Despite everything you might hear, most New Zealanders mostly pay their taxes, on time and in full. We’ve got a very good compliance rate here. Somewhere between 80% and 90% of taxpayers pay their tax on time, and over 60% file their returns on time.
But some New Zealanders just don’t want to pay their taxes, including some people who are already incredibly wealthy. That’s what the Secrecy for Sale project has revealed. A team of investigative journalists from all over the world has been investigating tax havens and the people who use them. As it turns out, some New Zealanders are deeply involved in moving money around the world, for reasons of secrecy, and in order to get out of paying taxes. See: Dirty deals in paradise and Money trail leads home to New Zealand.
The problem is not just the tax revenue forgone by New Zealand and other tax jurisdictions. That’s bad enough. But the bigger problem is the attitude of people avoiding tax, especially when they are already incredibly wealthy.
What people who are using these havens are saying is that they have no interest whatsoever in participating in, or contributing to, the communities in which they live. They will take all the advantages of living in New Zealand, and not pay a penny towards them. Those advantages aren’t just the obvious things, like health, education, welfare, roads, defence, and so on. It’s things like the established and robust rule of law that this country enjoys, and the stable society, and the pleasant environment. This things haven’t come about by sheer chance: they are part of our nation because generations of New Zealanders have committed to building them. People who won’t pay their taxes free ride on other New Zealanders.
Tax avoiders not only free ride on other New Zealanders, but they undermine the whole tax system. Tax compliance is a trust game: if people think that other people comply with tax law, then they are more inclined to do so themselves. But if they think that other people are rorting the system, and not paying taxes, and squirreling money away, then they lose confidence in the system, and start to avoid paying taxes themselves. The reasoning is straightforward: who wants to be the only schmuck left. This has been precisely the problem in Greece: people routinely avoid taxes, because they think that everyone else is doing it, and so the Greek tax system has been undermined, perhaps fatally so.
The one defense that these tax avoiders might try is that their activities are perfectly legal. And precedent in tax law suggests that it is perfectly permissible to minimise your taxes to the greatest extent possible. There is a famous judgement to this effect.
Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure that result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax. (IRC v Duke of Westminster [ 1936 ] AC1 (HL)).
This principle has been beaten back in recent years, in particular by laws that ask people to consider whether the tax minimisation scheme they have entered into is so artificial that instead of merely avoiding tax, the taxpayer is actively evading tax.
But even if the procedures used are legal, it’s not clear that they are ethically acceptable. This is in fact the closest I can get to understanding exactly what a rort is: it’s something that is technically legal, but nevertheless pushes the law to such an extent that it is immoral.
And it is immoral to make such a big effort to avoid paying taxes. It amounts to saying that you just don’t give a damn about anyone else, and that all you want to do is take. And take. And take some more.
We’ve heard a great deal of nasty rhetoric about people on benefits in recent years, but very little about the scungy behaviour of tax avoiders and tax evaders. But of course, it’s always much easier to attack people who don’t have any resources and any other defences.
We’ll know that the government is serious about all New Zealanders contributing fairly to the common good of our society when they start asking hard questions of their tax avoiding mates.