Watson’s holding company facing IRD demands

Sometimes IRD does go after the rich.

NZH: Tax man chases Eric Watson’s firm for $60m

Eric Watson’s holding company is facing demands to pay $60 million in back taxes after Inland Revenue decided its complex network of related-party loans and Cayman Island vehicles amounted to tax avoidance.

The high-profile expatriate businessman… faces the prospect of the tax bill indirectly taking a chunk of his estimated $450m fortune.

The tax claims, which have worked their way through the High Court at Auckland over the past two years, are set down for a full airing at a three-week trial starting on August 27.

Watson is not being personally chased, with IRD making its claims against his holding vehicle Cullen Group. Justice Mark Woolford noted in a pre-trial ruling that “before the arrangement at issue, Mr Eric Watson personally held all the ordinary shares”.

The tax claim is being contested, with Watson’s Cullen Group arguing its actions were not only legal, but intended to be legal by Parliament when the relevant tax legislation was passed.

Not surprising that it’s contested.

The restructuring saw a complex chain of loans and share transfers between entities – with Watson making $291m in loans to Cullen Group to enable the sale of his Cullen Investments shares, then assigning these loans to two Cayman Island companies – that Inland Revenue alleges served no purpose except to avoid paying $59.5m in tax.

“The Commissioner alleges that this was a tax avoidance arrangement,” Justice Woolford summarised in his ruling.

Justice Woolford said Inland Revenue claimed the manoeuvre was “not a genuinely arms-length transaction” but was instead “contrived” and “carefully designed” to ensure the interest payments involved qualified to pay only a 2 per cent levy instead of 15 per cent non-resident withholding tax.

Watson recently sold the NZ Warriors league franchise, reported to be in the region of $18m.

 

MSD, DIA say no Super leak from them

Following an Inland Revenue investigation that found no evidence of a leak of Winston Peter’s super over payment – see  Inland Revenue “could not have been the source” of Super leak – both the Ministry of Social Development and the Department of Internal Affairs also found no evidence of a leak from their departments.

Ministry of Social Development releases investigation finding:

MSD on Winston Peters super leak investigation

Following information regarding Mr Winston Peter’s Superannuation payments entering the public arena, the Ministry launched an investigation to assess whether there was any indication that a Ministry employee may have been the source of the information.

That process is now complete, and we can confirm that all staff that had access to the relevant information had a reasonable business purpose for accessing it, and there is no evidence that this information was passed to a third party.

The Ministry holds a great deal of very personal information about people and their families that New Zealanders trust us to safeguard.

Both data searches and staff interviews were employed in this investigation.
If further information relating to this matter comes to light, MSD will make further investigations as necessary.

 

DIA statement: Privacy investigation complete

Department of Internal Affairs investigation into Peters leak

We investigated whether any Ministerial Services staff received or passed on information regarding the Rt. Hon. Winston Peters’ superannuation matter.

The investigation process included a search of digital records and a series of interviews with Ministerial Services staff. It found that five Ministerial Services employees had received the information before it was reported by media.

There was no evidence that the information was provided to media or third parties by these staff members.

The Department takes privacy seriously, and upholding the confidentiality of information forms part of the Code of Conduct all employees sign.

If further information comes to light, the Department will undertake further inquiries as necessary.

Peters claims he was alerted to the leak before it happened by a ‘very senior National Party person’ but no details or names have been given.

Details and timeline at RNZ: Third probe fails to find leaker of Peters’ super info

Inland Revenue “could not have been the source” of Super leak

Inland Revenue says that the leak of Winston Peters’ super overpayment can’t have come from them because they never had the information.

Peters was reported by RNZ as saying “he believed Inland Revenue was to blame for the privacy breach”:  Investigations over pension leak as Peters plans complaint

Mr Peters has confirmed his fortnightly pension had been overpaid for several years and when he was notified in July he repaid it within 24 hours. He has not disclosed the sum but said it was less than the $18,000 reported in some media.

Both the Ministry of Social Development (MSD) and Inland Revenue (IRD) are trying to find the source of the leak and Mr Peters plans to lay a complaint with the Privacy Commissioner.

Mr Peters has told RNZ that he believed Inland Revenue was to blame for the privacy breach. Pension entitlements are calculated by Work and Income but payments are administered by the IRD.

Peters went on to blame MSD and the National Party, but Inland Revenue went ahead with an investigation. They have now reported on that.

IR completes investigation into leak allegation

Following information regarding Mr Winston Peters’ National Superannuation payments entering the public arena, Inland Revenue (IR) carried out an investigation to determine whether an IR staff member was the source of the information. The allegation that Inland Revenue had been the source of the information had been made and subsequently withdrawn by a journalist while interviewing Mr Peters.

New Zealanders trust IR with their personal financial information. It is essential that we can assure New Zealanders their personal information is respected and protected at all times.

Our investigation has found that IR does not hold the information that became public in relation to Mr Peters’ National Superannuation payments, and therefore could not have been the source.

If further information relating to this matter comes to light, IR will make further investigations as necessary.

 

Cash jobs = tax evasion

Inland Revenue are having another crack at discouraging cash jobs. Avoiding paying GST and income tax is blatant tax evasion, but there has been a general acceptance of it as fair game by many.

It’s not fair on businesses who do things by the book and can’t compete on price. And it’s not fair on those who ‘pay their fair share’.

One News has done a bit of investigating and reports Growing blackmarket in renovations sparks IRD crackdown on tradies doing cashies

A ONE News investigation has revealed a thriving blackmarket in the renovation trade, which is expanding in scale.

They haven’t revealed it, it is well known that it goes on, but they are helping highlight the problem.

We took one Auckland house badly in need of repair and we asked six tradesmen, chosen at random, to quote us for fitting a new bathroom and kitchen, re-painting and installing new carpet.

The work would be valued at between $10,000 and $20,000 depending on the scope of the work quoted by each tradesman.

Fifty per cent of tradesmen provided a cash price, without being asked – and their quotes ranged in value from $10,000 to $18,000.

Apart from cheating the system – and cheating those of us who pay all our income tax via PAYE and pay GST via our purchases – I think it’s very risky paying that amount of tax for that size of job. People who offer cash jobs are more likely to be shady and you are less likely to be protected if something goes wrong.

So who is breaking the law when a cash price is negotiated?

Andrew Stott from Inland Revenue says it’s “the tradesperson breaking the law – the tradesperson is responsible for paying taxes on their income,” while for the consumer “it’s not illegal to pay cash – it’s just silly”.

It’s more than silly. If you pay cash for goods or services knowing that tax evasion is likely then you are aiding and abetting it.

The Inland Revenue is today launching a crackdown on tradies doing cashies, their third campaign in Auckland and Christchurch.

Mr Stott’s advice to anyone doing work for cash and not paying tax is simple.

“Watch out. The holes you can hide this sort of money in are becoming smaller and smaller and we are constantly finding people.  A second piece of advice is just think about your part in New Zealand and your part in your industry, and play your part.”

If GST evasion was eliminated then for the same level of tax take the GST rate could be reduced.

From a few years ago: Cash jobs, crime drive black economy

Cash trade jobs, crimes, wages under the table and online trading are costing the Government more than $7 billion a year in lost tax.

That’s unpaid tax that us tax payers have to subsidise, about 10% of tax revenue.

How much do we pay? If we are on about an average income of $60,000:

taxpaid60000

You can check this for different incomes at My Tax Dollars.

That’s just income tax, add GST and it will be closer to $15,000 in tax per year for an average earner (that doesn’t get Working for Families accommodation subsidies).

Those who evade GST and income tax mean the average income earner pays perhaps 10% more than their fair share, or around $15,000 per year, or about $30 per week, because of dishonest people.

If tax evasion was reduced, and honest tax rates were reduced, there would be less need for WFF type subsidies.

Cash jobs = tax evasion

It costs a honest people a significant amount amount of money.

Arrest over student loan debt

The Herald ‘understands’ that a woman has been arrested at Auckland airport trying to fly to Australia over a student loan debt.

Woman arrested at airport over student loan debt

The woman was arrested at Auckland Airport as she tried to board a flight to Australia on Tuesday, the Herald understands.

She appeared in Manukau District Court on Wednesday.

An Inland Revenue spokesman confirmed an arrest warrant was executed by police this week.

Taxpayer secrecy prevented the release of more details.

Some say this is draconian butIRD says they only use arrest as a last resort.

“Our powers to arrest at the border are used as a very last resort, and would only follow strenuous efforts to contact the borrower to make repayment arrangements – these would typically involve making phone calls, sending correspondence via mail and email to the borrower, and attempting to contact them via any third parties such as nominated persons and/or any known employer.”

It’s tough, but as much as anyone wants to argue about paying for tertiary education and the student loans system all those who take on a student loan should be aware of their responsibilities of keeping in touch with IRD and in in repaying the loan as and when required.

It is the harshest in a range of measures to recoup student debt from overseas Kiwis. Last year those based overseas made up 15 per cent of all borrowers, but 74 per cent of borrowers with overdue payments, and had 90 per cent of the amount overdue.

Those in default and living in Australia will come under more scrutiny from next month, when a transtasman information-sharing agreement begins. It will cover contact details of student loan borrowers living in Australia.

That could see thousands more borrowers receive warning notices. Accurate contact information is crucial, as a district court judge can issue an arrest warrant only if satisfied a person is knowingly avoiding repayment obligations.

The majority of overseas-based student-loan borrowers live in Australia. Legislation allowing the information-sharing passed last month.

There are about 112,000 overseas-based student-loan borrowers, and roughly 70 per are in default.

Tougher measures seem to be affective.

In January, Cook Islands man Ngatokotoru Puna, 40, was arrested as he tried to leave New Zealand.

Over the first two months of this year there was a 31 per cent increase in repayments by overseas-based borrowers, compared to the same period last year, with $7 million more received.

Emails to IRD were up 62 per cent, and phone calls increased by 55 per cent.

Inland Revenue believe that the publicity around the first arrest at the border contributed to the increased activity.

Some will find this additional information sharing and chasing up of loans tough but being in touch with IRD is the best way to deal with it.

Authorities say those in default should make contact with Inland Revenue, to arrange a repayment agreement or discuss hardship plans if in financial difficulty. Applying for an arrest warrant is a “last resort”, the IRD says.

New Zealand’s reputation at stake

Today’s ODT editorial says that “New Zealand is not a tax haven in the way many countries in the world operate” but the country’s reputation is at stake over the Panama papers revelations.

NZ’s reputation at stake

Prime Minister John Key is moving to protect the international reputation of New Zealand as a place to do business, with the release of the Panama Papers forcing his hand.

The Panama Papers have proved to Kiwis that this country is being used by foreign business people and global leaders as a way to pervert the tax laws of their home countries.

Let’s be clear, however. New Zealand is not a tax haven in the way many countries in the world operate. Our foreign tax laws may be used by overseas people to defraud their own countries of tax, but our tax base is not being exploited. Nothing about those trusts is illegal in this country with most apparently meeting our tax laws.

Nothing relating to new Zealand has been found to be illegal – yet – but if overseas people can use New Zealand’s trust laws to hide illegal activity or avoid tax illegally then it looks bad for New Zealand.

However it should be noted that if New Zealand wasn’t being used for questionable trusts other countries would be used – as they are, far more than New Zealand is.

What is at stake is New Zealand’s reputation which is seen around the world transparent and stable. We are consistently at the top of tables about the ease of doing business, the least corrupt country and one of the most transparent.

Mr Key is indicating a second phase of anti-money laundering measures may be brought forward in the wake of the Panama Papers. He denies the papers are evidence New Zealand is a tax haven, in line with tax experts. Here the foreign trusts need to provide information to Inland Revenue and the trustee fills out an annual return. In tax havens, little or no information is supplied to authorities.

If there is potential reputational damage then something needs to be seen to being done about it.

There has been no indication any of the people named were acting illegally, just that they were involved in some way or another. The tall-poppy syndrome is never far from sight in this country. The latest name dump is guilt by association, without context.

That is also a major issue that could affect reputations of those implicating named people in shady dealings.

Labour leader Andrew Little is saying Mr Key has damaged New Zealand’s reputation by siding with those people keen to limit their tax obligations. Labour will abolish foreign trusts but it needs to be said the current regime was put in place by former Labour finance minister Sir Michael Cullen in 2005.

Sir Michael required foreign trusts with New Zealand resident trustees to provide some tax information to Inland Revenue – exactly what is currently happening.

Thanks to the past Labour led government and the current National led government New Zealand’s tax and trust laws are (or have been) highly regarded. That is apparently a part of the problem, our reputation is being exploited by some people who want to use trusts.

The Government has appointed well-regarded accountant John Shewan to undertake an independent review of disclosure rules covering the foreign trusts in New Zealand. Mr Key indicated the Government is open to any changes Mr Shewan may suggest.

So far, New Zealand has complied with every information request from its treaty partners to the standard set by the OECD and $205 million has been invested since Budget 2012 to strengthen compliance work by Inland Revenue.

Reputational damage is hard to repair and Mr Key will be wise to act quickly on recommendations coming from both Mr Shewan and Inland Revenue.

The spotlight will be on Shewan’s report in particular. Somethig needs to be seen to being done.

For the good of New Zealand’s reputation Labour need to work positively with this with the Government to ensure our good tax and trust laws are improved.

Provisional tax alternative

Just about anyone who has been involved in running a business will have grumped about provisional tax. It seems to be widely hated.

Yesterday John Key made a pre-budget announcement that signalled the introduction of an alternative pay-as-you-go way of paying company tax, as long as your turnover is less than $5 million.

The Government’s official announcement:

BUDGET 2016: SME-FRIENDLY TAX PACKAGE
BY HON BILL ENGLISH, HON MICHAEL WOODHOUSE

An SME-friendly tax package announced by the Prime Minister today will reduce compliance costs and make tax simpler for small businesses, Finance Minister Bill English and Revenue Minister Michael Woodhouse say.

“The package will make paying tax easier and more certain, reduce the burden of interest and penalties, and help small businesses tailor payments to their circumstances,” Mr English says.

“We want the tax system to fit in with how businesses operate, not the other way around.”

Key measures in the proposal are that:

  • Provisional tax is being reformed, with a new pay-as-you-go option giving up to 110,000 small businesses a way to pay tax as they earn income from 1 April 2018.
  • Use-of-money interest will be eliminated or reduced for the vast majority of taxpayers.
  • Contractors will be able to choose a withholding tax rate that suits their needs, rather than one being set for them.
  • The ongoing 1 per cent monthly penalty will be scrapped from 1 April 2017 for new debt – although immediate penalties and interest charges for late payments will continue to apply.

Mr Woodhouse says the changes are part of a wider business transformation programme which will support the use of new technology to make it easier to deal with Inland Revenue.

“Around 30 to 40 per cent of businesses currently use cloud-based accounting software. This is expected to grow to 85 to 90 per cent in the next 10 years.

“This package allows small businesses to pay provisional tax through their accounting software, rather than having a separate process for their taxes.

“Small businesses are the backbone of the New Zealand economy. We want to help them spend more time focused on their business, not their taxes.”

The package is expected to cost $187 million over four years.

To find out more, and to provide comment on the proposals, visit www.makingtaxsimpler.ird.govt.nz. Submissions close on 30 May.

This should be welcomed by many people running small businesses – and software providers who should get more business out of providing a means of simplifying tax payments in conjunction with Inland Revenue.

Nash responds to Peters’ attack

In Parliament on Thursday Winston peters attacked Inland Revenue’s international revenue strategy manager, John Nash – see Two strikes for Peters – and then again in a media release – see Winston Peters – whinebox.

Nash has responded.

Stuff: Panama Papers: NZ foreign trust disclosure enough to create ‘audit trail’

The IRD’s manager of international revenue strategy, John Nash, said he feels “a little bit beaten up on this” when by international standards New Zealand is “at the top of the class” – and that was before NZ First leader Winston Peters targeted him by name in Parliament on Thursday.

Nash conceded some would describe the initial disclosure as “brief”.

“As far as we are concerned it’s sufficient for us to have an audit trail.”

The key was the NZ-based trustee, who was required to keep detailed records which the IRD could access and pass on to overseas authorities.

Trustees generally kept good records.

Nash denied “absolutely” that New Zealand is a tax haven.

He said New Zealand also had a “100 per cent” record responding to requests from overseas tax authorities.

Many critics misunderstood tax regimes around the world. Some did not tax offshore trusts and others did not levy tax until assets in the trust were repatriated.

There was no “universal tax code that we are all part of”, as some had implied.

New Zealand rules  were tight on offshore investments by residents, though that may not be the case for other countries.

“The level of interest in New Zealand foreign trusts may not be necessarily as high as some might make out in the media.”

Authorities could track investments through their compliance and audit work, which could mean either “following the money” or a document trail  If they saw a link to a foreign trust they could ask for information and that would be passed on.

IRD would hand over information to other countries “if they expressed an interest in receiving that information”.

“We would listen, and I can’t say definitively we would start exchanging in the same way we do with Australia, but that’s a possibility.”

IRD does “spontaneously” pass on information if it finds something suspicious or untoward. It had exchanged information with more than 20 countries and had looked at “quite a number” of the almost 12,000 foreign trusts set up in New Zealand.

The flipside was that other countries did not provide the same level of disclosure to New Zealand. “We are quite an exception on doing that,” Nash said.

IRD had reviewed all the major agents who set up trusts and companies. “We’ve had quite a sweep of the industry.

Since then Peters has called for an inquiry into the Panama papers but hasn’t been specific about what he thinks any possible problems might be.

This seems to be vintage Peters, asking for others to investigate something based on his vague allegations and insinuations.

 

Shaw on ‘multinational’ tax avoidance

Green co-leader James Shaw questioned Revenue Minister Michael Woodhouse in Parliament yesterday on tax avoidance by multinational companies.

4. JAMES SHAW (Co-Leader—Green) to the Minister of Revenue: What estimates, if any, does he have for the total amount of tax multinational enterprises operating in New Zealand may have avoided paying in the last tax year through incorrect transfer pricing practices?

Hon MICHAEL WOODHOUSE (Minister of Revenue): The Inland Revenue Department does not distinguish between companies based on whether they are multinational or not. This is because we expect all companies to pay the correct amount of tax, regardless of where they are owned. But to the extent that incorrect transfer pricing practices are identified by the Inland Revenue Department, they would be disallowed.

What is a multinational company? Presumably New Zealand based companies like Fonterra, ENZA, Silver Fern Farms, Fisher & Paykel Healthcare and Scott Technology could be called multinational.

But the term seems to be used by Shaw here to diss overseas companies.

James Shaw: Is New Zealand Herald investigative journalist Matt Nippert’s figure of $500 million of lost tax revenue from multinationals in the last financial year about right, or is tax expert Professor Craig Elliffe’s estimate of $1 billion more accurate?

Hon MICHAEL WOODHOUSE: Well, both estimates are speculative, based on their value judgments about what companies with that level of turnover should pay. It is not the Inland Revenue Department’s job to estimate based on gross turnover. As I am sure the member is aware, the amount of tax paid is assessed on the taxable profit, and that is what they pay.

If there are ‘incorrect transfer pricing practices’ that can be identified then  Inland Revenue should be addressing them, but Shaw is not specific.

James Shaw: So is the Minister of Revenue saying that he has less of an idea about how much revenue is being lost than Matt Nippert and Craig Elliffe?

Hon MICHAEL WOODHOUSE: I should hope so. But look—if the member is saying that this does not look right or does not look fair, I have some sympathy with that point of view. But what is considered unfair is multinationals not paying tax anywhere in the world, and for that reason this is a global issue that requires a global response. I think the OECD is the best place in which to have that analysis.

There’s two separate issues that Shaw has not clearly differentiated between – avoidance of tax on profits disclosed in New Zealand, which Inland revenue should deal with, and international avoidance through profit transfers that are much more difficult to address without cooperation between countries.

James Shaw: Given that the Inland Revenue Department advised his office in 2013 that “We will be closely involved in, and guided by, the OECD work. However, this does not prevent us from addressing potential deficiencies in our own rules, which we have concerns about.”, why is he still to address these deficiencies in our own tax rules?

Hon MICHAEL WOODHOUSE: I do not accept that they have not been addressed, to the degree that there are robust tax policies already in place for the establishment of rules around permanent establishment and for the unfair transfer pricing for the purpose of avoiding tax. I think we have a really good tax policy framework. The Government invested nearly $20 million in last year’s Budget for the audit and compliance work that needs to go on in those large businesses, and I think we have a good system.

A claim that ‘deficiencies’ have not been addressed and a counter claim that specific directives and resources have been made available.

James Shaw: Well, given that answer, how many staff at the Inland Revenue Department currently work on base erosion and profit shifting, to address multinational tax avoidance?

Hon MICHAEL WOODHOUSE: I do not have that specific number to hand, but I would be very happy to get it to the member if he wanted to put that question down in writing.

James Shaw: Then will he introduce new law, like Australia has recently, to better police multinationals to require greater transparency and to collect a fair share of tax revenue from them?

Hon MICHAEL WOODHOUSE: The member is referring to laws that have been passed in both the UK and Australia on what is known as diverted profits tax, which disallow arrangements where foreign companies exploit permanent establishment rules and contrive tax advantage by having deductions that lack economic substance. I am getting some advice about that, but I am satisfied in the interim that we already have those sorts of rules in the Income Tax Act.

Greens were tweeting in parallel to this exchange:

The Revenue Minister needs to stop hiding behind the OECD’s slow progress and take action on tax avoidance, like Australia has

Australia cracked down on multinational tax avoidance last year: larger penalties, more enforcement resources, increased transparency

New Zealand also put more resources towards it last year.

I’d be surprised if Australian and UK measures have totally solved the problems associated with offshore profit shifting.

James Shaw: What does he have to say to New Zealanders and domestic businesses that are paying their fair share of taxes while international businesses that are operating in New Zealand can avoid them?

Hon MICHAEL WOODHOUSE: Putting aside that I do not absolutely agree with the second part of the question, I think all New Zealanders would agree that it is appropriate that everybody, regardless of their ownership, pay their fair share of tax on transactions that take place here in New Zealand. I am confident that we have good policies to enable that to occur and good resources deployed to check compliance with them, and where there are improvements that can be made, they will be.

I don’t know if the Greens have any specific proposals for handling taxation of overseas owned companies any differently to what is already being done.

It’s a lot more complex than waving a tax wand can fix.

I think this is an appropriate line of questioning from an opposition party, it’s their job to put pressure on the Government to do things like improve the means of fair taxation.

But it’s difficult to see how things could be substantially improved, especially without international cooperation on what is a complex and difficult issue.

One thing Governments tend to be good at is gathering as much tax as they legally can.

And large companies tend to be good at finding ways of avoiding paying any more tax than they legally have to.

Shaw followed up with a press release:

Govt has no idea how much tax multinationals are avoiding

The National Government has admitted it has no idea of the amount of tax it is missing out on from multinational companies that are avoiding paying their fair share of tax, the Green Party said today.

How is it possible to know how much tax companies are ‘avoiding’? Tax avoidance is not illegal and just about everyone tries to avoid paying more tax than they have to.

I avoid paying a million dollars of tax annually, because I don’t have to pay it.

“The National Government’s see no evil, hear no evil approach, means big international companies have been free to avoid paying some taxes. That’s not fair on ordinary Kiwis and businesses who have to pay ours.”

Shaw has switched from ‘multinational companies’ to ‘big international companies’.

“IRD warned the Government in 2013 that tax avoidance by multinationals was a big problem. Today, it’s clear the Government can’t – or won’t – say just how big the problem is.

“I would have thought the most important thing a Minister of Finance could be doing right now is finding a way to stop the loss of hundreds-of-millions of tax dollars offshore,” Mr Shaw said.

One thing the Greens are very good at is coordinating social media campaigns and media releases with questions asked in Parliament.

But apart from the framing of bad National and evil international companies Shaw is really not making any specific claims. Tax avoidance is not illegal and is common practice for large companies right down to individuals.

If companies (no matter how big they are or where they are owned) are illegally evading tax then that should be addressed, but Shaw doesn’t address evasion at all.

Shaw and the Greens seem to want to increase the taxation of large international companies. But their policy last election included:

9. Cut the company tax rate from 28 percent to 27 percent;

10. Increase the top marginal income tax rate to 40 percent for all income over $140,000, with a matching increase in the trust tax rate;

That would reduce the taxation of companies, including large international companies, and raise personal tax rates.

Is that fair on ordinary Kiwis?

And it’s fairly certain that substantially increasing the gap between company tax (27%) and personal tax (40%) will encourage more tax avoidance.

Student loan defaulters worried

After a student loan defaulter was arrested trying to leave New Zealand NZ Herald reports Worried borrowers swamp IRD lines:

Inland Revenue has received a surge of inquiries from student loan defaulters worried they could be arrested if they return to New Zealand.

This isn’t a surprising reaction to the arrest. Up until now people with student loans have been able to leave New Zealand and ignore their loans with impunity.

One man who ignored his repayment obligations contacted the Weekend Herald from Australia and said he would now be scared to return for funerals or weddings.

Was he not concerned about defaulting on his loan until now? Obviously the threat of arrest is more of a worry but he should have had some feelings of concern about ignoring his responsibilities.

Unpaid student loans is a big problem. People who are overseas account for 90% of overdue loans.

The arrest policy, passed in March 2014, is the harshest in a range of measures to recoup debt from the 110,600 borrowers living overseas. Last year those based overseas made up 15 per cent of all borrowers, but 74 per cent of borrowers with overdue payments, and had 90 per cent of the amount overdue.

There were 5735 borrowers who each owed more than $100,000 last year. Those statistics do not indicate whether they are overseas, but in 2012 the IRD said most of the top 10 debtors were overseas – and each owed more than $290,000.

There’s some big money involved. I wonder about why people would clock up such large loans in the first place, and then think they can leave the country and ignore their debts.

Tertiary Education, Skills and Employment Minister Steven Joyce said if more money could be recouped from overseas borrowers, the cost of the scheme would be reduced significantly.

“The net cash cost of the scheme in the last year was down to $400 million – that is cash out, less repayments. In 2009/10, it was $771m.

“If we can get this overseas-based borrower stuff going, I can see us getting to a point where there is very little more going out [in loans] than what is coming back in [in repayments].”

The cost of unpaid loans impacts on New Zealand taxpayers, and it’s not fair on those who take out loans and are responsible enough to repay them.

Student unions criticised the border arrest policy as draconian and likely to make overseas Kiwis “student loan refugees” – unable to return home for weddings, funerals or other important events.

I think many had effectively already made themselves “student loan refugees”. This only really impacts on those who ignored their loans and kept returning to New Zealand.

The IRD has previously considered overdue borrowers for arrest if they re-entered New Zealand, but in each case the individual has agreed to repayments.

A simple solution – meet your obligations.

Accurate contact information is crucial – an arrest warrant can only be issued if a district court is satisfied a person is knowingly avoiding student loan repayment obligations.

Another simple way to avoid arrest, keep in touch with the IRD, which anyone should do if they owe them (us, the country) money.

If people who are overseas are worried about their student loans they should do what should have done all along, deal with them responsibly.