Taxing lesson: let sleeping bears lie

By SIMON HENDERY

For Rob McLeod, the tax system is best summed up by a Gary Larson cartoon featuring a marksman's rifle sight trained on two bears in the woods.

The smarter of the two animals is frantically pointing towards his mate in a panicked bid to convince the hunter his friend would make a better trophy.

"That's what taxes are like," says Mr McLeod, the managing partner of big five accounting firm Arthur Andersen.

"At the end of the day, everybody prefers a tax that is not coming near them, but the implication is that if you're not wearing the tax, somebody else is."

The hunting analogy is appropriate: as chairman of a tax review panel which last week broached the vexed issue of a housing tax, he has found himself a walking target for public and political odium.

From the 16th floor of Arthur Andersen's central Auckland tower block, he bemoans the frustration of not being able to get the house tax issue - which occupies just six pages of his group's 215-page discussion paper - a proper hearing.

"I'm disappointed, obviously, that New Zealand can't have an adult-like discussion about these matters. But, at the same time, I think some media whipped the public up into a frenzy over it by asserting there was some conspiracy, that the Government basically had it in mind to do this ... a lot of misinformation was underlying all the hysteria."

Under the proposal, which Mr McLeod stresses was a suggestion rather than a recommendation from the review committee, owner-occupiers would face a tax based on how much the home's equity would earn if invested in a risk-free investment such as Government bonds.

The review says the tax would bring in $750 million a year, money which could be used to offset income tax.

But the political frenzy stirred up by the suggestion forced Prime Minister Helen Clark and Finance Minister Michael Cullen to wade in and declare the idea a no-go.

"When the suggestion of such a tax was made by the OECD last year, I rejected it in very strong terms," Dr Cullen said. "I have seen nothing that has changed my mind in that regard."

Says Mr McLeod: "Our terms of reference obliged us to surface anomalies and surface issues. What else could we have done but surface it?"

And the fact remains that, internationally, New Zealanders place a disproportionately - some would say dangerously - high percentage of their equity in housing.

"What we're asking is: would New Zealand be better off distributing approximately $750 million of the Government's spending on that pattern, versus some other pattern?" Mr McLeod says.

"The irony is that middle to lower-class New Zealand will find that the housing tax base would put more of the burden on the wealthier."

These days Mr McLeod is presumably among "the wealthier" who would be hit by the tax, but the 43-year-old Ngati Porou descendant certainly doesn't have a typical corporate background.

Born in sleepy Waipiro Bay, near Ruatoria, on the east coast, he was schooled in Gisborne and completed a commerce degree with law papers at Otago University.

He finished his law degree while working for a small Auckland accounting firm and became a partner at Peat Marwick in 1985.

In 1987 he left to establish a boutique tax-focused practice, McLeod Lojkine, which was merged into Arthur Andersen two years later. Mr McLeod was appointed head of tax practice.

He was appointed Andersen's New Zealand managing partner in 1992.

Outside his day job, Mr McLeod is a member of the Business Roundtable, a trustee of the Maori broadcast frequency watchdog Spectrum Trust, sits on the Treaty of Waitangi Fisheries Commission and is a veteran of past tax review committees.

A former chairman of the Institute of Chartered Accountants' national tax committee, he was also a member of the Valabh Tax Review Committee in the early 1990s and Sir Ivor Richardson's 1994 review of Inland Revenue.

Mr McLeod describes himself as essentially libertarian, but accepts that the state must at times take an interventionist role in people's lives.

"You're right to notice some unique things about my background, in that I'm Maori, and not a lot of Maori have travelled through those organisations or have the political or economic outlook that I have," he says.

"Essentially, I am a market-oriented thinker. I have a lot of confidence in markets and voluntary arrangements and I have a lot of confidence in people being able to do their own thing. But at the same time I accept that that kind of liberty can also wreak havoc in certain areas and that Government has a very important role."

Countering claims he is an out-of-touch corporate, he says the combination of his downtown day job, his Fisheries Commission work, and keeping in touch with East Coast friends and relatives, gives him a rounded view of contemporary New Zealand.

"New Zealand is actually quite a small place and it's not that easy to step aside from mainstream New Zealand. I'd certainly deny that my connections and backdrop don't give me a proper perspective on New Zealand life and what New Zealanders say and think."

He is also very much the widely published academic. A scheduled 30-minute interview with the Business Herald stretched into an hour-long free-flowing discussion on the philosophy behind the tax review and the history of laissez-faire economics.

"I don't come to this stuff so much through a philosophical perspective. What I try to do is be as scientific as I can. In other words, what works and doesn't work in certain societies."

The warning is clear: if you want to aim your sights at the man from Waipiro Bay, make sure you're well armed.

* Submissions on the Tax Review 2001 issues paper can be made until August 1.

Details at: Tax Review 2001