Tax paid by multinational companies

The issue of tax paid (or lack or tax paid) by multinational companies came up in Parliament’s Question Time yesterday.

7. FLETCHER TABUTEAU (NZ First) to the Minister of Finance: Does he think it is acceptable that 20 multinational companies paid just $1.8 million in income tax in 2014, despite recording nearly $10 billion in annual sales in New Zealand?

That sounds like dramatic underpayment of tax but it lacks a lot of detail. In many cases much of the cost of sales from multinational companies is incurred overseas and the sales are recorded overseas.

Hon BILL ENGLISH (Minister of Finance): As I think the member is aware, we do not tax turnover in New Zealand, so it is a bit hard to know. It is possible that the levels of tax are lower than they should be. We expect multinationals to pay their fair share of tax and be good corporate citizens. Most companies play by the rules, but the Government is continuing to tighten up the rules around transfer pricing and interest deductibility. New Zealand continues—most importantly, in my view—to work with other OECD countries to strengthen international tax settings, because, in some respects, what is most concerning about some multinationals is that they do not appear to pay much tax anywhere. We need to work with other countries to make sure that they pay their fair share as appropriate to each country’s rules.

That’s standard waffle from English, and his following responses didn’t add much. But Tabuteau came up with two examples.

Fletcher Tabuteau: Given that he just stated that he believes in a fair and equitable tax system, does he think it right that MasterCard New Zealand declared revenue in New Zealand of just $4.5 million, and paid tax of only $71,000 in its latest figures, despite sharing evenly in $40 billion of annual credit card billings?

That seems interesting but it is misleading, as his next question shows.

Fletcher Tabuteau: Given his answer, does he think it right that Visa New Zealand shared in the same pool of credit card billings of $40 billion, and it declared only $3.2 million of revenue and paid only $185,000 in tax in its latest figures?

So Mastercard and Visa together shared in “the same pool of credit card billings of $40 billion”. And that is not their sales, it is the sales of many companies who use credit card services so people can pay for goods and services.

It doesn’t separate domestic versus international sales.

Credit card charges are only a small part of overall sales, a few percent at most. If you pay Inland Revenue by credit card the fee paid to Westpac is 1.42%, if you pay the Police the fee is 1.9%.

It is obvious from this that some of the $40b are not sales but are payments with no revenue or tax involved.

One percent of $40b is $400 million, still a substantial amount. But there will be significant costs involved in providing the service and providing the finance – banks provide finance free of interest for up a month and a half.

So the detail Tabuteau is insufficient to have any ideas how outraged to be about how little revenue Mastercard and Visa report and how little tax they pay.

I don’t know how things are structured between the banks and the credit card companies. It looks like the banks incur most of the costs and will get most of the sales value from transactions.

Fletcher Tabuteau: How will the Minister help many New Zealand companies, which have said that they have missed out on investments here at home because overseas competitors are abusing the tax system here in New Zealand, giving them an unfair advantage over Kiwi firms?

That’s little more than a vague assertion of abuse. Without details Tabuteau has embellished his claims and made a very weak argument.

No surplus?

Stephanie Rodgers claims that the surplus announced yesterday is not actually a surplus – because, she says, the Government should have spent more so there wouldn’t be a surplus.

There is no surplus

In Year Eight of this National government, the idea of a budget surplus is a joke (and not just because it’s been completely engineered by the catastrophic Auckland housing bubble). They’ve promised it for nearly a decade. They’ve fiddled the books to make the numbers come out OK. They even declared a surplus in the middle of the financial year – that’s how desperate Bill English has been to pretend that everything’s going along just fine in New Zealand.

That shows an alarming lack of understanding of how how a Government budget works, and why the surplus was announced now.

“Finance Minister Bill English has today presented the Crown accounts for the year to June”.

It’s normal to announce financial results a while after the end of the financial year, like about now.

The Government is required to announce crown accounts, even when the timing isn’t too Rodgers’ liking.

The truth is, there is no surplus.

This surplus isn’t a success for our government. It is a sign of their failure. It shows they do not understand what their job is: to look after the people of this country. To govern us – not bean-count.

There is no surplus – not if you care about people more than money.

So Rodgers doesn’t want a surplus because she wants more money spent, probably a lot more money than Crown revenue, which means a deficit. She would probably complain if a deficit was announced at this time of year too.

$1.8b surplus announced

The Crown accounts for the year to June were presented yesterday, with the big news being a bigger than expected surplus.

Media release:

Government surplus increases to $1.8 billion

Finance Minister Bill English has today presented the Crown accounts for the year to June, showing a surplus of $1.8 billion in 2015/16, up from $414 million in 2014/15.

The Crown accounts show core Crown expenses are under 30 per cent of GDP for the first time since 2006, net debt has stabilised to 24.6 per cent of GDP and net worth has grown to $89.4 billion in 2015/16.

Mr English says the $1.8 billion operating balance before gains and losses (OBEGAL) in 2015/16 – which compared to a forecast of $176 million in Budget 2015 – is a significant turnaround on the $18.4 billion deficit in 2011 following the Global Financial Crisis and Canterbury earthquakes.

“Government surpluses are rising and debt is falling as a percentage of GDP which puts us in a position to be able to make some real choices for New Zealanders,” Mr English says.

“The New Zealand economy has made significant progress over the past eight years. This delivers more jobs and higher incomes for New Zealanders, and also drives a greater tax take to help the Government’s books.”

Core Crown tax revenue was $1.6 billion higher than forecast in Budget 2015.

“We’ve also been getting on top of our spending, exercising fiscal restraint while still investing responsibly in our growing economy and public services.

Core Crown expenses were $73.9 billion in 2015/16, below the forecast of $74.5 billion at the beginning of the year.

“We’ve focussed on results and are starting to address the drivers of dysfunction by investing in better public services. We remain committed to maintaining rising operating surpluses and reducing net debt to around 20 per cent of GDP in 2020.

“If there is any further fiscal headroom, we may have the opportunity to reduce debt faster and as we’ve always said, if economic and fiscal conditions allow, we will begin to reduce income taxes.

“The outlook for the economy is positive, the Government’s books are in good shape and we are addressing our toughest social problems. However, we also need to bear in mind that there are a lot of risks globally and that is why it is important to get our debt levels down.

“Budget 2017 will make positive long-term choices to strengthen the economy and our communities.”

Reactions to Homelessness report

Government reactions to the ‘Ending Homelessness in New Zealand’ report that was released yesterday amounted to careful endorsement in principle while they claimed they were already doing some of the things asked for by the report.

Prime Minister John Key

Prime Minister John Key said the recommendations were “reasonably consistent with what the Government’s already doing”, but he would read the report and consider whether any ideas should be adopted.

“We’ve been working on this issue for quite some time, but we’ve never said we’ve got a monopoly on good ideas, so if there’s one or two things that come out of it, we’ll have a look at it.”

Social Housing Minister Paula Bennett…

…said some of the estimated costs of homelessness appeared too high, including the $250m annual cost to New Zealand.

“It’s certainly not a figure I’ve seen before…it certainly sounds high, so I’d have to see what that was made up of to see if it had any validity behind it.”

However, Bennett said the Government had already been working on some of the recommendations, while she was willing to consider changes to other areas such as the accommodation supplement to help people pay for housing.

“You have to say that it goes right back to 2005 levels and there’s no way rents are still in line with that, so I’m always willing to have a look at that.”

Finance Minister Bill English

Maori Party leader Marama Fox said Finance Minister Bill English had assured her that he would “seriously consider” any new ideas from the inquiry which the Government had not already implemented.

The Government appear to see the homelessness issue as too important, both as a problem and as a political risk, to reject the report.





English admits Kermadec stuff up

Acting Prime Minister Bill English has conceded – sort of – that they way the Government handled to Kermadec sanctuary proposal was deficient. he said “”I think if you did it again you might do it a bit differently”.

RNZ: English admits Kermadec sanctuary could have been handled better

If the government had its time again it would do things differently on the creation of a Kermadec Ocean Sanctuary, Deputy Prime Minister Bill English says.

Mr English said there had not been as much consultation as the Māori fisheries entity Te Ohu Kaimoana wanted to see so the legislative process was put on hold while the government considered ongoing negotiations with the Māori Party.

Though it was a government support party, the Māori Party was advocating strong views, so the negotiations were not the government ‘talking to itself’, he told Morning Report.

“Certainly in the nearer future we’ll be … going back over the ground with the Māori Party to make sure everyone understands each other’s objectives and we get reasonably clear about what the trade-offs [are] here.

“But I think in the long run we haven’t come across anyone who doesn’t want this sanctuary to be in place – it’s really the conditions on which it’s in place.”

As a general principle New Zealand has accepted that in the conservation or preservation of land or sea there was some “trimming of rights”.

“I think there’s a case to argue that there could have been a different track for how the issue was discussed with them but I think we’ve all got to deal with reality.

“If we want conservation of and or sea resource for environmental purposes then we’ve got to balance that against property rights.

Mr English said the circumstances meant the government proceeded a bit differently than it usually did, and that had helped create a situation where it didn’t get agreement of all parties concerned.

“I think if you did it again you might do it a bit differently,” he said.

The disagreements might in principle look difficult to resolve but he was confident there would be a way through.

“In practice … we have found in New Zealand solutions to reasonably challenging issues to do with Māori interests and there’s no reason why we can’t in this case.”

That’s fairly long winded but I think it can be summarised as ‘we stuffed up, we’ll try and get it right this time’.

The government is restarting discussions with the Māori Party to see whether it will support the bill.

I expect the will put more effort into doing it right this time.

More on lazy workers/journalists

In his daily round up yesterday Bryce Edwards focussed on Workers versus migrantsDo we need immigrant workers because New Zealand’s unskilled workers are lazy and on drugs?

In this he referred to my post on this yesterday:

But have the Prime Minister and his colleagues been unfairly reported on this issue? According to blogger Pete George it’s not clear that John Key even said some of the words attributed to him, and “it appears to me that some journalists have cherry picked and embellished comments made and have created a week long story out of it” – see: Are lazy journalists drug addled?

However, it seems likely that the National Government has an orchestrated line about the deficiencies of local workers. The Minister of Immigration, Michael Woodhouse has made similar comments.

But my post shows that neither Woodhouse nor Key  used phrases like “drug addled” AND “to lazy” that were subsequently attributed to them and promoted in media stories and interviews.

And Edwards seems to be assuming that it “seems likely” that the Government has “an orchestrated line about the deficiencies of local workers”.

It is actually widely believed that there are a core of unemployed people who are virtually unemployable, or simply won’t or can’t hold down a job for any length of time.

Anyone working in the field of education, work skills and work finding sees examples of this.

But this doesn’t excuse journalists misquoting politicians to stoke up contentious stories.

And back in April, Bill English made some very strong statements about New Zealanders looking for jobs – especially “young males”, saying they are “pretty damned hopeless” and “can’t read and write properly” – see Jo Moir’s Bill English describes some Kiwis looking for work as ‘pretty damned hopeless’.

What Bill English said is sadly quite correct. Helping some of the difficult to employ write CVs can be quite challenging. An alarmingly high proportion of those in prison are illiterate.

But Edwards makes the same mistake, referring to “New Zealanders looking for jobs – especially young males” but the article he links to at Stuff says:

…some Kiwis hunting for work are “pretty damned hopeless” and “can’t read and write properly”.

There is a distinct difference between “some Kiwis” and “New Zealanders looking for jobs”.

I don’t think Edwards is drug addled and looking at how active he is in media he certainly doesn’t seem to be lazy.

But he is echoing the mistakes of media when he misrepresents what politicians have actually said.

Politicians are usually very careful with what they say and how they say it. It can be difficult extracting open and up front assessments from them. That’s an ongoing challenge for journalists.

But that doesn’t excuse making up dramatic stories by embellishing and over-emphasising and sensationalising and generalising what politicians say.

Treasury: alcohol and tobacco more harm than cannabis

A Treasury document obtained after an OIA request be a Nelson lawyer gives estimated costs of policing cannabis and potential tax revenue, and says that “the harm caused by alcohol and tobacco was much worse than what’s caused by drugs like cannabis”.

NZ Herald: Cannabis tax could be $150m

An internal Treasury document on New Zealand’s drug policy shows the Government could be earning $150 million from taxing cannabis and saving taxpayers $400 million through reduced policing costs.

The brainstorming notes, from 2013, have been publicly released after an Official Information Act request from Nelson lawyer Sue Grey to Finance Minister Bill English.

Grey said the notes confirmed what was well-known in other sectors – that the harm caused by alcohol and tobacco was much worse than what’s caused by drugs like cannabis.

Relative harm of alcohol and tobacco compared to cannabis is fairly well known.

Drug Foundation executive director Ross Bell agreed, saying the reason there’s been no action is because politicians are too scared to talk about the “taboo” subject of drugs.

He said we should be willing to look at alternatives for New Zealand and admit, as the Treasury notes do, that the current system isn’t working.

Bell said the notes stated prohibition wasn’t working and cannabis was not a gateway drug.

He said while politicians did not like talking about drug policy, they were now misreading the public mood and people were ready to have this discussion.

I don’t think the National party and it’s leaders care about the public mood on cannabis. They simply don’t want to address the obvious issues and public sentiment.

English said the brainstorm notes were merely a discussion and were not official Treasury opinion.

That’s disappointing but predictable fobbing off by English. The document wasn’t anyone’s opinion, it was stating well known facts, and estimated costs and potential revenue.

It was advice that English and National don’t want to hear because they don’t want to do anything about the large cannabis problem.

Both medical cannabis products and recreational use are issues with growing profiles. Ignoring public opinion may be costly for National – as a third term Government they are facing rising dissatisfaction with a failure to take seriously issues of public significance.

It’s quite possible that next election cannabis could be the toke that breaks the Government’s back.

Q & A today

On NZ Q & A today:

Morena we’ll bring you the latest update from Turkey & Nice at 9am on TV1 along with the latest #nzpol

A rare TV interview with richlister Stephen Jennings on why education & inequality in NZ must be fixed.

tells what he wants in AK’s Unitary plan + his advice for first home-buyers

Also on the show talks and with Prof. Margaret Wilson.

Fran O’Sullivan has also written about Rich-lister sends message to Key

Rich-lister Stephen Jennings’ warning that “we are facing an iceberg” deserves to shatter business complacency on housing.

It should also shatter the complacency of the Prime Minister – if he allows himself to hear it.

Jennings has confronted the business elite with some unpalatable truths: rising house prices and immigration-fuelled economic growth are masking an underlying “iceberg that lies ahead”.

“We are sleepwalking into an economically ugly place,” he warns. “How can we look at ourselves in the mirror and say how can we live with having one of the most unequal education systems in the Western world – and even if you are very selfish you better say to yourself that is not sustainable.

“Those chickens are going to come home to roost.”

Does someone labelled as a ‘rich-lister’ deserve as much attention as a ‘celebrity’?

The Jennings interview is very interesting.

He says that our education system is a serious problem (and so is housing but everyone’s saying that). He says that education seriously disadvantages the lower deciles and poorer achievers. He slams the teachers’ unions and the system of rewarding just about all teachers regardless of their performance.

He also has interesting things to say on politics here, how we do it and warns that we will have Trump/Brexit type reactions if serious issues aren’t addressed adequately.

Social inequality is an important issue that needs to be addressed in a by-partisan way.

‘eadless chook disarray over Housing NZ dividend

It seemed bizarre yesterday with both the manner in which Steven Joyce claimed that Housing New Zealand would not be required to pay a dividend for the next two years, and also the break from steadfast requirement for SOEs to pay dividends.

See Housing Corp dividend dodo.

Now it is being reported that Bill English says no decision has yet been made.

Sam Sachdeva at Stuff: Bill English denies U-turn after Steven Joyce reveals Housing NZ won’t pay dividend

Housing New Zealand will not pay $100 million in dividends to the Government over the next two years, following pressure from Labour and the Greens to stop treating it as a “cash cow”.

The decision has not been finalised, but Finance Minister Bill English has signalled it is almost inevitable – while denying the move is a U-turn.

This is the sort of reactive disarray that can swing public opinion against Governments and lose elections.

English said it had become clear as Housing NZ updated its long-term plan that it would require more money to ramp up its building programme.

No final decision had been made on whether a dividend would be paid, as there were a number of ways to fund the extra work, but it was likely Housing NZ would keep the money.

English denied opposition pressure had forced the Government’s hand, saying it was part of long-term planning.

“It’s nothing to do with Labour and the Greens. This is a $20 billion entity – you don’t come up with capital plans for the next five years because Labour puts out a press release.”

The dividend figures in the Budget were based on old information from Housing NZ, which was being updated.

With Joyce and National flailing about on housing generally and on the divide in particular this is where ‘explaining is losing’ may be apt.

They are looking increasingly like a headless chook government.


The Nation on social investment

This morning The Nation is looking at social investment, with an interview with Bill English, Hekia Parata and Anne Tolley lined up,.

You’ve never seen this before. We interview 3 ministers together- , &

This week social bonds programme had a big fail. So is his social investment approach working? Find out 9.30am TV3

Top panel today: & weigh in on social investment, housing, v National…

… our Twitter panel today are and

Stuff on Thursday: Govt social bonds pursued despite failed pilot

The Ministry of Health is still pursuing the Government’s social bonds pilots, claiming to have learnt a number of lessons after the Wise Group withdrew from what would have been the first programme funded with such an instrument.

Hamilton-based Wise Group, a charitable organisation seeking to enhance the well-being of people and communities, withdrew from negotiations with the Ministry over a potential social bond to fund a pilot delivering employment services to people with mental illnesses.

The Ministry kicked off talks with Wise and its financial arranger, ANZ Bank New Zealand, last year after the 2015 budget set aside $28.8 million for social bond programmes, “but at this late stage, they have advised they are not able to proceed with the contract”, Ministry chief strategy and policy officer Hamiora Bowkett said.

“That is not unexpected in a process like this and the work to progress the social bond continues,” Bowkett said.

“One of the goals of the pilot was to develop and grow knowledge in the market on outcome-based contracting and establish a toolkit of templates and lessons learnt, which are being applied to subsequent bond pilots. This has been achieved.”

A social bond allows the introduction of new, private money into social programmes without increasing public debt and without the need to decrease spending, with investors paid based on the level of social value achieved.

Points from The Nation’s Twitter feed:

Bill English says National committed to spending money now on at risk families to save money in the long-term.

Big data being used to target money to the most vulnerable 600 5 year-olds. But what about the 600 next most vulnerable? & next 600?

Hekia Parata: “we’re not about stigmatising kids”, but about giving teachers ability to put funds to kids who need it most.

Why don’t all deprived children get the same funds targeted at the bottom 1 percent? “Because they don’t need it,” says Anne Tolley.

English says Government both raising incomes through benefit increases and targeting funds to most in need.

Extra money given to most vulnerable under social investment approach. But don’t all 119,000 deprived kids need that?

Tolley admits Government does not track individuals coming off benefit. So can they know their lives are better, as per targets?

90 days of work a good indicator that a job is sustainable, says Tolley.

Will Government meet its BPS target of getting people off benefits? “It’s a very aspirational target,” says Tolley.

English says “we are following the evidence” that universal cash transfers are the best way to tackle poverty, by raising benefits”.

Three Government ministers deny social investment is privatisation by stealth, ‘not concerned about who delivers the services, but what works.

“Better lives” more important to English than saving money in his social investment revolution.

English slaps down RBNZ re policy on housing: we are making changes… “the Reserve Bank may not be familiar with those”.

“No we’re not committing to doing that” – English on negative gearing and immigration numbers.