Stuart Nash has been remiss in staying silent about IRD’s political transgressions

Whether two examples of Inland Revenue’s follies amount to an “ongoing failure”to stay out of politics is open to argument.  But the Taxpayers’ Union is to be commended for drawing attention to IRD’s specific constitutional obligation not to enter politics and demanding that Revenue Minister Stuart Nash act immediately to restore the integrity and neutrality of his agency.

The demand follows IRD’s admitting it was wrong to ask for New Zealanders’ political persuasions in a survey they have been carrying out for the Government on the eve of the release of a crucial tax reform report.

The department has been researching the public’s views on globalisation and fairness in the tax system.

Among the survey questions, respondents were asked where they sit on the political spectrum.  This raised the issue of whether taxpayers are funding sensitive political polling.

And as Stuff now tells us:

After days of defending the research, Inland Revenue conceded on Saturday night that it was wrong to ask the political question.

“We should not have included the question about political spectrum,” group head of communications and marketing Andrew Stott said, adding that the department would not include the question in its research.

Stuff further reported that IRD was obliged to disclose details of the $125,000 research project it is undertaking with polling company Colmar Brunton after repeatedly playing down its significance.

Around 1000 people are being asked questions about their views on Inland Revenue, whether they are generally trusting, believe what they read in the media, pay too much tax or whether public services should get more funding.

A question on where respondents sit on a left/right political spectrum threatens to skirt the department’s legal obligation for political impartiality.

Polling experts said the results could give politicians valuable insight on how different demographics view the tax system, just days out from the release of a major report on possible tax reform, which will recommend that New Zealand introduce a broad-based capital gains tax.

Revenue Minister Stuart Nash, the bloke who is paid a handsome ministerial salary to be held politically accountable for his department’s  performance, declined to comment.

This is the second time – on his watch – that IRD has “waded into political activity” (as Taxpayers’ Union spokesman Louis Houlbrooke put it).

Last year, the agency paid millennial-issues blog The Spinoff $40,000 to publish the ‘Tax Heroes’ article series, which promoted a capital gains tax and argued that ‘tax is love’.”

“Inland Revenue has a specific constitutional obligation not to enter politics. Stuart Nash needs to act immediately to restore the integrity and neutrality of his agency.”

Houlbrook was recalling his organisation’s revelation in June last year that The Spinoff had broken the terms of its agreement with IRD to publish content in their Tax Heroes project.

The press statement released at that time said:

The Tax Heroes project, which featured a number of articles from writers associated with The Spinoff, intended to highlight the public good of paying taxes, and in doing so promote compliance with tax obligations among the public.

 Due to an official information request, the Taxpayers’ Union can reveal that The Spinoff was paid $40,000 ($46,000 including GST) by the IRD to publish the series.

The IRD is required to be politically neutral – especially so for matters currently under consideration by Sir Michael Cullen’s Tax Working Group.

The Spinoff’s contract with the IRD specifically states: The Spinoff agrees not to refer to any political party or their policies in the content.

However, an IRD-branded article by Maria Slade, published on 31 March, ignores the contractual obligation.

 Slade’s article was headed Why the lack of a capital gains tax is letting property companies off lightly.

It referenced research supporting The Spinoff’s Tax Heroes project by Auckland University accounting professors Norman Wong and Jilnaught Wong, who had made “a surprising discovery”.

Because New Zealand does not have a capital gains tax, property and aged care companies pay tax at a much lower rate than other corporates.

A quarter of the publicly listed companies on the NZX 50 index are in the commercial property or retirement and aged care sector. This meant that when Wong and Wong examined the index to see if New Zealand corporates pay their fair share, the results were skewed – so the professors looked at what happened if they took this industry out.

Overall, between 2015 and 2017 the NZX 50 corporates paid an average cash tax rate of 22.7% – that is, the amount of money they pay to the tax man as a percentage of their pre-tax accounting income.

However, property and retirement/aged care operators paid just 6.4%. If this sector is excluded, the other companies paid an average 27.8%, close to the statutory tax rate of 28%.

Wong and Wong point out there’s no tax avoidance going on here, it’s just the way the rules work as the values of the properties the companies own rise over time, and those increases are recognised as pre-tax income. But because capital gains aren’t taxed this ‘income’ is exempt, in many cases even if the company sells the property and realises the gains. Thus their cash tax rate appears lower.

The article proceeded to quote tax consultant Terry Baucher, who said the Kiwi system was becoming “incredibly incoherent” around the question of taxing capital gains.  Some activities are taxed, others aren’t. The New Zealand Super Fund and investors in schemes such as KiwiSaver are taxed on their profits as they accrue, for example, but gains on property aren’t.

“The issue then arises, is there an indirect bias towards investing in items which aren’t taxable… and is that great for the New Zealand economy?” Baucher says.

A note at the bottom of the article said:  This content is brought to you by IRD.

The Taxpayers Union said that by championing a Green Party policy, a capital gains tax, the article violated the agreement with IRD and again violated the agreement by referring to Labour in the first sentence.

The union noted that other overtly political articles bore the ‘Tax Heroes’ tag, but without IRD branding.  It demanded:

IRD and The Spinoff must explain whether any of these articles were paid for with taxpayer funds.

If not, and IRD funding was only used for the articles labeled ‘partner content’, then the cost per article was approximately $6,600 – which seems extraordinary.

Taxpayer’s Union Executive Director Jordan Williams said The Spinoff appeared to have misused $40,000 of taxpayers’ money to push a political message.  He said this was disgraceful and the money should be paid back.

He went on:

“The IRD needs to be extremely careful about its place in our constitutional environment. Taxpayers expect our revenue collection service to be strictly apolitical. Any movement away from that norm is unacceptable.”

“Putting aside the breach of agreement, the Tax Heroes series was a terrible use of $40,000 in taxpayer money. The articles were effectively taxpayer-funded pro-tax propaganda, with the first article pushing the Orwellian message that ‘Tax is love’.”

A response from Nash is overdue.