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Anthony Willy

Ethnic Taxation

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Conditional support for a capital gains tax has been expressed by two large Iwi Groups: Ngapuhi (Northland), and CNI Holdings Limited which is part of a Central North Island Iwi collective. The “condition” is that such a tax cannot apply to any Maori person because to do so would be a breach of the “principles” of the Treaty of Waitangi. If correctly reported this raises questions of fundamental constitutional and social importance, particularly as the Tax Working Group (TWG) has listened to this special pleading and proposes capital gains tax exemptions for persons claiming some Maori ethnicity. Here is what the TWG says about capital taxation of Maori owned land:

  1. The Group recognises that taxation of capital gains could create an impediment to a Māori organisation’s ability to regain ownership over land lost as a result of historical Crown action. Accordingly, rollover should be provided for transactions relating to recovery by Māori authorities of such land.
  2. For example, under Treaty settlement, the Crown can only include in redress land the Crown owns and is ready to dispose of at the time of settlement. When ancestral land is made available by the Crown or becomes available on the open market subsequent to settlement, Māori organisations may need to realise gains by selling land or other assets acquired through their settlement to purchase that ancestral land. Without a rollover rule in this circumstance, a Māori organisation would be subject to tax owing to the arbitrary fact that its preferred ancestral land was not available for the Crown to include in original Treaty settlement redress.
  3. In the Treaty settlement context, iwi may not immediately develop the strategic and commercial capabilities needed to align assets with their strategic objectives. The Group notes the Crown’s policy of tax indemnities for the transfer of assets from the Crown to iwi under a Treaty settlement and considers that time-limited relief on realised capital gains from settlement assets is also merited.
  4. The specific design of rollover rules applicable to Māori collectively owned assets should be developed through further engagement with Māori to ensure the rules achieve the intended policy.

This appears to mean that where a Maori entity has been given land by The Crown to compensate for some historic grievance but wishes to sell that land and buy some other land on the open market then the gain on the sale of the land – which will be 100% because the beneficiary paid nothing for the capital asset – should not be subject to a tax. Quite why as a matter of principle this should be so, and in what circumstances it could apply to future treaty settlements, is not clear. It would appear that this is intended as a sop to Ngapuhi which is the only major tribe yet to settle its historic grievances with the Crown, and coincidentally it is Ngapuhi which made this submission to the TWG. Of necessity this major race-based concession cannot apply to any tribe which has settled its Treaty claims before the proposal becomes law and no doubt tribes such as Ngai Tahu which have settled their Treaty claims will see a blatant inequity in the proposal leading no doubt to more special pleading from those tribes which have settled with the Crown. It is said by Dr. Cullen, the TWG Chairman, in a radio interview on News Talk ZB on the 28 February that a race-based concession is necessary to avoid claims by affected Maori interests to the Waitangi Tribunal and possibly the Courts of breaches of article two of the treaty. To suggest that the design of an important, indeed historic extension to a nation’s tax system should have any regard to the possibility future litigation is breathtakingly stupid. Tax legislation is mired in litigation. Such a proposal should find no place in a serious tax policy discussion.

But even assuming such a proposal is capable of serious discussion it is helpful to recall the text of the “treaty” signed in 1840 between the British Crown and some of the aboriginal inhabitants of New Zealand. Much is it talked about and invoked but how many have actually read the document. Certainly not our Prime Minister who will have to lead the discussion on the TWG proposals. When asked in public at the Waitangi celebrations no less, she was unable to state any part of either the first or second Articles of the document. Whether she is aware of the contents of the third Article is unknown. This is no senior moment. Clearly this vital and intelligent young woman, our Prime Minister, has simply never read let alone made any attempt to understand the document. It must follow that she is unaware of any of the jurisprudence surrounding it’s the lawful interpretation. In such a state of blissful ignorance one wonders how this government can know whether any claim for racial preference made by persons claiming some Maori blood is justified as being within the purview of the Treaty or not, and in particular how to deal with “ancestral Maori land”

Given this knowledge vacuum at the very pinnacle of our Parliamentary system it is timely to set out the document in full. It provides:


HER MAJESTY VICTORIA Queen of the United Kingdom of Great Britain and Ireland regarding with Her Royal Favor the Native Chiefs and Tribes of New Zealand and anxious to protect their just Rights and Property and to secure to them the enjoyment of Peace and Good Order has deemed it necessary in consequence of the great number of Her Majesty’s Subjects who have already settled in New Zealand and the rapid extension of Emigration both from Europe and Australia which is still in progress to constitute and appoint a functionary properly authorised to treat with the Aborigines of New Zealand for the recognition of Her Majesty’s Sovereign authority over the whole or any part of those islands – Her Majesty therefore being desirous to establish a settled form of Civil Government with a view to avert the evil consequences which must result from the absence of the necessary Laws and Institutions alike to the native population and to Her subjects has been graciously pleased to empower and to authorise me William Hobson a Captain in Her Majesty’s Royal Navy Consul and Lieutenant-Governor of such parts of New Zealand as may be or hereafter shall be ceded to her Majesty to invite the confederated and independent Chiefs of New Zealand to concur in the following Articles and Conditions.

Article the first:

The Chiefs of the Confederation of the United Tribes of New Zealand and the separate and independent Chiefs who have not become members of the Confederation cede to Her Majesty the Queen of England absolutely and without reservation all the rights and powers of Sovereignty which the said Confederation or Individual Chiefs respectively exercise or possess, or may be supposed to exercise or to possess over their respective Territories as the sole sovereigns thereof.

Article the second:

Her Majesty the Queen of England confirms and guarantees to the Chiefs and Tribes of New Zealand and to the respective families and individuals thereof the full exclusive and undisturbed possession of their Lands and Estates Forests Fisheries and other properties which they may collectively or individually possess so long as it is their wish and desire to retain the same in their possession; but the Chiefs of the United Tribes and the individual Chiefs yield to Her Majesty the exclusive right of Preemption over such lands as the proprietors thereof may be disposed to alienate at such prices as may be agreed upon between the respective Proprietors and persons appointed by Her Majesty to treat with them in that behalf.

Article the third:

In consideration thereof Her Majesty the Queen of England extends to the Natives of New Zealand Her royal protection and imparts to them all the Rights and Privileges of British Subjects.

(signed) William Hobson, Lieutenant-Governor.

Now therefore We the Chiefs of the Confederation of the United Tribes of New Zealand being assembled in Congress at Victoria in Waitangi and We the Separate and Independent Chiefs of New Zealand claiming authority over the Tribes and Territories which are specified after our respective names, having been made fully to understand the Provisions of the foregoing Treaty, accept and enter into the same in the full spirit and meaning thereof in witness of which we have attached our signatures or marks at the places and the dates respectively specified. Done at Waitangi this Sixth day of February in the year of Our Lord one thousand eight hundred and forty.

(My emphasis throughout)

It is significant in the context of later judicial interpretations of this document that it cannot be described as a “Treaty” as then and now understood by International and domestic law because a treaty can only be made between states exercising sovereign power over the affected lands, or be expressly made part of the municipal law of the countries (Great Britain and New Zealand) affected. To date neither has happened. This being well understood by a colonial power such as Britain the wording of the Waitangi document is expressed instead in the classic formula of a contract as then, and now understood by the common law of the England and New Zealand. It uses the words “In consideration” of the promises made by the signatories allowing the sovereignty of Queen Victoria over the country of New Zealand the Crown grants to the signatories all of the then rights and privileges of British subjects. The common law is and then was clear that the courts will not enforce any contract unless the promises have been bought for some item of value (consideration). In this case the valuable consideration is the exchange of promises, on the one hand vesting sovereignty in the Crown and on the other protecting existing rights of the aboriginal signatories, and the granting of British citizenship which without exaggeration was as valuable then as the much sought-after Roman citizenship in the heyday of that Empire.

This was all clearly understood by The Judicial Committee of The Privy Council in the 1930s when it decided that the document was a nullity at International law, and by the Court of Appeal in 1987 when it was first called upon to decide what is the legal and constitutional meaning of the document and what is its place in contemporary New Zealand. Richardson J, in the fullest discussion of the point, identified reciprocal obligations of good faith as the “paramount principle” of the Treaty. Somers J said that “each party to the Treaty owed to the other a duty of good faith” of the kind that civil law partners owe to each other. Two of the judges picked up on the analogy of a partnership but without recognising that Somers J. was using the partnership notion as an analogy only (hence I have emphasised it) i.e. comparing two things which are different but having similar characteristics.  Richardson and Somers JJ. well understood that a partnership between a sovereign and the governed is constitutionally impossible. It is this loose reference to a partnership in two of the judgments (Cooke P and Casey J.) which is the false premise on which rests many of the eye watering claims made by Maori groups and individuals in the recent past. This trend was however halted in 2014 by the judgment of The Supreme Court in which. Justice Sir William Young, a noted black letter lawyer put it this way:

The decisions of this Court contain clear statements to the effect that the Crown’s duty to Maori is analogous with a fiduciary duty and we see no proper basis for us to revisit them. The law of fiduciaries informs the analysis of the key characteristics of the duty arising from the relationship between Maori and the Crown under the Treaty: good faith, reasonableness, trust, openness and consultation. But it does so by analogy, not by direct applicationIf Gendall J was saying that the Crown has a fiduciary duty in a private law sense that is enforceable against the Crown in equity, we respectfully disagree.

(my emphasis)

This then is the law. The Crown in applying the words of the treaty has all of the common law duties to citizens claiming some Maori ancestory to be found in any legally recognisable contractual relationship, that is; to honour the bargain in good faith. No more and no less. Emphatically there is no partnership as known to law and no private direct fiduciary relationship between the Crown and a subject, merely one which arises by analogy. And crucially these duties arise only in relation to interpretation of the contract signed in 1840 they have no wider significance as is now well understood. All people claiming some Maori inheritance are entitled to the sum of the rights enjoyed by any other New Zealand citizen no more and no less and each and every one of them is subject to the laws of the realm including the decisions of the Courts. Attempts by the Waitangi Tribunal to subvert what is plainly the law does that body no credit. It is on the ignorance of the legal standing of the Treaty the TWG makes is novel and legally unsustainable proposals.

Enter a capital gains tax.

The primary question is does New Zealand in 2020 need a capital gains tax; an imposition first devised in 1965 in post war Britain; as a means of breaking the stranglehold of the few on the wealth of the nation, for raising money to repay crippling war debts and financing social needs. The answer is emphatically no. Currently we have a tax system universally admired for its simplicity and ease of collection. It is straight forward and non-selective. We have no general tax on capital gains, no wealth taxes, no death duties, no stamp duties on property conveyances, and a minimum of import duties (oh how this is envied by any visitor from the United Kingdom, Australia, Canada or the United States which has in the case of the United States had taxes on capital gains since 1913). This leaves our revenue authorities with the relatively uncluttered task of collecting taxes on income, and on the buying and selling of goods and services (GST). In addition, there are a number of transactions which are subject to income tax on capital gains which do not necessarily arise from the personal endeavours of the tax payer. These include: sales of land where the value is enhanced by rezoning, assets bought and sold as part of the business of the taxpayer, and assets bought with a view to short term resale. None of these involve any notion of envy or wealth redistribution inherent in a capital gains tax, they simply recognise that on the one hand where value is enhanced by a community decision (rezoning rural land to residential say) or in the course of carrying on a business dealing in a particular asset there is a question of ensuring that the community recaptures some of the added value by way of taxation. Tax on these transactions is collected at the marginal tax rate in force at the time. The tax working Group has recommended that the tax on all assets caught in its proposed net be taxed on sale at the marginal tax rate but it remains to be seen whether the government will adopt that recommendation which is out of step with other jurisdictions. If it does not but if overseas models of capital gains taxes are followed the result will be a significant loss of income to the state compared with what is currently collected.

This current distinction between capital and income is something which Dr. Cullen apparently has great difficulty in understanding. He repeated refers to “capital income” There is no such creature known to law, or tax practice. An item of value is either capital which may or may not produce income (such as waste land), or it is income derived from the use of a capital item, or from personal endeavour; it cannot be both. Capital appreciation of fixed assets occurs as a result of a number of factors over which the taxpayer has no control for example: inflation and/or supply and demand, or changes in social behaviour to name a few. These are all driven by macro-economic forces.

Given the substantial capital assets which a number of Maori entities have acquired in the Treaty settlements process and the ongoing benefits which flow from such settlements, including the right of the Maori beneficiaries to first refusal of any land disposed of by the Crown one can understand that there are a number of Maori entities who view with alarm the imposition of a tax on gains arising from any subsequent disposal of such assets given that the assets are often acquired at favourable values, or free and quickly sold on for more. Such a tax will have a chilling effect on the asset base of such entities and inhibit their ability to distribute value to their beneficiaries. In this, Maori entities find themselves in the same camp as those other asset owners; farmers and business people on which rests New Zealand’s economic wellbeing. Presumably these Maori entities are not confident in relying on their wholly questionable “charitable status” or they would not make, and the TWG would not adopt this absurd “Treaty claim” of ethnic privilege.

It is therefore to be expected that Maori commercial interests would join forces with all other similarly placed business entities and oppose the imposition of a capital gains tax. Astonishingly they do not. Instead they are silent on whether or not New Zealand needs such tax but contend that if imposed it cannot apply to them because to do so would be a breach of the provisions of the Treaty of Waitangi, (presumably article two set out above). This is an eye watering extension of the recent trend, sanctioned on occasions by the courts lead by the former Chief Justice and dreamed up by the Waitangi Tribunal. To extend the wording of the Treaty to all and everything which could have an adverse effect on those New Zealanders who can claim some Maori heritage is of course nonsense. In a sane world the 1840 contract between the Crown and the signatories cannot conceivably be interpreted to include a reference to a tax on capital gains, of which nothing of the sort existed in 1840, any more than it could be claimed that to imposition of income tax or GST on those citizens claiming some Maori heritage is a “breach of the Treaty”.

Should the Government be so foolish as to seek to impose a capital gains tax and then to acquiesce in this demand of separatist racial privilege it will have driven a large spike in the coffin of racial harmony in New Zealand, and rupture our constitutional, and Tax administration arrangements. It is no surprise that the three members of the TWG who understand the jurisprudence and administration of collecting taxes (particularly Robin Oliver one of the few International experts in tax policy and administration), all dissented from the recommendations of the majority including of course this absurd Treaty claim nonsense.

Never before in New Zealand has a group claiming a particular ethnicity received more favourable tax treatment than the general populace. If the government wishes to commit political Hari Kari and decides to attempt to introduce a Capital gains tax  so be it but if it stands firm on this racial privilege claim then it will enhance its reputation and make a small but important start in turning the tide of unearned privilege embraced by the previous National Government, and who knows begin the process of putting “the Treaty contract” in its true historical context. To do so would do much to enhance the peace, order and good government of New Zealand.