New Zealand is not Panama

Published in Insights, The New Zealand Initiative’s newsletter, 15 April 2016

There are a few things that New Zealand and Panama have in common. Both are home to about four million people. Both have fantastic beaches (though theirs are warmer than ours). And Panamanians are as crazy about baseball (or ‘beisbol’, as they call it) as Kiwis are about rugby.

But that is roughly where the similarities end. Which makes it surprising just how quickly commentators jumped from the Panama Papers to assumptions about New Zealand’s offshore trusts regime. It is even more surprising since no New Zealanders were mentioned in the papers.

For a start, there is an obvious difference in legal and political culture. One only has to look at The World Justice Project’s Rule of Law Index. New Zealand is ranked sixth whereas Panama comes 49th.

The claim that New Zealand was home to tax-evasion models similar to those revealed in the Panama Papers is just that: a claim. Thus far, we have not seen any evidence that the practices of the now infamous Mossack Fonseca law firm have any equivalent here.

Though it is true that offshore trusts operating in New Zealand enjoy favourable conditions, that does not make New Zealand an offender.

New Zealand is a member of international organisations such as the Financial Action Task Force, the OECD and the WTO. Revenue Minister Michael Woodhouse correctly pointed out that the OECD reviewed New Zealand’s tax transparency regime and rated it fully compliant.

Rather than following reflexes to draw parallels that may not exist, it would have been wiser to calmly check the facts first.

However, political reflexes continued when the Prime Minister announced the review of the foreign trust disclosure regime. This time, the government’s critics focused on the person selected for the job, former PwC chair John Shewan.

For full disclosure, John and I are both on the selection committee for the Robin Oliver Tax Policy Scholarships. What he brings to this pro-bono role is not just decades of experience in tax matters but also a genuine commitment to good tax policy.

I would imagine that this background was precisely why Shewan was also chosen to review the offshore regime. That he has previous practical experience is not a drawback but the requirement for a thorough review.

Before jumping to any premature conclusions, we should give Shewan a fair chance to conduct his review. Maybe that is not the way things are done in Panama, but that is how we do things here.