Charitable status

He Whakaaro
Nā Ward Kamo

The commercial success of Ngāi Tahu needs no introduction. A $170 million settlement in 1998 has, in the space of 20 years, been turned into $1.3 billion (give or take a dollar or two). The phenomenal growth has been matched by a charitable distribution that is now more than $300 million ($49.6 million was distributed in FY2017). And that has manifested in some outstanding initiatives: Papatipu Rūnanga distributions, the Ngāi Tahu Fund, Whai Rawa, Aoraki Bound, a multitude of education/reo scholarships, Tahua Taunaki Akonga and the list goes on…

It is by every measure a success story for the ages. From a position of total ownership of Te Waipounamu (Te Tau Ihu bits excluded) in 1840 to being virtually landless just 25 years later, the recovery is today complete. Ngāi Tahu is poised in the next few years to begin delivering social investment outcomes that may eventually see it overtake the central government in this respect.

And yet, at the height of our recovery, and the moment when we can seriously start to anticipate delivering real and large-scale social investment for the iwi, we now find ourselves under attack. The attack is, surprisingly, led by fiscal conservatives who attribute our remarkable success to “not paying tax”.

The narrative starting to get a small amount of traction (and that’s all it needs) is that Ngāi Tahu trading entities are able to claim charitable status (and be tax-exempt accordingly), but their trading activities are not related to their charitable purposes. It then continues along the lines that iwi-based businesses have a very substantial advantage over other businesses because they pay no tax.

This argument depends heavily on headlines such as “Super-rich tribes pay no tax” (a 2011 Waikato Times article), and David Farrar’s “A tax loophole to plug” (www.kiwiblog.co.nz). And we see helpful suggestions from politicians and commentators that basically say, “Make your charitable distribution, then pay tax on what’s retained inside the business”. Thank God these people don’t run Inland Revenue! It seems the issue of corporate charities (particularly iwi ones) is a real bugbear for some, so much so that it crowds out more rational debate on the issue of corporate taxes as a whole. Ngāi Tahu isn’t the only corporate charity out there. Sanitarium has been a charitable company for decades. Admittedly this has raised an eyebrow or two in the past, yet the issue has never had the legs for sustained criticism until iwi joined the charitable fray.

Where this all gets troubling is that such publicity creates concern that we may not be pulling our weight in the economy, and may indeed be getting a free ride. Let me assure you we are not. Let’s take a closer look at the arguments.

Ngāi Tahu has been criticised for only distributing 20% of its surplus. And in past years that may have been true – but certainly not now. Even if it were, there are more iwi in New Zealand than Ngāi Tahu. My other iwi is Ngāti Mutunga and its two entities (one in Taranaki, and one in the Chatham Islands, have a 40% and a 50% distribution policy respectively to the charitable owner. That is a distribution for charitable purposes that exceeds the current corporate tax rate of 28%. Let’s just take a quick dive back into corporate taxation.

Yes, a corporate profit is taxed; but corporate tax payments generate imputation credits counted against the tax rate of the recipients of distributions from those businesses. The critical tax rate is not the “interim” corporate tax rate, but the final tax rate applying to business owners (put another way: how much tax are you actually paying vs what the tax rate actually is). Most businesses are deliberately configured to minimise their tax exposure, which is rational, and I have no issue with it. There are a number of ways in which this can be done. One is to minimise taxable cashflows, especially by the use of debt. An associated action is to configure returns to owners as tax-free capital gains.

Iwi entities in the meantime generally get much less interest payment offset than a corporate entity does, because most iwi businesses hold “legacy assets” such as land or fishing quota that the iwi never intends to realise capital gains on. Because certain iwi-owned assets are never for sale, they cannot be used as collateral, and this limits the access of iwi to debt markets. In a sense, capital gains on such legacy assets are irrelevant to Māori owners.

Yes, an iwi entity does get unencumbered use of the untaxed profit after distribution. But given that most have paid close to half their surplus as a distribution – which is then used for charitable purposes – their unencumbered profits are no greater than after-tax profits a high-performing corporate would use for growth. It is the relative level of these unencumbered or “net” profits available for commercial re-investment that determines the relative competitiveness of iwi and non-iwi businesses competing for the same growth opportunities.

As to charitable purposes, let’s just run through a few real examples of what iwi distributions are spent on: Kip McGrath fees for one term per annum (Ngāi Tahu); free private healthcare (Ngāti Whātua Ōrākei); boarding school support (Ngāti Mutunga ki Wharekauri); Small-Medium Enterprise Development (Ngāti Whātua Ōrākei); Incredible Years Parenting Programme (Rangitāne o Wairarapa); and this is just a snapshot.

That reinvestment of distributions into charitable support and programmes for iwi members is money your taxes are not having to spend to do the same. Māori social statistics are poor – iwi are doing something about it. And we’re doing it via charitable distributions. The question is: are these direct iwi charitable distributions more effective than the alternative collection of extra funds from increased general taxation, and the distribution of those funds by government agencies? Time will tell.

What’s important to know is that Ngāi Tahu is paying its fair share – and it’s called distributions. We generally pay more in distributions than the actual (versus stated) tax paid by our competitors. The dividends corporates pay to their shareholders are paid back as imputed credits, which makes them untaxed dividends (actually far more advantageous as the company is incentivised to pay as much dividend as possible, and then seek it back as shareholder reinvestments – a source of revenue not available to Ngāi Tahu just yet). And Ngāi Tahu is paying for services that would otherwise be footed by your personal income taxes.

I’d love to hear from the fiscal conservatives about how corporate taxes should be lowered to offset any tax advantage iwi charitable corporates are purported to have. Looking forward to the discussion – Hobson’s Pledge.

Ward Kamo (Ngāi Tahu, Ngāti Mutunga Chatham Island, and Scottish decent) grew up in Poranui (Birdlings Flat) and South Brighton, Christchurch.