Fran O'Sullivan: Ex-pat political givers preoccupied by taxes

It is taxing stuff in the drawing rooms of South Kensington or within a stunning London docklands apartment - or even a stateroom aboard a Sydney-based mega-yacht - to decide which party gets the high-flying ex-pat's vote for this year's election.

The ex-pat vote - for this read money, lots of money - is already a significant factor in the run-up to the expected September poll.

Those nifty National Party billboards are rumoured by ex-pats I've spoken to during a one-month overseas sojourn to be the brainchild of Auckland PR woman Jenni Raynish. They are also rumoured to be carrying a London price-tag.

The story goes that a particular overseas resident Kiwi wanted to ensure his funds were tagged in a singular direction - to make an impact - the goal being to create a National brand to distinguish Don Brash from the more popular Helen Clark.

The "concerned" New Zealanders who are funding DigiPoll surveys over the nuclear policy are also understood to have behind-the-scenes backing from a US-connected individual who wants to see the Washington relationship restored.

Party presidents and corporate bagmen will mouth the usual cliches that major election donations come untagged or are made purely "for the good of the country" or to ensure a "healthy democratic debate".

But the way in which political funding is often disguised by a raft of trust structures - or anonymous donations - enables key influencers to make their contribution to democracy without fear of news media molestation.

The influence of a collection of wealthy New Zealand tax exiles is considerable, whatever is said this side of the election. Where will their money be placed this time around?

Many, such as Alan Gibbs, the Kiwi entrepreneur who launched the Aquada amphibious sports car after setting up residence in London, have been long-time financial backers of Act New Zealand.

Others, such as Gibbs' close friend the former brewing magnate Douglas Myers, are understood to have swung in behind National.

According to my dinner party snouts, while these divisions could have caused considerable angst in tony circles, a visit by Brash to London recently is said to have levered open a few more significant wallets.

The amounts National is seeking from wealthy ex-pats is well above the $250,000 donations Kiwi merchant bankers Sir Michael Fay and David Richwhite made to the party in the 1990s. Those donations were the subject of a Serious Fraud Office probe when it was found they made their way to National's coffers through an indirect route. The SFO probe did not find fraud.

National is understood to be seeking $1 million-plus donations - which given the tax shelters many of these ex-pats are running will hardly break their banks.

But does Brash have what it takes to get his party over the line in September? What policies will he implement once in office? Should the high-profile ex-pats withdraw their backing for Act altogether, even though its free-wheeling economic policies are more like theirs? Or should they cover their bets by donating to both parties? Or cover all the bases and make a (less substantial) donation to Labour in the event Helen Clark can pull off a third term?

On Labour's side there has already been a major disclosure. Ex-pat freight-forwarder Owen Glenn - hardly known on these shores as he made his fortune elsewhere - let the cat out of the bag in relation to his $100,000 monthly donations to Labour's election fund several months ago. He was entranced by the Prime Minister's push for a free trade deal with China, but otherwise suggested he had no plans to play a significant role here.

Less clear are the ambitions of those who left New Zealand in the last 10 years for tax reasons, or because they could not stand what was then perceived as a Government opposed to business.

London has been the preferred destination for some of New Zealand's most successful entrepreneurs including Myers, Gibbs, Eric Watson and Charles Bidwill.

Richwhite and Fay set up shop in Geneva - as did the Vela brothers - but there are suggestions some of them are ready to return.

The critical issue for those considering a return home must be tax. We're not talking here about the tax cuts for all New Zealanders that Brash is promising within months of winning the election. Or the paltry changes Finance Minister Michael Cullen disclosed in the Budget.

In the UK, for instance, wealthy migrants are allowed to live in a "de facto" tax haven reserved for those born overseas. Despite the McLeod committee's recommendations that New Zealanders pay a maximum of $1 million in personal tax each year to encourage entrepreneurs, Cullen would not run with it.

If Brash institutes changes in line with his controversial speech to the Knowledge Wave conference in 2001, entrepreneurs do stand to get big gains. He said New Zealand might need to think of innovative moves in the tax area.

"The United Kingdom attracts many entrepreneurial people from all over the world to live and work in that country by exempting from UK tax all income generated outside the UK for people not born in the UK. I understand that Switzerland effectively 'negotiates' the tax to be paid by wealthy foreigners who want to live in Switzerland.

"It may be no accident that many entrepreneurial New Zealanders have moved to these countries in recent years.

"Even a maximum of $500,000 per annum would be more than enough to cover 10 times over the cost of public services likely to be used by a person paying that much tax, but would be a level of tax which would seem very attractive to many expatriate New Zealanders and other entrepreneurial people in the US, Europe and Asia, from whom we are currently collecting no tax revenue at all."

Brash admitted setting a tax ceiling of $500,000 might offend Kiwi values, but pointed out the benefit such a policy could have if it encouraged 1000 entrepreneurs to come to New Zealand, boosting tax revenue by $500 million a year.

There is time yet for National to spell out whether Brash's thinking will become part of the party's election policies.

Intriguingly, wealthy ex-pats might find it easier to slip through a policy loophole contained in the Budget, which is geared towards attracting talented, highly skilled New Zealanders home.

The Budget signalled that from April 1, 2006, new migrants and New Zealanders who have been non-resident for tax purposes for at least 10 years will be able to apply for a certificate of exemption. Under this policy, new employees will be exempted from tax for five years on all foreign income except dividends, interest, employment income and business income relating to services.

The policy was meant to cover those who became employees - until analysts pointed out that many returning New Zealanders would be contractors.

So a clause has been added saying those who come, or return, to New Zealand "who are not in employment" will receive the same exemption for three years. Cullen's office says this applies to income attributed on controlled foreign company rules, or foreign investment rules, rental income, or income from foreign trusts.

It may be the law of unintended consequences at work, but it has produced just the sort of loophole a Fay or Richwhite could appreciate.