Back in the old days when Parliament was not televised and there were fewer MPs to accommodate in the House, members’ guests had the privilege of being allowed to watch proceedings from behind a low-curtained rail at the very back of the chamber, rather than with the hoi-polloi in the public galleries above them.

During the always lengthy debates on an oft-reviewed piece of law, this area was filled by a gaggle of nondescript middle-aged men, They were not present because they enjoyed listening to what passed for parliamentary oratory. They were there to ensure their bosses got value for their money.

They were the eyes and ears of the liquor barons. The latter made large donations to both Labour and National. Although MPs were supposed to get to vote on liquor legislation without being subject to a party whip, such free votes were not as free as was claimed.

This behaviour by the liquor industry was lobbying in its crudest form.

These days, things are a little more sophisticated. Obtaining the expensive advice of public relations consultants on how best to present their case to ministers, businesses either on their own behest or as representatives of one of a multitude of sector groups beat a path to the Beehive with the intention of creating the minimum of attention from outsiders.

Such careful lobbying makes it easier for ministers to change their minds and those of their Cabinet colleagues if they are not being seen as pressured to do so.

All of this  is why National has had such an embarrassing few days with regard to the reform (or rather the lack of it) of the law covering the setting up of overseas-controlled trusts in New Zealand.

A stack of emails, letters, official reports and industry submissions obtained by the Greens under the Official Information Act has shone a torch on the dark underbelly of the Body Politic.

It is not a pretty sight. It shows the National-led Government caving in almost immediately to the trust industry once the latter got wind of a possible review of law and regulations covering foreign trusts.

It is a reminder that while John Key is busy charming the huge number of voters who straddle the centre of the political centre — and not just a few others who might normally consider themselves to be slightly left of centre — National never forgets its more loyal friends.

The benefits of having a New Zealand-based foreign trust include exemption from New Zealand tax on foreign sourced income, minimal compliance and reporting requirements, and no requirement for public disclosure of the beneficial owners.

Some tax experts go as far saying the lax rules coupled with little monitoring of compliance effectively make New Zealand a tax haven.

The Inland Revenue Department does not go that far. But in late 2014, senior IRD officials — and not for the first time — tried to gently prod the Government to allow them to conduct a much-needed review of the legal regime covering foreign trusts.

Instead, the shutters immediately went down in the Beehive. There was some brief, but intense lobbying of ministers by the handful of companies who make a pretty generous crust from advising and helping international clients to set up a foreign trust in New Zealand.

Within a matter of weeks, those companies had received a written assurance from ministers that there would be no-such review because the IRD now had “higher priorities” to handle. It was all done quickly and easily. Given that international tax law is almost always horribly complex and that most people are totally devoid of even the slightest interest in the subject, National would have been confident in the extreme that blocking any review would be an absolute doddle when it came to the politics of the matter.

This dreamy state of affairs suddenly turned into the stuff of nightmares with the  leaking of more than 11.5 million financial and legal records hidden in offshore companies by the rich and famous.

The  Panama Papers instantly turned something which operated well below most people’s radar into a burning issue in terms which the public could well understand.

 Moreover, there were New Zealand connections in the papers. Two high profile figures in Malta and Muscat had used New Zealand’s trust laws to set up offshore trusts.

When questioned about the adequacy of New Zealand’s trust disclosure requirements, the Prime Minister was the very model of discomfort.

He insisted this country was not a tax haven. With pressure for an inquiry building relentlessly, however, Key finally conceded there would have to be one.

Key’s defensiveness was understandable. Having reassured those involved in the foreign trust industry only 12 months earlier that there would be no review, here he was effectively announcing one.

The degree to which National had hoist itself on its own petard only became apparent last week. Having long sought a tightening of the rules covering foreign trusts, the Greens struck gold with their well-timed Official Information Act request.

The party received 46 pages-worth of documents. Some material was blacked out. But there was enough left to join the dots.

Much attention has focussed on a conversation between Key and his personal lawyer Ken Whitney, who is also executive director of the trust-formation company Antipodes, which was one of the firms which lobbied against an IRD review.

In raising the matter, Whitney risked compromising Key by creating a perception of a blurring of the lines between the professional and the personal.

There are also questions about whether an email sent by Whitney to then Revenue Minister Todd McClay in which the former said Key had told him there would be no review unduly influenced that minister.

As far as Opposition parties were concerned, it all added up to one thing — cronyism. Key took an unusually long time to sought out who had said what, thereby allowing that accusation to linger.

Such conversations occur all the time, however. Easy access to politicians is one of the major pluses of the New Zealand political system.

Whitney’s mistake was to mention his chat with Key in an email which was discoverable under the Official Information Act.

But attempts to sully Key’s reputation by highlighting apparent inconsistencies in what he did or did not do about something or what he did or did not know about something or what he did or did not say to someone have cut little ice with swinging voters.

Even so, not for a long time has National looked as flummoxed as it now does in its handling of the foreign trust imbroglio.

That sudden mini-crisis of confidence was evident in the Official Information Act release to the Greens.

In an unusual move, Michael Woodhouse, the current minister in charge of the IRD, attached a lengthy memo to the documents.

This document attempted to play down the significance of the otherwise embarrassing contents of the material he had released.

Woodhouse noted that the IRD had never recommended that the foreign income of foreign trusts should be taxed. The current system had been in place since 1988 and had not been changed by previous Governments including the last Labour-led administration.

He referred to a report produced by IRD in late 2014 which had stressed New Zealand was not a tax haven because real tax havens were all about secrecy.

However, the preceding paragraph in the report acknowledged there was concern in other countries with much tighter regulations to minimise tax avoidance that New Zealand’s rules were not good enough.

Funnily enough, Woodhouse’s memo failed to mention all that — just as it ignored the following paragraph which was even more damning.

It warned that there was a perception that New Zealand might be a tax haven was damaging the country’s “clean” international reputation. That could only get wors as other OECD nations took further steps to curb harmful tax practices

If Woodhouse thought his spin and selective quotes would have any impact on the Greens — or anyone else for that matter — then he had to be the ultimate optimist.

Much now hangs on the inquiry being conducted by tax expert John Shewan. He says he will be investigating whether the relevant legislation is still “fit for purpose”. He is required to present his findings and any recommendations by the end of next month.

That might have given the Government some much needed breathing space. However, the International Consortium of Investigative Journalists, which is co-ordinating the release of the Panama papers, is planning early next week to make a searchable database available which will contain information on some 200,000 offshore companies.

National just can’t wait.


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