New Zealand’s $1.4 billion money laundering problem

New Zealand has long been viewed as a soft spot for money laundering, high end fraud, among other crimes. Across the last few years numerous examples of money laundering activity in New Zealand or linked to New Zealand businesses have appeared

  • In 2016 an expert said that New Zealand banks were missing large numbers of suspicious monetary transactions
  • Also in 2016 the so called Panama papers showed how a steady flow of foreign cash into New Zealand became a flood as its holders sought to avoid it being taxed in the proper jurisdictions
  • The same year John Shewan’s report found 12,000 foreign trusts existed in New Zealand – a number that plummeted to 3,000 within a year suggesting many were used for money laundering or other improper monetary purposes
  • In August 2019 $9 million was seized in an anti-money laundering sting in Auckland
  • Just a few days ago the Chief Executive Officer of Westpac resigned after allegations that Westpac failed to pick up 23 million individual breaches including payments to Philippine based child exploiters

Now it has emerged that New Zealand has a N.Z.$1.4 billion money laundering problem. This estimate does not include the domestic cheats who do not pay due taxes to Inland Revenue Department. Globally it is part of what the International Monetary Fund believes to be a $6.5 trillion problem.

New Zealand needs to crack down hard on money laundering. As the resignation of Mr Hartzer shows, money laundering can be linked to some extremely dark criminal activities including child exploitation. A significant part of the crack down would need to ensure a long term budget increase for the police unit investigating financial crime. There would also need to be a revisit of the amendments made to the Anti Money Laundering and Countering Financing of Terrorism Act 2009.

The Government seems to be rising to the challenge. It has made changes that took effect in January for real estate agents. In August changes for the racing industry and businesses with high value products regarding the need to comply with the A.M.L.C.F.T. Act took effect. In 2018 the obligations for businesses providing trust services, lawyers, conveyances and accountants were changed.

But there is more that can be done. I believe that tightening the sentencing regime for those convicted of money laundering, conspiracy to participate in money laundering and providing support for those involved in it can be tightened up. Whereas many of the people who commit offences against the human body are disturbed, come from messed up backgrounds or may simply not have had a loving family to show them right from wrong, organized crime is quite different. The victims of money laundering – although individual victims certainly exist – are whole communities, businesses and in the worst cases the reputation of entire nations.

Whereas the impacts of rape, murder and so forth – certainly not trying to put any of these crimes down in terms of their gravity – on the individual, the family and their lives are well documented, how well do people know about the absolute worst of white collar crime? How well do we know what we as a society, as a nation and as a people are missing out on by not tackling money laundering and the people who engage in this kind of activity?

I fear the answer is not very well at all.

Can we still address poverty in New Zealand?

New Zealand has just ruled out one of the best measures for helping to address poverty. Is it still possible to do so?

Good question and one that irrespective of governing coalition, New Zealand must try to. The country that likes to think it is egalitarian and that the spirit of giving people a fair go is alive, has no choice if it wishes to reasonably continue thinking this.

It is a question that will rankle the supporters of the Labour-led Government of Jacinda Ardern. It will rankle many of them because the C.G.T. to many was a fundamental part of any policy platform for dealing with poverty. It would appear New Zealand wants to address poverty, but is absolutely loathe to introduce any sort of measure that check the unsustainable wealth accumulation by the top 5-10% of income earners. So, to cut to the chase, what are the options?

Is New Zealand even agreed on a definition of poverty?

To me poverty is the inability to afford and access the essentials for a life of dignity. What is life if it cannot be lived in a state of dignity where a human being is not degraded? To me, nothing. It is when one is unable to afford basic medical care, shelter, food, transport and education.

In one respect New Zealand is making progress, in that we are enacting a progressive increase in the minimum wage. It rose last year from $15.25/hr to $16.50/hr; from 1 April this year to $17.70/hr; from 1 April next year to $18.90/hr; from 1 April 2021 to $20/hr.

One thing New Zealand can do is ensure that the benefits administered by the Ministry of Social Development are fixed to a Consumer Price Index or other appropriate measure, and adjusted annually on 1 April each year. The rules for administering the schedule of benefits should be reviewed at the same time.

New Zealand can also try to implement the nearly 100 other recommendations that were made by the tax working group.

I still believe though that New Zealand should broaden its income tax regime. Currently the brackets sit at:

  • 10.5% for income up to $14,000
  • 17.5% for income between $14,000-$48,000
  • 30.0% for income between $48,000-$70,000
  • 33.0% for income above $70,000

A top tax rate of say 37.5% could take effect on incomes over $250,000 per annum, whilst the others are more evenly spread instead of a tight range covering just $56,000 between the end of the lowest bracket and the start of the highest.

No mention in the T.W.G. report appears to have been made of a luxury goods tax. Some might call it a jealousy tax. I disagree as it would be on assets that probably out of the reasonable reach of 95-99% of the worlds population. How would it be implemented and at what financial value does something become a luxury good? To be clear to me a luxury good is something that is surplus to the reasonable maintenance of life, and purchased simply because the buyer wants it for reasons of prestige and can afford it. As for what passes as a luxury asset, it would be any car, property, jewellery, aircraft, helicopter, rare items such as art works, other collectables. One can discuss valuations at which such assets can be defined as luxury goods upon inspection, however I think the following could be a good start (and exclude family homes, immediate business assets):

  • vehicles worth $250,000+;
  • yachts worth $1 million+
  • property other than the family home worth $1 million+
  • any helicopters, private jets









Government will regret abandoning C.G.T

This afternoon, Prime Minister Jacinda Ardern made a stunning announcement.

It was stunning for all of the wrong reasons, but perhaps first and foremost how it seems to have caved into the lobby group with the loudest megaphone, namely the Tax Payers Union, which is a right leaning group. It was a stunning announcement, because it was a complete u-turn to the image that the Government has been cultivating as one that wants to address poverty, the huge wealth imbalance in the country and the social disparities that it is causing. The Government will regret its move to abandon the C.G.T.

I saw this article from Craig Elliffe and Chye-Ching Huang after the failure to do anything about enacting such a tax in 2009-10. I cannot help but wonder what they would say now.

Not surprisingly the Green Party is disgusted. A C.G.T. was to be the corner stone of any plan to address poverty, which is high their agenda.

I am disgusted myself. New Zealand is the only country in the O.E.C.D. not to have a C.G.T. and possibly for as long as the next 18 years – with the exception of the Keith Holoyoake-led National Government of 1960-1972, and the war time Savage/Fraser-led Labour Government, no government has lasted more than 3 consecutive Parliamentary terms. And no National-led Government is going to introduce such a tax. Before then they would prefer to cut income tax or raise goods and services tax (G.S.T.).

How much did New Zealanders honestly know about a C.G.T.?

My guess is probably not a lot. I wonder how many of them have learnt to critically evaluate something, instead of just reading about the pros and cons. I never took accounting or economics at school and only did a first year economics paper at University that immediately screamed “give it up, Rob – you’re not an economist!”. Which I heeded – I haven’t touched an economics paper since.

So, what do I believe the consequences of this are?

In a purely political sense, provided they do not do anything dumb between now and the 2020 General Election, the Greens stand a good chance of enjoying a bit of a surge in support. It will come from those on the left flank of Labour who are not quite in the Green Party camp, but do not really feel as though they belong with Labour.

In a financial sense, Labour has squandered perhaps its best chance to enact something that addresses a long standing and well known problem – our treatment of capital gains is inconsistent, unfair and inefficient. The Government has indicated that most of the other 100+ recommendations made by the Tax Working Group in their report will be implemented or examined further. The question, though is whether the sum of these apparently lesser measure will be noticed. Nor is C.G.T. a new idea, having been examined by Governments in 1967, 1978, 1982, 1987, 1988, 1989, 2001 and 2009-10.

In a social sense, the potential support for those trying to get on the property ladder for the first time has been taken away by failing to address those who buy multiple properties to use as a money making scheme. It also sends an improper message to those who do indulge in this behaviour that the Government does not care much for making sure you pay due tax.

The blind rage against the Capital Gains Tax


Ever since the Tax Working Group’s findings were released, I have listened to the rage, the unrelenting anger at the possibility of a Capital Gains Tax. And the more I listen, the more I think it needs to happen.

Parties such as A.C.T. are blinded blinded by their ideological fury about the Capital Gains Tax. Be rid of it they all say: it costs the businessman and the landlord, the entrepreneur and the real estate agent, the industrialist and the farmer.

How dare you take away our wealth making means!

But hang on a minute. As Sir Kerry Burke, former Labour M.P., noted in The Press the other day, what about those who have acquired property simply because they could and not because they needed it or because they had any reasonable plans for them? Mr Burke gave the example of a person who had acquired 80 properties.

I believe a C.G.T. is needed, and that a good case can be made for one. The basics of it are that one would need to be simple but fair. So far people agree that the family home should be exempt for obvious reasons. I have given another reason above for going ahead – people who acquire property simply because they can stoke an overheated market and the distrust of the many who are literally priced out whilst the lucky few go about making millions.

There is another reason for wanting to do this. That is quite simply at some point it would be implemented anyway for better or for worse. We should try to implement this now with a fresh set of recommendations in front of politicians than try again at a later date.

If we on that basis proceed, then the questions should be about the rate at which it is set; what it covers and and when to make it law.

There is one final point that also needs to be made. The Capital Gains Tax is just a PROPOSAL. Neither it or any of the other 100 recommendations are law yet. And not all of them will be – although unlikely, the C.G.T. might be among them.

Capital Gains Tax lightning rod means significant other recommendations ignored

Nau te rourou, naku te rourou, ka ora ai te iwi

With your contribution, and mine, the people will prosper

The Tax Working Group’s final report has been out for a week now. Even after all that time, the politicians seem to have forgotten that Capital Gains Tax was just one recommendation in more than 100 made. So bent have they been on attacking/defending the recommendations, that the media coverage has been dominated by National Party leader Simon Bridges, A.C.T. Party leader David Seymour on the attack, Prime Minister Jacinda Ardern and Treasurer Grant Robertson on the defence. But what about the other 100+ recommendations?

This report, to be clear is not a compulsory check list of things that the Government needs to do. They are just recommendations based on a nation wide attempt in 2018 to gather from the public what would make a fairer and more just taxation system, that included a two month public consultation.

Those recommendations covered:

  1. Capital gains and wealth
  2. Environmental and ecological outcomes
  3. Taxation of businesses
  4. International tax
  5. Retirement savings
  6. Personal income tax
  7. Future of work
  8. Integrity of the tax system
  9. Administration of the tax system
  10. Charities
  11. G.S.T. and financial transaction taxes
  12. Corrective taxes
  13. Housing

I shall cover in the next few paragraphs a selection of recommendations from #2-13 – due to the heavy coverage elsewhere, there shall be none on Capital Gains Tax.

Environmental taxation is a regulatory tool that can be used as an incentive or disincentive in order to achieve certain environmental outcomes. The T.W.G. recommendations cover greenhouse gases, water abstraction and pollution, solid waste and transport. Interestingly, it does not appear to cover air pollution, despite aerial dispersal of dioxins and so forth being a significant issue.

Retirement savings are a constant concern, particularly for lower income earners who have to work longer in many instances in order to afford retirement. The recommendations include refunding the employers superannuation contribution tax for those earning less than $48,000; increasing the member tax credit from $0.50 to $0.75 for every $1 of contribution.

G.S.T. had concerns raised about it by the public. These were acknowledged by the T.W.G., but drew the conclusions that the existing rate should not be lowered on the grounds that the reduced rate would not target as lower income earners as welfare transfers or personal income tax changes (lower and middle income earners). Nor does the report recommend the removal of G.S.T. of certain items such as food and drink.

Housing is an area that one might have expected to come under C.G.T. However, this concerns residential land. There were two recommendations pertaining to vacant residential land. One was to recommend that the Productivity Commission inquiry considers a tax on residential land. The second was that vacant residential land be a local tax rather than a national tax.

This article is just a very brief look at a few of the range of taxation concern areas that were addressed by the T.W.G. – and which the politicians ignored, quite surprisingly given that several addressed some of the wealth that they were arguing over.