Friday, October 1, 2010

Owen McShane: Who Really Governs?

We like to think that Parliament governs, and presumably Parliamentarians would like to think so too.

However, if a particular party, or coalition, governs for a few terms it can stack a host of government agencies with "right minded" or at least "like minded" people and these are the people who actually implement all those Acts and Regulations that grind through the Parliamentary mill.

Consequently, no matter how enthusiastically a new Government embraces reform, the ship of state can take a long time to turn because the Government does not actually have its hands on all the controls.

For example, prior to 2008 the Charities Commission seemed willing to accept that Economic Development Boards or Trusts were legitimate charitable organisations and hence could be registered as charities, which meant donations were automatically deductible and the operations were tax exempt. But in those early years of the Commission we were enjoying a boom and few such organisations applied for charitable status.

But in 2008, as local economies began the slide into recession, councils tried to promote economic growth and development, and there were a number of applications. Similarly, groups like the Centre for Independent Studies applied for charitable status, arguing the need to promote economic freedom, property rights and so on.

And of course the Government of the day was equally enthusiastic in its promotion of economic growth and development and looked for all manner of magic bullets to stop, and even reverse, the slide into recession or depression.

The home page for the Commission explains that it is an independent agency but takes note of Government policy.

The Minister responsible for the Commission is Tariana Turia, and she does not seem to be passing down the message.

A list of declined applications can be found at:

Read a sample of decisions on applications relating to Economic Development and freedom etc, and a few interesting patterns emerge. For example the decision to decline the application by the Centre for Independent Studies, dated 06/2010) says:

The Commission considers that based on its statement of purpose this is an association of persons who have combined for the purpose of influencing government.

Well they would be wouldn't they. Surely just about every registered charity attempts to influence government. The Environmental Defence Society and the Royal Forest and Bird Society attempt to influence the Government every day, and Government pays them to do so.

Maybe it's the nature of the influence that counts.

The applications by Economic Development Trusts have been declined on the basic premise that economic development does not reduce poverty or confer benefits on the general community – evidently the benefits accrue primarily to businesses and individuals.

This seems to be a strange opinion for a Government agency to hold when we are all supposed to be promoting an economic recovery. If anyone seriously thinks that economic growth and development does not reduce poverty, they should consider the effects on poverty of long term economic decline.

Also something happened in late 2009. Could it have been that Turiana Turia became Minister? The list of Trusts whose applications were declined includes: Auckland Tourism and Visitors Trust 02/2010, Enterprise North Shore Trust 12/2009, Nelson Regional Development Agency 12/2009, North Canterbury Economic Development Trust 12/2009, Canterbury Economic Development Fund 09/2009, Canterbury Development Corporation 09/2009, Ashburton Enterprise Agency, and the Waitakere Enterprise Trust Board.

A typical paragraph explaining these decisions to decline reads:

The Commission concludes that the purpose in clause 5.1.(b) is a non charitable purpose which will provide private benefits for business owners and employers in the North Shore area regardless of any benefits conferred on the remainder of the community.


In order for a purpose to qualify as "any other matter beneficial to the community" the purpose must be beneficial to the community and must be within the spirit and intendment of the purposes set out in the Preamble to the Charitable Uses Act 1601 (the Statute of Elizabeth).

Elizabeth the First, that is.

In other words, the economic theory underpinning the Commission's decisions about the benefits of economic growth pre-date Adam Smith, and his 'invisible hand'. Surely, it is time to allow the economic theories of the last 300 odd years to have some influence on current decision making.

The most effective way to reduce poverty is not to distribute food baskets to the poor, but to reduce the numbers in poverty as a class by allowing economic growth to provide full employment, and provide a tax base to support the safety nets that some people need.

The Freemason's application was recently declined and this decision was confirmed by the High Court when it found that the membership of the Freemasons was too restrictive (adult males etc) to represent a benefit to the general community.

However, this does not seem to apply if the benefits are restricted by race and tribe. The concern about business benefits seem to disappear as well.

The Ngai Tahu Charities Group covers more than 30 separate registered charities including companies such as Ngai Tahu Capital Ltd, Ngai Tahu Finance Ltd, Ngai Tahu Fisheries Ltd, Ngai Tahu Property Investments Ltd, Ngai Tahu Joint Ventures Ltd, Wigram Aerodrome Ltd, South Island Landbase Ltgd, Ngai Tahu Forest Estates Ltd, Helijet Ltd, Shotover Jet Ltd (which was once listed on the stock exchange), Huka Falls Jet Ltd, Rainbow Springs Ltd, Westland Tourism Ltd, and Dart River Safaris Ltd.

These all appear to be business enterprises that have managed to be registered as Charities and hence gain tax exempt status.

Can this really be so? Do none of these companies pay tax? If so they have a considerable competitive advantage and it must be difficult for other fishing and tourism companies to compete.

I must be missing something – otherwise, surely the Commerce Commission would have something to say.

In the meantime many organisations are applying directly to the IRD for registration as a donee organisation, which means they attract most of the benefits of a registered charity. Fortunately the IRD appears to be less entrapped by Elizabethan economic theory.


Anonymous said...
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How can it be that the Environmental Defence Society can be accepted as a charity when its dominant objective is to influence government policy, and does so by lobbying and via involvenent in the litigation process? It simply does not make sense? There must be a way of challenging this. Not only do the EDS get funding from local and central government, but because they are a "charity" they also get tax breaks which means they can pay people like Gary Taylor more.

How much does Gary Taylor receive from EDS?

Anonymous said...
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L. R. B. Mann said...
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Is that statement 'unbelievable' by Anon the response to your having told him/her privately how much G. V. Taylor gets from EDS?
If so, could you let the rest of us in on the secret please?

As a director of EDS for a dozen years during its early, very successful period before Taylor took over, I'd be very interested.

L. R. B. Mann

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