably simple matter of issuing an Order in Council (OIC) to remove the exemption from the definitions regulations. Although I can understand that that might have an attractiveness in its simplicity, it simply is not workable, and primary legislation is required.

Let me just explain how that works. Currently, under the anti - money-laundering law, we have a requirement that all financial institutions are reporting entities under the legislation—as, in fact, are all trust and company service providers, which I will come back to later—but because by nature the definition of “financial institution” is a very wide brief that could encompass a lot of things, it is then spelt out by the types of activities that they perform. To make it clear that it was never intended that lawyers would be included in that first phase, the regulations simply made it very clear that lawyers were not caught by that definition of “financial institution”. It was never intended that they would be, no one ever expected that they would be, and the exemption does not do that—simply, to carve them out of the legislation just makes it very clear what we had, in fact, passed at that time.

To bring lawyers and accountants, and real estate agents, for that matter, into the framework, as we are absolutely committed to doing—as I have announced and the Prime Minister has announced—you do need primary legislation, and that is the one point where we have a slight difference of approach from Mr Shewan. It cannot be done by his simple OIC process, although, as I say, I can understand the initial attraction of that as, potentially, an option. It simply does not work, and one of the core reasons is that you need to work out who the supervising agency is and you need to work out how that is put in place, but, most importantly, you need to deal with matters like legal professional privilege. That cannot be done simply by an OIC process.

Legal professional privilege is enshrined in the Evidence Act, it is enshrined in the Lawyers and Conveyancers Act, and I am sure this House will understand, very simply, that to have an anti - money-laundering regime—to have mandatory reporting requirements on lawyers and conveyancers and accountants and real estate agents, but the lawyers in particular—you have to have a framework that makes it very clear for them what their obligations are to report information that would otherwise be covered by legal professional privilege. That can be done only by primary legislation, so that is why there is a distinction. The point the Prime Minister was making was that, actually, although we are absolutely committed to bringing the reform in, the OIC process will not work.

We are committed to the legislative reforms. We have already announced that we are accelerating those. I have said publicly that it is my intention that we will have a bill coming into this House by the end of this year and, subject, of course, to the processes of Parliament, I want to see that legislation in place and in force by July of next year. That is working at some pace, and let me just be very clear with this House that although we are working at pace we do have to be careful to make sure that we get this right.

This is a regime that will impose significant compliance costs on not just the sectors but, actually, the New Zealanders who pay the bills of those sectors. Every time you buy a house, there will be more cost. Every time you go to your lawyer or your accountant, there will be more cost. That is OK. We need to have a regime—we have all accepted that this is an important part of transparency and good accountability in financial oversight—but we have an obligation to ensure that the system works well, that it covers what we need it to cover, and that those costs are no greater than they need to be. Every single New Zealander has an interest in seeing that happen, as do we. We have absolutely committed to the fact that we want to get this regime in place quickly, but no New Zealander would thank us if we imposed cost that was unnecessary and unwarranted and if we could do it more efficiently.

Let me just talk about one other aspect, which is that although the focus today is, of course, on foreign trusts as a response to Mr Shewan’s report, when we are talking about these amendments to the AML laws—and it is relevant because this was the very point that the Prime Minister said was the one that we needed to go on a slightly different road to get to the same place—actually, foreign trusts are only one part of what we need to deal with AML legislation. When we bring lawyers, accountants, and real estate agents into the framework, it is as much about the criminal activity of gangs and the like in New Zealand and the laundering of criminal proceeds, and the police have a real interest in ensuring that we can get access to far more of the suspicious financial transactions. So when we are working through these matters, although I know the focus today is on simply how the foreign trust part works, actually, it is incumbent on us to make sure the regime works for all its intended purposes, and for that reason it is not simply a case of carving something out and, you know, we have got an instant result.

So that was the only point the Prime Minister was making. Yes, we agree with Mr Shewan’s recommendations on AML and the need to change. Yes, we have already committed to making those changes. Yes, we are accelerating them. But to suggest that it could be done by Order in Council was where we disagreed, and the process that we are on, the time frame we are on—actually, I am comfortable—is as quick as we can get it without running the serious risk that the regime is incredibly expensive, not workable, or not comprehensive, and I do not think anyone would thank us for that. As part of that, I do want to see a select committee process in place. I think it is important that there is a full opportunity for people to test the framework, and I think this House would want to see it. So at this stage it is not my intention to seek that the bill be pushed through all stages in urgency. I do think that there is benefit in having a select committee process. As this House knows, there is a trade-off in that regard in that that is extra time before it is in place, but that is certainly my view at this stage.

I want to talk about one other aspect of this in regard to the anti - money-laundering component of the recommendations, and that is to make it very clear that although lawyers and accountants and real estate agents are not in the regime as of right at the moment, what is in the regime automatically are these things called trust and company service providers. I can tell you that, currently, there are 109 trust and company service providers that are being supervised across New Zealand and a number of lawyers and accountants who do this work are also voluntarily agreeing to be subject to the regime, although they are not required to do so.

So to suggest somehow that there is no oversight at all is not right, but we do accept that there are a number who are not currently being covered because the work is being carried out by a lawyer in the ordinary course of their business as a barrister and solicitor. We do agree that those need to be brought within the framework and, as I have said to this House in this contribution and as I have said publicly, that is something that we have already made very clear. So the process of the work now is to work through with those sectors exactly how the oversight will work, where the regime touch-points and levers are best set, and exactly who that supervisory agency should be. That is a process that is progressing, as I say, at some pace.

I get a lot of questions about whether somehow there has been some big campaign from these sectors that they do not want to be in the regime. I can certainly tell this House that I meet regularly with the New Zealand Law Society, as you would expect of a Minister of Justice. It has been well aware that this is coming at them and, actually, as an organisation it is very comfortable with that. I am not going to say that every one of its 12,000-odd members might not have a view—I am sure some of them do—but the organisation that speaks for them, the New Zealand Law Society, has been very relaxed and accepting of the fact that an anti - money-laundering regime is going to come into place for lawyers and in the time frame we have discussed.

It is worth mentioning that there is already the Financial Transactions Reporting Act, which applies to them, so they are not completely without oversight at the moment, but certainly the AML regime is significantly more comprehensive. The real estate agents, similarly, have certainly not raised any concerns with me. I have not met with them on it directly yet. That process is getting under way now with the consultation, but they have certainly seen the media reporting and they have made no representations to me whatsoever that they do not think they should be in, and neither have the accountants. So there is simply no truth to the sort of implied argument that, somehow, we are getting a lot of pressure from the sector to leave them out. They all know it is coming. They are up for that. They do have an interest in ensuring it works well and is efficient, as do we.

But, just to be very clear, the one point where the Prime Minister said there were most of the recommendations—it is around that. We say yes to the substance and yes to the recommendations, but to simply suggest that the OIC process would work in place of primary legislation is, unfortunately, not right, and I believe the time track we are on is the most responsible and effective one.

The question that New Zealanders should be asking when they look at the John Shewan report is: whose side is this Government on? Is it on the side of hard-working New Zealand taxpayers, who pay their tax out of their wages every week and who do the right thing, or is it on the side of the mega-wealthy who want to find places in the world to shelter their income, to not pay their fair share, and to put that burden on to those hard-working people?

What we have seen consistently throughout the process of the raising of concerns about foreign trusts and the Panama Papers is that the Government has chosen its side. It has chosen to be on the side of the mega-wealthy. It has chosen to be on the side of tax-evaders, and it leaves hard-working New Zealanders questioning their commitment to the tax system. It is human nature—if someone else is getting away with it, why should I do my fair share? It is this Government that is enabling—facilitating, to use John Shewan’s word—tax evasion, by the rules that it has put in place on foreign trusts and by ignoring the advice that it has been given, consistently, since 2013 that something needs to be done. So the answer to whose side this Government is on is clear: it is not on the side of hard-working New Zealanders; it is on the side of the mega-wealthy.

If we go through the history of this, we start in August 2013 when the Inland Revenue Department (IRD) said to finance Ministers and the Minister of Revenue that there were concerns about our foreign trust rules. The rules continued to attract criticism, including claims that New Zealand was now a tax haven in respect of foreign trusts. IRD went on to say: “This is largely because the mismatch between our rules and those of other countries may result in income not being taxed either in New Zealand or offshore. To protect our international reputation, it may be necessary to strengthen our regulatory framework for disclosure and record-keeping.” That is the IRD saying that in 2013. It was concerned because the number of foreign trusts was growing, and growing fast.

If we look today there are 11,671 foreign trusts—that has doubled since 2011. Mr Woodhouse and others are keen to say: “Oh, this is the regime that’s been in place since the Labour Government brought it in in 1988, and then it was updated in 2006.” The first time the IRD raised a problem was in 2013. It raised a problem because the problem was growing under National’s watch. It had changed other rules around look-through companies, it had changed other rules around investment entities, and the system was starting to be gamed. The number of foreign trusts grew.

So IRD officials continued to voice their concern, and they raised it in papers in August 2014, again in November 2014, and again in December 2014. In November 2014 they actually had a table in that document that listed off the work that was already under way. It included the review of foreign trusts, and it included a paper on that review due to be with the Minister of Revenue in December 2014. That was a critical moment in this time line, because it was that report when it was reported on that led the foreign trust industry to think that it was under threat. Its little game of being able to sell itself into the world as being a place with loose disclosure arrangements, where people could hide their money, was starting to be called on.

So what does the foreign trust industry do? It uses its inside influence on the National Government. Ken Whitney—the Prime Minister’s close adviser, his lawyer, his funds adviser—writes in to the then Minister of Revenue. He says: “I have spoken to the Prime Minister about this”—the review of foreign trusts—“and he advised that the Government has no [current] plans to change the status of the foreign trust regime [applying in New Zealand]. The PM asked me to contact you to arrange a meeting at your convenience with a small group of industry experts.” That is how it works under this Government—the inside influence. The review that the officials knew was merited had already got under way, and then the inside influence of the foreign trust industry comes along. Ken Whitney comes along and uses his contact with John Key. Todd McClay says: “The Prime Minister wants this. I’ll respond to it.” The meeting happens, and the review is cut dead.

The officials knew. They were concerned about New Zealand’s reputation as a tax haven in respect of foreign trusts. They were concerned, as we went out into the world and asked other countries to be part of a crackdown on multinationals not paying their tax, that people would laugh at us if we were part of facilitating tax evasion because of our foreign trust rules. They were concerned—the IRD officials—because it does not matter whether it is a Mexican taxpayer, a Brazilian taxpayer, or a New Zealand taxpayer who has been ripped off by somebody. We need the whole world working together on this, and if we are part of facilitating tax evasion, then we are on the wrong side.

All of those things were known, and the Government stopped the review stone dead so that when it was raised again in light of the Panama Papers in April this year, what could we expect from the Government at that point? Well, what we heard from the Government was: “There’s no problem. We have full disclosure of our foreign trusts.” We were told that the trust regime was broad and deep, and, as Julie Anne Genter said, people who raised concerns were described as being “barking mad”. That was the first reaction of this Government. At his press conference when the Panama Papers first came out John Key’s instincts were to protect the foreign trust industry and the mega-wealthy—

💬 Ron Mark: His default. That’s his default position.

—instead of protecting New Zealand’s reputation and the integrity of our tax system. And it is, Mr Mark, his default position to look after the people that he grew up with—

💬 Ron Mark: Corporates.

—in the corporate world. That is what John Key’s default position was—not to protect hard-working taxpayers, but to say: “The foreign trust industry, that’s who we’ve got to protect.”

But the pressure came on, and it is pretty rich of Michael Woodhouse to blame Opposition parties for reputational damage. Mr Woodhouse, the reputational damage comes from a system that people can see is a tax haven for foreign trusts. Exposing that is actually a public service, and that is why the Panama Papers forced the Government to act. Mr Woodhouse cannot claim that there would have been any action on tightening the disclosure rules on foreign trusts, because he spent 3 years not doing anything. Then the Panama Papers came out, and the Government was forced to act.

Then John Shewan’s report comes out, and it tells us that our foreign trust regime is facilitating the hiding of funds and the evasion of tax, that the system is inadequate and not fit for purpose, and that the risks are high of it being exploited. That is not full disclosure. That means the Prime Minister was wrong. It means Bill English was wrong when he said that anyone who said we had limited disclosure arrangements was wrong. This is a Government that has deliberately not acted on these issues. It is a Government that chose the side it is on, and it chose to protect the interests of the mega-wealthy.

People have asked why we should care. We should care because today we learned that inequality in New Zealand is growing; 60 percent of the wealth in this country is in the hands of the top 10 percent. We have a massive problem with inequality in New Zealand. We have a massive problem with every New Zealander getting the one thing we thought everyone in New Zealand would get: a fair go. That is not on the table if you are in a household in that bottom 40 percent of New Zealand taxpayers, who own only 3 percent of the wealth. We need a tax system that supports those people—the people who want to get ahead; the people who want their families to be able to buy a home, their children to be able to buy their first home; the people who want their children to get a decent education. We need a tax system that backs that up, and that is a tax system where every New Zealander pays their fair share.

This Government has let New Zealanders down. It does not have its priorities right. It is a Government that is on the side of the mega-rich, of the wealthy, and it has been caught out. John Shewan’s report forces it to act. It could go further. There should be a public register. We need a public register so that it is not needle in a haystack territory to try to find out what is happening with these trusts. We have got a public register for companies; we have got a public register for land; why can we not have one for these foreign trusts?

The Government could go further than John Shewan’s report, but it will not. It will not because it does not care about those hard-working New Zealanders. It has chosen its side: the side of the tax-dodgers and the tax-evaders. On this side of the House, we have chosen our side: New Zealanders—hard-working New Zealanders who deserve a fair go.

For me there are two issues with regard to Mr Shewan’s report. The first one is the integrity of our tax system, and the second one is New Zealand’s global reputation. Mr Robertson and Mr Little have talked about the integrity of our tax system, which is incredibly important to our global reputation, but it also matters around what is fair. It plays into the very narrative of who does what with whom—who pays tax, when, and how.

One of the things Mr Shewan noted in this report is that New Zealand is committed to “integrity, openness, and transparency; ensuring that its legislation and enforcement activities meet or exceed global best standards; taking a leadership role on these initiatives; [and] acting to address and rectify issues of concern”. That is what our global reputation is on tax issues. I would argue strongly that, in fact, we have fallen behind in maintaining the integrity of our tax system to the point where the Inland Revenue Department (IRD) said, with regard to base erosion and profit-shifting measures, that we are not even going to be able to meet our international obligations. In fact, there were early adopters in this space, then there were countries who said they would do things on time; and our recommendation to Cabinet was that we were actually not even going to meet the timetable—we were going to be a year late. I am not too sure whether this is because the Minister is not over his portfolio, I am not too sure whether this is because the IRD is overworked, or I am not too sure whether this is because the Government just does not care. Whatever the reason is, it is wrong.

The fact that John Shewan put a chapter called “New Zealand’s Reputation” in his report shows that he understands the effect of this on our global reputation. What is this reputation worth to us? Well, in 2005 the then Ministry of Economic Development tried to quantify the value of this, and it came up with the figure of $20 billion a year. There is an organisation called Transparency International. Their index ranks countries on a scale from one to 100 based on external surveys and assessments from 13 reputable international organisations. These are not Kiwis who come up with this measure, these are international arbiters that determine whether New Zealand has a reputation worthy of the past, or what is happening to it. In 2012 we were No. 1—we were No. 1. In 2015 we are now fourth. The countries from No. 1 down are Denmark, Finland, Sweden, and then New Zealand. I am the first to admit that fourth out of a hundred and however many countries is not bad—but the thing is that we trade on this global reputation. It is what we go overseas with, it is what our companies take as one of their main tools in their bag of—I was going to say tricks—unique selling points. We come from New Zealand—that means something, and if it fails to mean something then we are in big trouble. Then what happens is that we become just another small economy hawking commodities to an ever-competitive global world. At this point in time being from New Zealand means something.

What Mr Shewan said about our drop in Transparency International’s rankings was: “While it is not clear what caused this drop, the downward move is regrettable and demonstrates there is no room for complacency.” Yet it appears that complacency is the very thing that this Government has got in spades when it comes to this. This is a big issue—and not just for the integrity of our tax system, but for the integrity of our global brand. The press around this was damning of New Zealand. In a way, reputation is about perception, and, often, as we all know, perception does not take account of facts. If the Australian Financial Review writes “While New Zealand’s tax laws are a major plus for foreign investors, it is not the only attraction. They also come to use New Zealand’s good reputation.”, and if it also says “the papers held by ICIJ show how Mossack Fonseca bragged to clients how easy New Zealand laws make it for foreign investors to hide their tax-free profits”, then we have a reputational problem. Whether this is true, whether we are a tax haven or not—and John Shewan actually does say “It might be argued that the foreign trust regime is a preferable tax regime, and this is sufficient to make it a tax haven.”—whether that is the truth or not does not really matter, because if the global community has the perception that New Zealand is in some way corrupt, is in some way an easy target, allows criminals to hide money, is anything but squeaky clean, or is anything but how we market ourselves overseas, then we are in real trouble.

So this whole issue is not just about the integrity of our tax system. This whole issue is not just about the reputation of our tax system. This whole issue cuts to the very quick of what it means to be a New Zealander, what it means to be a New Zealand company going overseas, and what it means to be a small New Zealand company going overseas and standing on what we believe our global, unique selling point is—and that is a reputation for being upfront, for being honest, and for doing things the way that things should be done.

There is one way to rectify this now—because the damage has been done—I think the way we can get this under way and mitigate the risk is to get this legislation before the House as soon as possible. Amy Adams, you heard her say—I just failed to see a sense of urgency there, and this is the Minister of Justice. We have got the Minister of Revenue who I think, now, finally understands the scale of the problem—whereas in the past I would argue that even he failed to grasp the severity of this, not only for our tax system but our global reputation. But I do believe he now understands it, and I hope like hell that this report has been a wake-up call, because John Shewan is a man of integrity—of that I have no doubt. John Shewan has made his reputation—

💬 Hon Member: Better speak to your boss, then.

No, no—John Shewan is a man of integrity.

💬 Hon Member: Tell your boss that.

No, he is a man of integrity. But John Shewan also understands the fact that his reputation, his business, and his unique set of skills are also dependent the reputation of this country. So Mr Shewan knows that if we do not get this right, if we fail to address this in a manner that meets the expectations of the global community, then not only does his reputation suffer but the reputation of this country and the reputation of our tax system suffer.

I think that the only way forward for this is to get legislation in front of the House as soon as possible. It does need to go through the select committee process—I absolutely agree with that—because we do need to hear what the submitters to this report said; MPs need to hear that. We also need to hear what other players in this game think, but we need to get this legislation into this House, we need to get it passed as soon as possible, and we need to rectify the situation.

The global tax system is in trouble at the moment: it is called base erosion and profit shifting. This is about large corporates not paying their fair share. We know this is a major issue, and we are trying to deal with this at this point in time through the OECD process. It has to be done in a multilateral way, but this is just—I was going to say an unwelcome distraction, but that is actually belittling what this is—an issue we need to deal with immediately. But unlike base erosion and profit shifting, we are the only ones who can deal with this. We do not need an OECD mandate to do this—all we need is the legislation to be passed to correct it. I hope like hell that the day the Minister got this report—and I am assuming he did not get it yesterday, but let us assume he did—the first thing he did was he called his officials in and he said: “I want legislation drafted now that is going to implement every single one of John Shewan’s recommendations. I want it done under urgency, it is the No. 1 priority, and we must get this in front of the House as soon as possible.” Because the damage is now done—the damage is now done. All we can do is mitigate it.

I just want to reiterate that there are two points there: the integrity of our tax system must be upheld; but, most importantly, the reputation of our tax system and the reputation of our country is now on the line. Let us do the right thing, let us get this through now, and mitigate the risk that is already out there. Thank you very much.

Thank you for the opportunity to take part in this debate about the Shewan report into foreign trust disclosure rules. I am pleased to hear the Labour Party—well, the remaining centrist member of the Labour Party—say that Mr Shewan is a competent person, because that is not what its leader was saying; nothing like it.

As we see, the Labour Party is resorting to one of its tried and true practices, which is to try to scare people out of taking part in legitimate public debate. So Labour decided, straight away, when Mr Shewan’s name turned up, that he was in some way assisting people to avoid tax obligations offshore. Those comments turned out to be, probably, libellous. It was not actually tested in court, so we do not know whether they were for sure, but they led to a humiliating apology from the Leader of the Opposition, who, I might say, in attacking him, is showing a pattern of attacking people he disagrees with in a fairly personal way. Of course, there are a lot of people in New Zealand who disagree with the Labour Party these days, because it is a shadow of its former self, and, probably, seven out of every 10 people in New Zealand do not support it and do disagree with it. So that was a bit of an unfortunate start, but it is good to see the member for Napier indicating that there will be support from the Labour Party in the House on the legislation as it comes through.

I think what is a striking feature of the report is the way that the report shows the context in which this issue around foreign trust disclosures can be dealt with. I think anyone who was not familiar before with the wide range of activity that is now going on in New Zealand and internationally around transparency will now be familiar with it. On that point, there is a lot of nonsense being talked about here and over recent months about so-called damage to New Zealand’s reputation. If anything, what is surprising in the Panama Papers is how infrequently New Zealand is mentioned, given that the Panama Papers cover participants in tax-related activities from all around the world, including pretty well every developed country. So out of millions and millions of references, there is a handful made to New Zealand, and there is a reason for that, some of which is referred to in the report. That is that New Zealand has set as a priority the protection of its own tax base, and, in pursuit of that priority, has one of the tighter regimes for the taxation of companies and individuals that are domiciled outside New Zealand.

Mr Shewan has done a thorough investigation not just into the foreign trusts and the disclosure regime but into the surrounding context. I just want to talk a bit about that context, because when the House deals with the relevant bill related to this report, it will find itself dealing with quite a lot of other issues that are directly connected to it. And, just by way of example, we just want to be clear about the principles that do apply, because we do have one of the more principled, consistent tax policy structures in the world, and that has been a bipartisan effort over the last 20 years or so.

The basic principle is that we tax all profits earned in New Zealand, that all revenue earned in New Zealand should be reported, and that any deductions should reflect actual costs of production and not be designed to reduce tax. So we focus now on, really, three streams of work: making tax law more robust, increasing international cooperation, and improving transparency and exchange of information. In that sense, the Shewan report fits into that third work stream, because in the debate that led to the report, there was a quite misleading impression created that, somehow, these foreign trusts were part of some general erosion of New Zealand’s tax system and that somehow the tax system was so slack that we could be designated as a tax haven, only by the Leader of Opposition, from what I could see—

💬 Grant Robertson: Read the report. Have you actually read the report?

Not by anyone who knew anything about tax policies, including Grant Robertson.

So the report says New Zealand is “not a tax haven”, and that is absolutely correct. I will give you just a couple of examples of the changes that have recently occurred. We have reformed the controlled foreign company rules, repealing eight country-based exemptions for non-active subsidiaries, as well as putting limits on interest costs that could be deducted in relation to outbound investment. We have strengthened the thin capitalisation rules to reduce the amount of debt a foreign-controlled entity can have before interest deductions will be disallowed. These rules were also widened to capture more foreign ownership structures. We have introduced bank minimum equity rules that limit interest deductions taken by foreign-owned New Zealand banks by requiring them to have a minimum amount of capital. We have removed the foreign dividend exemption for deductible foreign equity, removing an opportunity for tax arbitrage between New Zealand and other jurisdictions. And just one more on this list: we have eliminated the conduit regime that allowed New Zealand subsidiaries controlled by foreign shareholders to flow foreign income through New Zealand without paying any New Zealand tax.

If they all sound a bit detailed, that is because they are. That is because they are incremental improvements on what is, by any developed country’s standard, a comprehensive regime of taxing income in New Zealand of foreign-domiciled companies. And there is more in the pipeline—more that is coming through. The particular one that is relevant to this report is limiting the use of look-through companies as conduit vehicles. So this is when New Zealand companies are used by non-residents to invest in foreign markets to generate income that is not taxable in New Zealand. Certainly the advice I have seen via the Minister of Revenue is that this change, which is in the current May 2016 tax bill, will have a significant impact on activities that could be regarded as offshore companies trying to avoid taxation in their own jurisdictions.

So we endorse the recommendations of this report. Essentially, what it does is make available to Government agencies and enforcement authorities, here and offshore, the detailed information that is held by various parties to these foreign trusts. The indication is from Mr Shewan that making that information available to enforcement authorities will have the effect of reducing the use of foreign trusts. So that will be a good thing for offshore jurisdictions that may be concerned about the use of these vehicles in New Zealand. In the meantime, the Government will focus on the international effort to deal with base erosion and profit shifting. There are not many, if any, measures that we can take unilaterally that are going to deal with the much broader issue, which is potentially a threat to our tax base, which is the growing problems of jurisdiction that arise out of the use of the internet for a great deal of commerce and the ability of what feels like the very large presence of companies like Facebook and Google to move their profits anywhere in the world that they choose.

So we are going to work with other countries, through the OECD, where, I might say, there is a strong degree of interest in cooperation for the simple reason that almost all developed-country Governments are keen to have revenue, and they have been losing it. This report is going to assist them, to some extent, but we will certainly continue to focus on maintaining New Zealand’s tax base.

The debate having concluded, the motion lapsed.