The new Credit Contracts and Consumer Finance Act came into effect on 1 April 2005. The first successful prosecution under the new act took place in 2006. It takes time for new law to bed in, and for new action to be taken. By 2008 we had a new government. In July 2010, Labour MP Carol Beaumont's bill targeting loan sharks was voted down by the National-led government.
In 2015, a new voluntary responsible lending code came into effect. In theory, if all lenders adhered to it, then we would have no problems with loan sharks. But it is a voluntary code, so I guess pay day lenders and shop truck vendors are not rushing to sign up for it.
I know the Labour party had policy around predatory lenders going into the last election, as I imagine the Greens did too. I've had a quick hunt around their site but I've been unable to find anything,but I'd attribute that to my lack of search skills rather than any lack in their policy.
So it's not quite correct to say that no action has been taken with respect to predatory lending.
It would be very interesting to know if WINZ has signed up to the Responsible Lending Code.
I’m delighted for you, Russell. Congratulations!
If ever a man earned the right to drink red wine from a trophy and exclaim “I am a golden god!”, it’s Matt.
Photos, or it didn't happen.
Good show, Russell.
For me, the Herald's entire week focusing on domestic violence was soured by two articles that opened the series: Tony Veitch's piece, and Kerry McIvor's piece where she more-or-less said, "Why don't they just leave?" There was some really good work later in the week, but I found it hard to give it much weight, given those opening pieces.
The other thing that I thought could have been very useful was some serious statistical work, to examine the truth of the "she does it too" claim. It would take someone sitting down with the various articles and research reports on domestic violence, and analysing them, in a metastudy, and then reporting on it for a general readership, not just academics and people working in the area. But perhaps the Herald doesn't have the resources to do this. Even so, as one of the guests on your show said, it's a line that's trotted out again and again, to excuse domestic violence, and it would be very helpful to have some testing of that claim.
I don't know whether the link through to foreign trusts would have been regarded as a particular problem at the time. I think it may well have been just something that was seen as keeping our entire system consistent. (FTR, I tend to regard consistency across the system as a virtue rather than a vice, because it usually helps to eliminate loopholes.)
One of the defences the government has been running is that the original foreign trusts legislation come in under Labour. But I tend to regard law as a conversation and a response to circumstances. Problems only become apparent over time, economic or other circumstances change, and the law no longer fits, or the way it works creates problems in a changed environment. So we need to adjust our law. This is all part of the ordinary process of doing democracy.
For a nice example of this, think about how we need to rework copyright law to deal with the internet, which is after all, still only about quarter of a century old (in the sense of starting to be widely available and used commercially.)
But the problem with foreign trusts and LTCs is clearly there now, so fixing it would be a good idea.
Hmmm... the LTC model fixed some serious problems with their predecessor entities, LAQCs (Loss Attributing Qualifying Companies). So yes, putting them through in a SOP was problematic, but they were designed to address a serious problem, and they have largely done so.
I don't think there's any reason at all to read a nefarious motive into this, 'though I think it would be fair enough to wonder why government didn't give the problem greater priority earlier on, so that IRD had the opportunity to run a full policy development and law drafting process.
Well, the OECD would say that, wouldn’t they, when it’s one of their own members. :-)
Per my post at The Spinoff, it might depend on what you think a tax haven is, and whether you think form or substance matters more.
Are the foreign trust rules a tax haven? That probably depends on what you think a tax haven is. If you think that a tax haven is a country that explicitly sets out to create a benign tax system and enable people to hide assets and minimise taxation, then no, we’re not a tax haven. On the other hand, if you think that intent doesn’t matter, and what really counts is the way the tax system and secrecy rules operate in practice to allow people to avoid and evade tax, then we are a tax haven.
For those that doubt that we are a tax haven, what other explanation is there for New Zealand firms marketing New Zealand as a great place to pay no tax and be confidential about it?
A bit more on Look Through Companies, mostly cribbed from a comment I've just put up over at The Spinoff.
Look Through Companies are interesting beasts. The idea is that tax is calculated and paid in the company, but instead of using the company rate, each shareholders' portion of the profit is calculated, and then each portion is taxed at the relevant shareholder's marginal tax rates. After that, no more tax is payable, and when profits are distributed to shareholders as dividends, no tax is payable, because the correct amount has already been paid.
We don't claim to tax income that is earned overseas by non tax residents. So if a non resident shareholder earns income from overseas assets, and it's channeled through a Look Through Company, then the tax rate on that income is 0%. That's because her marginal tax rate is 0%, because we don't tax overseas income earned by non-residents.
So yes, Look Through Companies can help in tax minimisation schemes. They're a bit more open than foreign trusts, and IRD can see inside them and collect information about shareholders, which can then be shared with other tax jurisdictions on request. One way to make them less open to scrutiny is for the shares in the Look Through Company to be held in foreign trust, which is not open to very much scrutiny at all.
But it looks as though the government is going to change the rules for Look Through Companies, with papers going to Cabinet this week: Government may change tax rules for 'look through companies', says Key.
Last I saw of those changes, IRD was proposing to limit the amount of foreign income that could be earned by a Look Through Company, or it would lose its look through status. I think the limitation was going to be something like the greater of $10,000 of foreign income, or 20% of gross income, if more than half the shares were owned by non-residents. That was work by IRD that was underway last year, so long long before the Panama Papers broke.
Yes, but that's another one with an unintended consequence. However the purveyors of the finest tax minimisation vehicles seem to have cottoned onto their potential uses much more quickly than they did with foreign trusts. I wonder if that's because we had somehow primed them through our foreign trusts rules, so that they were much more alert to their possibilities.
In any case, as far as I can make out, in order to make the best use of an LTC (or worst use, depending on how you view these things), you need to combine it with a foreign trust. So reducing the activities of NZ foreign trusts would also reduce the use of LTCs for tax minimisation purposes.
Yes. I’m on record right from early April saying that I think this is a tax haven: What’s going on with foreign trusts.
What’s going on with NZ foreign trusts may not be illegal, but it certainly allows overseas people to hide their income and assets, and engage in some very aggressive tax minimisation practices, all very secretively. That to my mind means that we are offering a tax haven in respect of these NZ foreign trusts.
(BTW, Russell, if you have access to the back end of the registration system, I'd quite like to use my family name as well as my given name at PAS. But this is hardly an urgent matter: I think all the regulars are very well aware of who I am.)
Thanks, Steven. You're one of the people here who makes me think, instead of just react.