by Lamont Russell

The February 6th decision by the Court of Arbitration for Sport (CAS) to impose a two year ban on the Spanish cyclist Alberto Contador will have left few people convinced that justice has been done. The minority who believe that Contador is quote, a “drug cheat” unquote, are likely to have been enraged by the retrospective nature of the ban imposed. While it has ruined Contador’s reputation and stripped him of his 2010 Tour de France title (and forced him out of this year’s Tour) he will be able to recommence professional riding in August of this year.

A middle bloc of opinion will lament the tortured judicial process that laboured for so long to deliver its verdict. Conversely, another significant minority who bother to read the CAS verdict will probably emerge feeling somewhat disturbed that Contador was found guilty at all. The only thing on which all parties are agreed is that yes, a tiny trace of clenbuterol (a bronchiole-dilating chemical in humans, and used to increase the ratio of lean meat to fat in cattle) was found in Contador’s body after a drug test administered during the Tour de France, July 21, 2010.

The structure of the CAS case against Contador was presented in the form of three possible scenarios. Firstly, Contador’s defence was that he had ingested the clenbuterol from eating a piece of contaminated veal during the rest day during the middle of the 2010 Tour. The International Cycling Union (UCI) and the World Anti-Doping Agency (WADA) submitted two other explanations : that “the adverse analytical finding” was caused by either a blood doping transfusion, or by the ingestion of a contaminated food supplement. Ultimately :

“The panel found that there were no established facts that would elevate the possibility of meat contamination to an event that could have occurred on a balance of probabilities. Unlike certain other countries, Spain is not known to have a contamination problem with clenbuterol in meat. Furthermore, no other cases of athletes having tested positive to clenbuterol allegedly in connection with the consumption of Spanish meat are known.”

However, the main trouble with the verdict is that the CAS report also downplays in very strong terms the likelihood of its own alternative scenarios. The CAS conclusion on the blood doping option is particularly interesting, because the report gives a lot of room for its doping expert Michael Ashenden to develop the evidence for that theory, As Mark Rendell points out in his excellent review of the CAS report :

…The UCI and WADA worked on their hypothesis that (paragraph 336) ‘Mr Contador undertook a transfusion of red blood cells on 20 July 2010 and then – in order to preserve a natural blood profile and mask the use of such transfusion, which can be detected through the Athlete’s Biological Passport … – the next day (21 July 2010) injected plasma (to hide the variation of haemoglobin values) and erythropoiesis stimulation’ – they mean EPO – ‘(to hide the variation of reticulocytes) into his system.’ They suggest it was ‘the transfusion of plasma of 21 July 2010 which would have contaminated the sample with clenbuterol …’

This, as Rendell says, “is a scientifically respectable and intellectually satisfying explanation” and one that was well supported in the Lausanne courtroom by WADA’s expert witness Michael Ashenden, who also happens to be one of the creators of the Biological Passport system of drug detection in sport. Ashenden’s testimony was summarised by Rendell in these terms :

‘Contador’s reticulocyte values (i.e., the population of young, recently-born red cells in his blood) … during the 2010 Tour de France were atypical, and opposite to what would have been expected’ (paragraph 132, on page 25). Later we read ‘They [were] also significantly higher than the values measured during his previous victories at the Tour de France (2007 and 2009), the 2008 Vuelta and the 2008 Giro, while they should be comparable’ (paragraph 351a).

Ditto his haemoglobin concentration (paragraph 351b). ‘Such values are not consistent with Mr Contador’s normal values and are difficult to reconcile with physiological variations. As such they provide indications which would be consistent with blood doping’ (paragraph 132, on page 25).

However, as Rendell also says : “After 18 pages of dense argument on the subject of the blood transfusion theory, the tribunal then concluded that is was ‘very unlikely to have occurred’ (paragraph 454).” The report’s conclusions amount to a strong rejection of the blood doping theory. Moreover, it was not as if the Biological Passport evidence hadn’t ever before been regarded as providing a reliable basis for a drug conviction in cycling. Last year, the New York Times reported on the banning of two Italian cyclists, in a story headlined “Court Upholds Cyclist’s Ban Based on Biological Passport” and stated :

The Court of Arbitration for Sport, considered the supreme court of sports, ruled against the Italian riders Franco Pellizotti and Pietro Caucchioli, saying they were guilty of doping and must be barred from the sport for two years. Those decisions came not because they failed drug tests or were nabbed in a criminal investigation — the conventional ways athletes are caught doping — but because several telltale changes in their blood signalled that they had illicitly manipulated their blood to improve performance.

To which then, one might well ask – why did the CAS, having effectively exonerated Contador from a conviction based on Biological Passport evidence, then impose on him exactly the same two year sentence as it imposed on two others who were convicted on Biological Passport evidence? The process seems more about a gesture to protect the image of professional sport, even if it means sacrificing the reputation, career and earning power of the athlete affected.

The alarming thing about the structure of the CAS judicial proceedings was it made it all but impossible for Contador to be exonerated. Essentially, the prosecution did not have to prove Contador’s guilt – the onus was on him, under the conditions of strict liability that apply in such cases, to prove his innocence. Since, as the Spanish Cycling Federation pointed out, the nature of his defence – that he had ingested the trace of clenbuterol via a piece of veal he had eaten on the rest day – meant that he had eaten the relevant evidence, it was a logical impossibility for him to produce the only truly compelling evidence of his innocence.

Regardless, Contador did what he could. As Rendell says, his defence team produced evidence that the brother of the farmer who provided the meat had a prior conviction for feeding clenbuterol to his animals. This line of argument was rejected by the CAS not on substantive grounds, but by analogy – that if Contador was presenting a ‘guilt by association’ argument, couldn’t the CAS also be free to conclude that since 12 of his current or former associates had tested positive in dope tests, shouldn’t they find him guilty as well? Again, this response by CAS left it a mystery as what Contador could possibly offer as proof, if circumstantial evidence supporting his explanation was to be rejected, a priori. The more substantive ground for rejecting Contador’s “contaminated meat” defence would appear to be this finding :

Clenbuterol has been outlawed since 1996 and it showed up only once in 83,203 animal samples tested by EU countries in 2008 and 2009, with zero positive cases in Spain from 19,431 samples analysed.

Those stats do seem fairly conclusive. Could Contador really have struck the rare to zero incidence of contaminated Spanish veal? But again, it comes down to the level at which the EU sampling is commonly being done. Keep in mind that as, the Guardian also says :

Contador’s clenbuterol reading was discovered at a German lab in Cologne, which is one of just four of the world’s 34 accredited anti-doping laboratories cutting-edge enough to have detected the minute traces of clenbuterol.

One can safely assume that not all – or even any – of the Spanish EU cattle are being tested at levels likely to detect the micro-levels involved in the Contador case. The amount was not only infinitesimal, but insufficient, of itself, to boost performance. The trace element of clenbuterol found in Contador’s urine after the July 21 test was a mere 50 picograms/ml, a value 40 times below the value the laboratory should be able to detect. In late 2010, Contador’s scientific adviser Dr Douwe De Boer called into question the lab’s declaring of an Adverse Analytical Finding for such a low amount, and argued that 50pg is 180 times less than the amount shown to induce physical benefits from the drug. Regardless, WADA sets no threshold for declaring a negative finding for clenbuterol. Instead, it sets a “Minimum Required Performance Level” (MRPL) instead, which serves effectively as a zero tolerance policy, in that any amount detected can be treated as the basis for issuing an Adverse Analytical Finding. It is doubtful whether tennis – which in the era of Rafael Nadal and Novak Djokovic places a similar premium upon endurance – would impose such financial and reputational penalties as those that have been imposed on Contador, for such a barely detectable presence of a banned substance. The case of French tennis player Richard Gasquet – who tested positive for cocaine and escaped any meaningful censure after arguing that he had ingested the drug from kissing a girl in a nightclub – suggests that top tennis players would not survive the level of scrutiny now being faced by top cyclists.

Again, one has to return to the structure of the proceedings against Contador. As Rendell says :

Contador, the accused, was saddled with the burden of proving (whatever that means), on the balance of probability (whatever that means), that the infinitesimally small trace of clenbuterol found in his urine that day got there through ‘no significant fault or negligence’ (see paragraph 241b) of his [brief.]

Although his accusers – cycling’s world governing body, the UCI; and WADA, the World Anti-Doping Agency – had to demonstrate no intent, fault, negligence or knowing use on Contador’s part to achieve a conviction, they were obliged to contest his version of events; not just to pour scorn on the famous contaminated meat hypothesis but to suggest alternative scenarios of their own and back them up with evidence. Just not quite as much evidence as Contador, since (paragraph 252) ‘it must be avoided that the prerequisite for contesting an allegation result in a reversal of the burden of proof.’

In other words, the CAS didn’t face a high hurdle of proof for its alternative explanations, because to do so would reverse the burden of proof which – in contrast to the usual legal situation – rests in such proceedings upon the accused, and not on the prosecution. As mentioned, the CAS proceeded to shoot down its own most plausible alternative theory, but decided to find Contador guilty, anyway. It stripped him of his Tour De France victory in 2010 and all the other titles and prize money he had won since, and imposed – via the damage done to his reputation and brand image – a financial penalty estimated to amount to some 5 million euros .

All for a tiny trace element. If you happen to have watched the 2009 Tour and saw the final brutal ascent of Mt Ventoux on the last day of that race, one would have few doubts about Contador’s right to be considered a genuine champion of the sport. In this case, we are not talking about anything like Floyd Landis and his testosterone sample on the 2006 Tour, that registered at three times above the allowed limit.

Finally, the Contador case will do nothing to lend credibility to the anti-doping movement in sport, as we head into the 2012 Olympics. Clenbuterol has been an accidental presence in food and food supplements before, and will be again – and the system simply cannot distinguish between the conscious cheats, and the innocent victims of that situation. In July 2008, the American swimmer Jessica Hardy tested positive at the U.S. trials in July 2008. She served a one-year suspension, having claimed she unknowingly took the drug in a contaminated food supplement – and has subsequently made a successful comeback.

Last year, five players on Mexico’s national football team tested positively for the presence of clenbuterol in their bloodstream but were later acquitted by WADA after they successfully claimed that the clenbuterol had come from eating contaminated meat. The story is here :

Contaminated beef can be a legitimate excuse for clenbuterol in an athlete’s blood sample, the World Anti-Doping Agency said Wednesday, in a decision regarding five soccer players who blamed their positive test results on eating Mexican beef….WADA reversed course Wednesday when it withdrew its appeal of a FIFA decision to absolve five Mexican soccer players of doping charges. WADA said recent evidence lends credibility to the players’ explanation.

WADA has subsequently received compelling evidence … that indicates a serious health problem in Mexico with regards to meat contaminated with clenbuterol.

Which takes us back to the Spanish veal consumed by Contador. Apparently, if he had been able to produce a number of other Spanish athletes similarly infected, he might have been in the clear. But then given the minute trace in his system and the cutting edge technology necessary to find it, it may not be fair to condemn him, ultimately, simply because no one has (yet) been able to find similarly microscopic traces in anyone else.

Ultimately, the drug testing system is stacked against the athlete – and if, every now and then, a few get sacrificed on dubious grounds to uphold the image (and earnings power) of the rest of professional sport, then tough luck for them. That, more or less, is William Fotheringham’s final verdict in the Guardian on the Contador case :

The finding is a vital one for anti-doping, because it reasserts the fundamental principle of strict liability: that the athlete is responsible for a banned substance that is found in his or her blood or urine and that the absence of proof that it has been ingested deliberately is not in itself proof of innocence. The athlete is guilty of doping unless he or she can prove they hold no responsibility for the presence of that banned substance. They have to provide that proof.

Contador’s defence was that the clenbuterol must have got into his system through contaminated meat, not because that fact had been proven, but because there was no other possible explanation. The absence of conclusive evidence was claimed to be evidence. Had that principle been upheld, it could have established a precedent and driven a coach and horses through the strict liability rule. It seems harsh, but the balance of probability has to remain against the athlete.

Actually it doesn’t, and it shouldn’t. Especially not if – as in the case of Alberto Contador – preserving the tenet of strict liability endorses a process that seems to share more in common with the Salem witch trials than with any modern form of natural justice.

ENDS

by Sarah Robson

Logan Edgar, President of the Otago University Students’ Association (OUSA), recently shut himself in a cage for 48 hours. He spent two nights outside in the chill Dunedin air, with a live video stream broadcasting his every move to a small, but curious, online audience. He was interviewed – still in the cage after his first night in the cold – by Morning Report’s Geoff Robinson. He was the subject of discussion on breakfast television and on talkback radio. His cause? Opposition to voluntary student membership (VSM).

Just a couple of weeks earlier, Edgar was facing criticism following the recommendation in a Deliotte review, commissioned by OUSA, that Dunedin student radio station, Radio One, be sold off. There was an uproar. In protest, the station went off air for a week. Since the news broke, more than 3000 people have joined the Save Radio One Facebook page. Their cause? Opposition to the threat VSM poses for the continued funding of an icon of Dunedin’s student culture.

While nothing is set in stone in relation to Radio One, the reality is students’ associations up and down the country are looking at ways to cut their costs. If the Education (Freedom of Association) Amendment Bill passes, students’ associations will need to decide what services they can afford to keep providing, and what can be sacrificed if VSM is imposed nationwide. Student media is one of those services under scrutiny. Will all forms of student media – magazines and radio stations alike – be facing similar sorts of threats of closure or funding cuts? Is this the death knell for student-run media on campus?

As universities have been founded in New Zealand, students’ associations have been founded alongside them. Established to represent the interests of students in the face of large and looming university bureaucracies, students’ associations have been seen as a central part of student culture. Along with funding student media, students’ associations provide welfare services like foodbanks, advocacy support, and they give grants to sports clubs and cultural groups. Student magazines and radio are two of the most visible services provided by students’ associations.

When a student enrols at a tertiary institution, he or she automatically become a member of the students’ association on campus. Most students are oblivious to the fact they paid a membership levy to join an association, until it is pointed out to them on their fees assessment or invoice. This model of universal student membership exists at every students’ association in the country, with the exception of the Auckland University Students’ Association (AUSA), which went voluntary after a referendum in 1999.

The Education (Freedom of Association) Amendment Bill, originally a member’s bill sponsored by ACT Party MP Sir Roger Douglas, makes joining a students’ association optional: it’ll be something you an opt-in to, rather than opt-out of. With the support of National, debate on the bill – now under the guardianship of soon-to-be-retired Heather Roy – is through to the committee stage. It’s unlikely the bill will progress much further before the election, thanks to there being only three sitting days left for member’s bills to be debated, and the filibustering efforts of Labour MPs. This doesn’t necessarily spell the end for VSM, as the bill can be transferred to another MP, with debate continuing when parliament reconvenes after the election.

The move to VSM threatens the ongoing survival of students’ associations and student media. Under the current system, students’ associations have a guaranteed revenue stream, through compulsory membership levies. Under VSM, there is no such security of revenue. Students’ associations will need to get students to sign up willingly, and charging a levy may not be the best way to tempt them to become members. Enter deals with institutions to provide services, and alternative income sources, which may be few and far between, depending on an association’s cash reserves or investment portfolio.

Most student media is funded partly by the respective students’ association and partly by advertising. The introduction of VSM will limit the capacity of students’ associations to continue to fund magazines and radio stations. Some students’ associations have already started reviewing services, setting priorities and assessing where savings can be made. Can that money funding student media be better spent elsewhere? Is student media a necessity, or is it just something that is nice to have, if it can be afforded? The reality is that the withdrawal of students’ association funding will leave many magazines and radio stations crippled.

There is a reason for student media. “They do for the student population what the media does for the general population first and foremost,” says Tim Watkin, former news editor at both Chaff (Massey University in Palmerston North) and Craccum (University of Auckland) in the early 90s. “[This] is provide a voice, ask questions, cover daily life and reflect society back to their readers – and hopefully challenge a few concepts as well.”

Student media, perhaps more so than the students’ associations themselves, has been a rallying point for culture on campus. “It’s that place where students get to reflect themselves and where that culture is played out, where the debates are held, where the music’s discussed, where the politics is held to account, where the bad jokes and often not much better writing is all put out there,” Watkin says.

Jackson Wood, editor of Victoria University’s Salient in 2009, says that student media is the most visible arm of the students’ association. “It helps create community, and a sense of belonging in an otherwise disparate student body that has very little to tie them together. No matter if you’re a BA student or a BSc student, you can always bitch about how bad Salient is, or how stupid the current president is, or that it’s a bit shit that fees are going up again.”

Wood says it’s the job of student media to entertain, educate and challenge students. “They should act as a check on the power of the students’ association and they should nurture young journalists,” he says. “In terms of entertaining, they should be a creative outlet for students to satarise politics, parody mainstream media and point out quirks of student politicians.” This, though, must be balanced with a more serious role, “to keep their students’ associations honest, as well as the universities and the government.”

Striking the right balance between the informative and the entertaining is crucial, says David Large, 2007-2008 editor of Critic, New Zealand’s oldest student magazine, at Otago University. “It’s important to let members know what the association is doing and what its plans are for the future, but that alone would often make for a rather dull read, and it might as well be an association newsletter,” he says. “Student magazines and newspapers succeed – read: appeal to readers – where they can merge the four fallbacks – news, reviews, features and funnies – into a cohesive publication, with a strong editorial voice, while still offering space for student feedback and commentary.”

One of the most important roles of student media – if not the most important – is to be a watchdog on the students’ association and its executive. Student magazines and radio stations play a huge part in ensuring students’ associations are accountable to the people who fund them: students. Student media should be like a press gallery in miniature. “That was certainly how I treated it. And it was great,” says Watkin. He helped set up “very rigorous and critical” volunteer news teams at both Chaff and Craccum, whose job it was to give the student politicians as hard a time as possible and make sure they were accountable. “Student media has that exact same role to student politicians as we in the general media have to general politicians.”

Staff and volunteers in student media should be “cynical idealists,” says Large. “Given that there’s no official place for an ‘opposition’ or shadow student government, student media sometimes has to take that position – to question everything the student executive does, even if those questions don’t make it into print or onto the air,” he says. “If student media doesn’t ask questions, it risks being seen by its readers and listeners as a mouthpiece of the association.”

Wood sees it as an issue of transparency. “Like all bodies of power they need to be watched, scrutinised and questioned. If student mags and radio aren’t keeping an eye on their execs, then the students at those universities probably have pretty shit student media,” he says. However, the very abuses of power and misuses of student money that have been uncovered and reported on by student media have since been used as justification for VSM. During the first reading of the Education (Freedom of Association) Amendment Bill, there were four instances where the misdemeanours of various Victoria University of Wellington Students’ Association (VUWSA) exec members were used as examples by ACT and National MPs to illustrate why students shouldn’t be compelled to join a students’ association. Maybe if stories about money being blown on vans or psychic hotlines hadn’t been published in Salient, students’ associations wouldn’t be facing the prospect of VSM.

“It really pisses me off when people – mainly student politicians – assert that if we hadn’t reported on it, then the prospect of VSM wouldn’t be looming,” says Wood. “Student media’s reporting of the antics of students’ associations should not be seen as an argument for VSM, but rather a robust way of holding these bodies to account.”

Some student magazine editors have come under pressure to change the way they have reported on their associations. This hasn’t gone down so well. Wood recalls that as he was coming into the role of editor at Salient, he was asked at the budget setting meeting if he would write “stupid stuff” about VUWSA. “I replied, ‘of course I will, if you do stupid things. If not, then you’ve got nothing to worry about’.” There’s no way Wood would have not reported on VUWSA’s refusal to lay a wreath on Anzac Day – a story that made national headlines. “If ACT hadn’t quoted Salient about the mess-ups of the exec, they would have come down even harder on Salient for trying to cover it up.”

As Large sums up, “it would be self-censoring for student media to deliberately not report on a negative issue, for fear of losing future funding. If the reporters and editors for student media are professional enough – as has been my experience – they’d cover the story to the best of their abilities.” The editors of student magazines have a duty to their readers: it’s their job to tell students how their money is being spent, or misspent, and how their interests are being served by the organisation that purports to represent them.

Though many aspects remain uncertain, one thing is for sure – VSM will mean that student magazines and radio stations will be running on much tighter budgets. As the stoush over Radio One shows, students’ associations are looking very carefully at what services they can and can’t afford to provide in a more limited funding environment. Tough calls will need to be made.

“The bigger mags are better suited to dealing with VSM because they have the clout, the advertising dollars and the history to stand up to their associations, but smaller publications might get shafted,” Wood says. Editorial independence may even be curbed, in exchange for cash. “VSM may encourage the mags that aren’t monitoring their execs to do more,” he says, “but sadly it is likely that associations – who see student media as a threat – will cut their funding or make them their lap dogs in exchange for funding.”

Large thinks it is inevitable that some magazines will simply disappear. “Unless there’s a student executive that values the intangible cultural benefits of having a student magazine – students knowing that they can have their voices heard, have a venue for discussion, and gain valuable writing, reporting and editing skills – I’d expect to see smaller magazines, or even unprofitable larger magazines, simply cease to exist.” The magazines that can rake in the advertising dollars, though, might stand a chance. “I’d expect that profitable magazines would always be kept running,” Large says. “Unfortunately, it’s much easier to see positive cultural value in profitable organisations.”

Given the slow and uncertain progress of the bill through parliament, it’s been difficult for students’ associations to plan for the implementation of VSM. However, the wheels are in motion, with most students’ associations in negotiations with their respective universities over service agreements and contracts. “Student media is one the many services we are discussing with the university that we believe should continue to be funded if VSM is introduced,” says VUWSA President Seamus Brady. “It’s an essential part of the student experience and contributes a lot to the vibrancy of campus. It’s also an important mechanism to keep VUWSA and Victoria accountable to students.” However, Salient and Vic’s student radio station, VBC 88.3FM, can expect to be working with smaller budgets. “VUWSA will always continue to support student media, but under VSM, we will have less income and the level of funding it receives currently receives will not be sustainable,” Brady says. “Both Salient and the VBC 88.3FM sell advertising, but neither is capable of being fully financially self-sufficient in their current forms. Student media at Victoria has existed in various forms with varying levels of resources for close to a century, so I am confident that will continue. We just need to it ensure it remains to be independent and adequately supported.”

Kent Gearry, President of the Massey University Students’ Association (MUSA) in Palmerston North, says the practical implications of the introduction of VSM are huge. For Chaff and Radio Control, VSM will mean a greater focus on generating revenue through advertising and sponsorship. Gearry says they still want to be able to support student media, however, he admits it will be hard to cover any potential financial losses. The outlook is a little more bleak for one of the country’s smallest magazines, Satellite, which serves the student population at Massey’s Albany campus. Albany Students’ Association (ASA) President Sumrie Tachibana says they are currently working with Massey University to secure a service agreement, and as part of this, they have requested that the university continue funding ASA’s student media. “If they come back with ‘no’ then we will not have it anymore, simple as that,” Tachibana says. “To provide a service, we need people. We employ an editor and a designer – together they make an equivalent full time position. If we can’t fund people, then we can’t fund student media.”

Bigger publications with long-standing traditions and reputations, like Salient and Critic, might stand a chance under VSM – students at Otago and Vic consistently rate their respective magazines among the top services provided by the students’ association. Radio stations have often been a bigger drain on students’ association finances than magazines, potentially putting them at greater risk of going under with VSM. A lot will depend on how much students value their magazines and radio stations, and whether they are prepared to put up a fight to save them if they are under threat. Craccum, the country’s biggest student magazine, has managed to survive under VSM, but only just.

Auckland University’s Craccum has been dealing with the realities of VSM since 1999. Budgets are tight, editors are underpaid and resources are few and far between. The magazine relies heavily on advertising for its funding, mostly in the way of selling full-page, glossy colour ads. Craccum serves the single largest student population in the country, and it beats out both Salient and Critic in the circulation stakes – it’s size and notoriety make it an attractive prospect for advertisers, putting it at an advantage over a lot of other student magazines.

Despite the favourable advertising conditions, 2009 Craccum co-editor Matthew Harnett says the magazine has never managed to run at a profit – the difference between advertising revenue and operating costs continues to be covered by AUSA. “Without the monetary support of AUSA, it wouldn’t be possible to produce Craccum.” Although it could be argued that catering to advertisers is a modern inevitably, even within student media, Harnett says this is no guarantee of adequate resourcing. “Essentially we had the worst of both worlds: we had to cater to advertisers – essentially by not alienating them and therefore moderating our content – while still dealing with a chronic resource shortage.”

Thanks to VSM, AUSA can’t afford to finance or resource Craccum to the same degree that other students’ associations can support their magazines. “Both my co-editor and I brought in our own computers form home to produce the magazine, and were between us paid an honorarium much less than the minimum wage,” Harnett says. “We were lucky to be paid at all: Craccum contributors certainly were not.” As a comparison, the editors of Salient and Critic are paid a reasonable full time salary – though they aren’t paid for the many hours of overtime they work – and they have budgets that allow them to appoint paid news and feature writers.

“Craccum had a far harder challenge in attracting the calibre of writer that students at the University of Auckland expect and deserve,” Harnett says. “Craccum’s reputation helped to some degree – writing for us could be considered almost a type of internship – but there is truly no substitute to paying a postgraduate student to research a feature, like the 2009 editor of Salient was able to do. Would we have liked to spend time examining the government’s tertiary education policies with anything more than a cursory glance? Of course. Could we afford to? No way.”

What’s happened to Craccum over the last decade is the best case scenario for student media under VSM. “Craccum’s size, popularity and notoriety mean that it hasn’t – yet – gone under,” says Harnett. “Smaller student publications, or ones whose funding and production isn’t an integral part of their students’ association’s constitution, will have much greater difficulty staying afloat. Even if they do, they’ll face an uphill battle to attract the volunteers and resources to make magazines that do a half-decent job of informing and entertaining the student audiences they serve.”

The worst case scenario? The disappearance of student media altogether. It may be that Logan Edgar’s 48 hours spent outside in the cold, locked in a cage were all in vain. Perhaps his protest was just 18 months too late to save students’ associations, and student media, from the now almost inevitable implementation of VSM.

ENDS

by Rosalea Barker

If there’s one thing Governor Jerry Brown learned from his time as Mayor of Oakland, it seems, it’s how to conduct a gun-to-the-head shakedown for cash. At least, that’s the impression you get from reading the comments of some current mayors this week in support of the League of California Cities’ and California Redevelopment Association’s petition to the state Supreme Court asking for an injunction against two of the budget measures proposed by Brown in January, and passed by the state legislature in a modified form, in June.

Not that it’s pocket change—the measures are projected to (kinda) recoup to the state $1.7 billion in tax revenue lost to local redevelopment agencies, who now can only stay in existence if they, shall we say, “donate” their money to local school, fire, and transit districts—thereby saving the state from having to provide those funds. Although it’s the local city and county jurisdictions that have to make those donations, the payments are apportioned according to RDA revenues and the money used to make them will inevitably come from the RDAs’ tax increments, according to the petition, available here.

AB1X 26 (i.e. the “Dissolution Bill”) prescribed strict limits on what redevelopment agencies may do between its effectiveness date and October 1, 2011, when all redevelopment agencies will be legally dissolved unless the legislative body (city council or county board of supervisors) enacts an ordinance pursuant to AB1X 27 (i.e. the “Continuation Bill”) committing itself to make payments to school districts and special districts (the “Continuation Payments”).

A brief—and taxing—history

Redevelopment agencies are the child of the WWII population boom in the Golden State – which at that time was home to many industries vital to the war effort but was short on housing stock, commercial properties, and the infrastructure to support them. In 1945, the California Community Redevelopment Act allowed cities and counties to establish redevelopment agencies to tackle urban blight (“substantial, prevalent adverse physical and economic conditions”) that hampered development and expansion within a community.

The agencies were set up as hybrid institutions in that they operate a state-authorized program by implementing it through local governments. They have to follow the state legislative guidelines reflecting the intent of the law, and also be guided by any local authority that chooses to call one into existence. (Unlike, say, transit agencies, whose board members are elected by voters, the boards of redevelopment agencies are appointed by the local authority, and council members often appoint themselves to them—a situation ripe for claims of kickbacks and corruption.)

In 1951, California’s tax laws were changed to allow for tax increment financing, a way of using projected increases in taxes to finance current improvements, and the 1952 CA Community Redevelopment Act authorized the distribution of “tax increment” to agencies, with the goal of making projects self-supporting. The difference between the tax valuation of a project area prior to redevelopment and the area’s increased tax valuation after improvement goes to the agency.

Essentially, the agency makes a profit at the expense of other entities that would normally benefit from increased property tax revenues—school districts, special districts, counties, and the state itself, which is saddled with the extra burden of being required to make up for the loss of tax funds going to K-12 education. When voters approved Prop 13 in 1978, limiting how much property tax could be increased each year—and then only when property changed hands—an even bigger constraint was placed on funding for state and local entities.

Another of Prop 13’s requirements forces local governments and schools to get a two-thirds vote to increase taxes or issue bonds, but because redevelopment agencies rely on tax increment financing, that requirement doesn’t apply to them. So, until this month, with the bang of a gavel, a city council could reconvene as a redevelopment agency, sell bonds to the state or federal government, take property by eminent domain, and capture tax dollars for civic projects, all on a simple majority vote. Little wonder the agencies have many critics, who also have often valid concerns about the nature of the projects and whether the money was spent according to the spirit of the law.

A case in point

As cities began losing their tax base after Prop 13 passed, it became obvious to some that the solution was to use the redevelopment agency model to compensate. The only problem was that an area had to be declared “blight” before it would qualify, and for tiny, toney Indian Wells in Southern California’s Coachella Valley—where Presidents and First Ladies retire—that was a sticking point. Indian Wells (1990 pop. 2,600; average age 62) had kept its financing going by charging its residents fees for infrastructure far in excess of what it cost to maintain it and provide services. In fact, the city made so much profit on its fees that it put it in an account “whose interest was expected to finance city services in perpetuity”, according to a case study in Making Government Work.

But in 1980, the Gann Initiative was passed by California voters, prohibiting cities from charging far greater than the cost of services—even if they were willing to do so, as was the case in Indian Wells—and requiring them to spend down their accumulated “fee” funds within 10 years. Indian Wells mysteriously developed a bad case of near-insolvency almost overnight, and “the desperate city dusted off a 1945 law, formed a redevelopment agency, and declared one of the wealthiest and most beautiful spots on earth a blighted community.”

At the time, the legal description of “blight” was expansive—basically, any impediment to investment by the business community, such as the lack of basic infrastructure. And what basic infrastructure did the Indian Wells redevelopment project area—an undeveloped stretch of pristine desert—lack? Why, flood control, of course! The project’s intention was to attract a high-end resort to the blighted area, and in order to do this, the city felt compelled to build a 36-hole luxury golf course. (Well, I suppose the irrigation needed to create a golf course might create a need for flood control if the sprinklers got out of hand.)

The golf course and resort were duly built, bringing in millions of dollars of revenue to Indian Wells and creating hundreds of low-end jobs that were filled by workers who had to travel from as far away as 40 miles because, obviously, they couldn’t afford to live in Indian Wells. Nor were they wanted as residents, as became obvious when the city fulfilled the 1976 mandate added to the CCRA (that 20 percent of tax increment go to affordable housing in the project area) by building “senior housing”.

The case before the California Supreme Court

But that was then and this is now. The nub of the case going to the state Supreme Court is that the two measures that were enacted as part of the June budget are unconstitutional because in last November’s election, voters passed Prop 22. Known as the Local Taxpayer, Public Safety and Transportation Protection Act once it passed by a majority vote of the people, Prop 22 was designed to “close loopholes to prevent taking local taxpayer funds currently dedicated to cities, counties, special districts and redevelopment agencies” by amending the California Constitution.

Figures produced by the Yes on 22 campaign showed that over the two-year fiscal period ending in June 2011, the state had raided redevelopment agency coffers to the tune of two billion dollars. Oakland, the third-ranked city in the list—after Los Angeles and San Diego—had lost $49.5 million. Even Indian Wells lost $11.5 million. The two bills enacted as part of the budget will “effectively require redevelopment agencies to pay $1.5 billion this fiscal year and $400 million each year thereafter to schools, transit districts, and fire districts”, according to the petition to the Supreme Court.

Most redevelopment agency projects are far less controversial than the one in Indian Wells in the 80s. More typical are the kinds of mixed-use transit-oriented projects that provide housing, business premises, community facilities, and easier, safer access to public transit systems like BART, here in the Bay Area. RDA funds are supplemented by money from sponsors—both commercial and not-for-profit—and state and federal funds, such as those for historic preservation or infrastructure.

If you think about that list of money sources, you’ll immediately realize why the loss of redevelopment agency funds will be the last straw for projects that were supposed to create jobs, revitalize neighborhoods—both commercial and residential—and improve local community infrastructure. Since the financial collapse of 2008, commercial sponsors have dried up or withdrawn from current projects; not-for-profits have seen their donation bases shrivel and have similarly left the field; and state and federal funds? Not bloody likely!

The Brown Administration is confident the Supreme Court will dismiss the petitioners’ claim that its actions are unconstitutional and will allow the “ransom” legislation to go into effect. Ironically, Brown celebrated his election as Governor from the stage of the Fox Theater in Oakland, whose redevelopment agency invested $50 million in equity and loans for its renovation.

ENDS

by Gordon Campbell

By the age of ten, it had dawned on me that there were an awful lot of songs about love and romance. After an anxious night of flicking around the radio dial though, the real bombshell realization sank in – every single song on the radio was about love! People were either falling excitedly in love, or feeling sad about not being in love anymore. Love was saturating the airwaves, and to my ten year old mind it was silly and creepy and had to stop. Was love really the only thing that adults felt was worth singing about? That, and sinking the Bismarck.

There are of course, a few songs that aren’t about romantic love, and this month’s column is dedicated to them – just in case there are any ten year olds out there still looking for refuge from the love epidemic. Quite a few of these songs are about disasters. Lets start with the mining songs.

1. Wilf Carter : “Moose River Gold Mine” / Merle Travis : “Dark as a Dungeon” The Moose River mining disaster of 1936 in Nova Scotia had a lot of the same ingredients as the copper mine rescue in Chile last year. (Apropos of Pike River, it also underlines there are no happy endings to coal mining disasters) At Moose River, the cave-in came without warning, desperate attempts were made to reach the trapped men, hope had been all but given up and then…Wilf Carter, Canada’s first major country music star, will tell you the whole story. Carter also performed under the name of Montana Slim and died in 1996, two weeks short of what would have been his 92nd birthday. You can find out the full Moose River story on its own webpage right here. Check out the photographs of the tiny borehole drilled through to the trapped men, referred to by Carter in his song.

IMO though, the most poetic mining song would still be “Dark As A Dungeon” by Merle Travis, and below is the original 1947 recording. The image of the dead miner peering down from his heavenly home and pitying the miners digging his bones says it all about the links between hard work and chronic poverty.

2. “Big Bad John” /”Cajun Queen” by Jimmy Dean. Miners tend to be larger than life figures, and this 1961 pop hit celebrated the biggest of them all. Big John stood six foot six and weighed 245, and generously gave his life to save his fellow miners. The lesser known follow up song (“Cajun Queen”) tells how Big John’s true love rescues him by going down into the pit – and planting a couple of kisses on his cold blue lips (yuk!) of such unimaginable hotness that Big John comes storming back to life. Let it be noted that the radio sensitivities of the early 1960s meant that Dean’s version, which originally ended “ At the bottom of this mine lies one hell of a man” had to be recalled, and replaced with: “At the bottom of this mine lies a big, big man.”

3. “The Wreck of the Edmund Fitzgerald” by Gordon Lightfoot/ “Wild Gilbert” by Lovindeer
Another Canadian disaster song. Gordon Lightfoot’s epic song about the iron ore freighter sunk on Lake Superior is hilariously awkward, yet kind of touching all the same. The lyric mimics the famous Longfellow poem about Hiawatha…. and for sheer awfulness, it is hard to beat those opening lines :

The legend lives on from the Chippewa on down
Of the big lake they called ‘Gitche Gumee’
The lake, it is said, never gives up her dead
When the skies of November turn gloomy

Like the weather, it only gets worse. Try for instance, to sing this :
With a load of iron ore twenty-six thousand tons more
Than the Edmund Fitzgerald weighed empty.
That good ship and crew was a bone to be chewed
When the gales of November came early.

Or maybe this segment is the real killer, especially the first four awesomely clunky lines :
As the big freighters go, it was bigger than most
With a crew and good captain well seasoned
Concluding some terms with a couple of steel firms
When they left fully loaded for Cleveland
And later that night when the ship’s bell rang
Could it be the north wind they’d been feelin’?

Well, yes it could. Years later, the Butthole Surfers used to sing a fearsomely lugubrious version of “The Wreck of the Edmund Fitzgerald” as a way of clearing the room at the end of their sets. On the other hand, smiling broadly in the face of disaster calls for a different set of skills. Hurricane Gilbert was one of the worst natural calamities in Caribbean history and it caused major loss of life and property – yet inexplicably, Lovindeer’s huge hit song about the disaster is a wildly happy singalong that treats the whole thing as a hoot from start to finish. Very hard to imagine a similar song emerging in the wake of the Christchurch earthquake.

4. Working In the Plantation by Mr Lif /Sixteen Tons by Tennessee Ernie Ford Smiling bitterly in the face of havoc can be the only way to go. Luckily, most of us don’t get to confront epic storms and earthquakes, but the daily work routine can be almost as damaging to body and mind. Boston hip hop artist Mr Lif picks up from where the Office Space movie left off, with this funny-yet-extremely angry day dream about life on the minimum wage. The lyric is incredibly succinct..eg

Step into the work place with my work face

Wince at my time card cuz I’m scarred

Mad cuz I sacrifice my day and it gets me

A trifling hourly wage of six fifty, nifty

Now I’m off to slave quarters

With a whole bunch of other people’s sons and daughters

Working so they can be mothers and fathers

Laboring real hard, hoping the boss offers

More petty cash to his bums and paupers

Kissing his ass cuz they hoping they prosper

Here’s the math:
You work a thirty a day, away

The government takes a thirty a check, correct

You go home and drink cuz you don’t get

An ounce of respect, and your spirit is wrecked

Life is a gift to be enjoyed, every second every minute

It’s temporary, not infinite

Yet I find myself looking at the clock

Hoping for the day to fly by,
And I ask myself “Why?”

Brilliant. Of course, the real grandaddy of pop songs about work routines is still “Sixteen Tons “– co-written by Tennessee Ernie Ford and Merle Travis in 1946, and a huge hit for Ford some ten years later.

5. The Dying Soldier : Buell Kazee / “A More Perfect Union” by Titus Andronicus
War has inspired thousands of songs….Buell Kazee’s 1928 song “ The Dying Soldier” is a strange and haunting goodbye to life and its blessings, as the soldier prepares himself for the Heaven to which he hopes he’s bound. Given the way things have turned out on Earth though….the stoic sadness of Kazee’s singing and banjo accompaniment seem to anticipate that things may turn to crap in the afterlife as well.

A couple of years ago, the New Jersey punk band Titus Andronicus released a concept album called The Monitor, based on the Civil War sea battle between the two ironclad ships, the Monitor and the Virginia (aka the Merrimack) The album’s opening track ranges from 1860s jigs to Springsteen to punk in pretty diverting fashion :

6. “Chumming the Ocean” by the Archers of Loaf / “A Dream of the Sea” by the Renderers

The sea has always been a pretty good metaphor for love : ie, tidal, unpredictable and swept by the occasional monster wave that capsizes everything in its path. These two songs are different though – they’re more about the sea as a metaphor for free-floating dread and nightmare. Archers of Loaf and its lead singer/writer Eric Bachmann made some of the most distinctive post grunge albums of the 1990s, and have recently reformed. “Chumming the Ocean” is a piano solo piece by Bachmann, and it’s a spooky, wavering one-of-a-kind epic. Youtube contains only a live version – this is not the definitive original, which is on the All The Nations Airports album – but is still pretty terrific. “Dream of the Sea “ is like an insistent dream after-image. Brian and Maryrose Crook made this level of altered consciousness their specialty.

6. “Joshua Gone Barbados” by Eric von Schmidt /”Work Song” by Oscar Brown Jnr. Work songs again. The best version of “Joshua Gone Barbados” is by Tom Rush – not because of Rush’s singing, but because of the liquid guitar backing by Bruce Langhorne, who did similar service on Bob Dylan’s “Corinna Corinna” and was the flesh and blood inspiration for “Mr Tambourine Man” – but that’s another story. What makes Von Schmidt’s song so special is the sorry tale it tells – of a strike leader who inspires the sugar cane workers he leads, and then abandons them. “ They’re beating Sonny with a cutlass/they beat him to the ground…” Joshua, meanwhile, has gone Barbados – where he is staying in a big hotel, and thanking his lucky stars he survived the events he set in motion.

Oscar Brown Jnr’s “Work Song” was almost a genre to itself – a would-be hipster jazz piece that leaps backwards all the way to the work gangs. Hearing someone as cool and articulate as Brown singing the word “ gwine” is pretty amusing. The only similar jazz/country blues concoction I can think of is Mose Allison’s peppy 1957 track “Parchman Farm.”

7. “The Road Goes on Forever” by Robert Earl Keen / There’s a Love Knot in My Lariat” by Wilf Carter. Robert Earl Keen’s brilliant story-in-song is as taut and concise as a Raymond Carver short story – and while extremely romantic, it is about an even older virtue : gallantry. Sonny’s gallantry after all, is what initially gets him acquainted with his one true love Sherry the waitress, and the same quality finally sees Sonny make the ultimate sacrifice on her behalf. Offhand, “The Long Black Veil” is the only comparable “ He died, so that she would not be dis-honoured” song that comes to mind.
Yet in recognition of the pervasiveness of romantic love, lets finally go back to Wilf Carter, for a fairly weird love smetaphor. Namely : “There’s A Love Knot in My Lariat.” Lucky girl.

ENDS

by Alastair Thompson

On October 1st one of the most significant reforms to property law in decades is due to come into effect with the abolition of gift duty.

For most in the legal and accounting industry (including the Law Commission) the perception appears to be that provision has already been passed, although it has not.

The politics of the change – which looks like a tax cut for the rich – would seem to paint it as an obvious target for some filibuster tactics on the part of the Opposition. And therefore it does seem possible that the bill will not come into effect of October 1st as intended.

It appears that the full implications of this change haven’t been fully thought through. On the papers which have been published (and considered below) it is easy to conclude that what consideration there has been has lacked rigor.

Meanwhile on its face the change will open the door to massive tax avoidance and make the defrauding of creditors (including the IRD) vastly easier than it is at present.

The change is contained in the Taxation (Tax Administration and Remedial Matters) Bill which was reported back from Select Committee last week.

Before it can come into effect (on October 1st) it will need to pass through its second reading, committee stages and third reading.

While the bill is expected to receive a clear majority of support via the National and ACT parties – the potential for political fallout is considerable given that the benefit of the provision flows mainly to the wealthy and the threat to the overall tax base via avoidance has not been quantified.

In their minority opinion in the report back Labour and the Green Party have clearly indicated they will be opposing the provision on the grounds that it is ill-considered and wide ranging in its implications.

Abolition of gift duty change was proposed as a way to simplify tax law and remove a $70 million burden in seemingly unnecessary compliance costs on taxpayers (plus a $430,000 cost to the IRD.)

However many submitters on the change and lawyers in private practice believe the impact goes far beyond this.

Without gift duty to slow things down anyone (including corporate persons, companies, trusts etc.) will be able to instantaneously move valuable assets (including cash, loans and property) more or less without restriction and without tax implications.

While in theory there are legal provisions to undo gifts in the event of insolvency – in practice if you can move assets between entities you can move them down a chain of entitites – and that becomes very hard to undo.

The change therefore has very wide ranging implications for the law of trusts, the law of taxation and the practicalities of debt enforcement – including in relation to wills and matrimonial property disputes.

According to several lawyers spoken to by Werewolf it will result in a legal environment in which:
- tax avoidance will become much easier and cheaper;
- money laundering will become significantly easier (and cheaper); and
- defeating creditors claims (including those under the Family Protection Act and Relationship Property Act) will be much easier, faster and cheaper.

In the report back on the Bill a minority opinion was voiced by the Labour and Green parties concerned primarily about the tax avoidance implications. Quoting from the report:

” New Zealand Labour and Green Party members also believe the analysis upon which the gift duty abolition proposal is based is fundamentally flawed because it does not adequately take into account the full range of potential tax avoidance opportunities. T rust structures are one subset of possibilities but these members do not accept that the analysis has been comprehensive. Accordingly the cost – benefit analysis upon which the bill rests must also be seen as fundamentally flawed, as no attempt has been made to quantify the counterfactual of avoidance risk pertaining to the full range of structures available.

These members note that no sensitivity analysis has been provided. No options analysis has been provided. The policy process would not meet the standards expected under a thorough Regulatory Impact Statement.
…

New Zealand Labour and Green Party members believe, in the first instance, that any legislation proposing the abolition of gift duty should be delayed until the Law Commission’ s review of trust law is complete. However , while realising that gifting to trusts is a significant component of the gifting regime, there are many other gifting
opportunities that have been used to avoid either tax or other responsibilities.

In order to understand why this change was ever thought a good idea it is first necessary understand how it relates to the Law of Trusts. Almost all of the $70 million in compliance costs around gift duty arise out of this.

Under the existing law of Trusts setting up a trust is a relatively complex matter especially if you intend to settle any significant level of assets in it.

While trusts do not need to be registered, and at law do not even have to be written down, in practice if you want one that will stand up to a legal attack you need to construct it carefully and in accordance with the letter of the law.

Typically to do so you will need to to engage a lawyer and possibly an accountant, you may need a professional trustee if you do not have the expertise yourself (i.e. you are neither accountant nor lawyer).

The paperwork to set up a trust starts at around $1000 (at the Public Trust) and commercial rates from lawyers and accountants are similar at the bargain end of the market.

The main reason that all the above is necessary is that putting valuable assets in a trust without due care can give rise to a taxation liability.

Under present taxation law if you give assets of more than $27,000 to anyone then your gift will attract taxation. Most people do not know this and almost no revenue is ever collected on this even though very large gifts to trusts are fairly routine.

And the reason for this is that the law has evolved a mechanism for circumventing gift duty in almost all circumstances . And it is administering this mechanism- which looks a little like a sleight of hand – which costs taxpayers $70 million a year.

The way trusts typically gets assets without paying gift duty works like this.
1. A family trust is set up to hold assets (e.g. a house) currently owned by an individual to protect them in case the owner gets sued by his clients;
2. The trust purchases an asset (e.g. a house) from person(s) but does not pay for them;
3. Instead the Trust agrees to borrow the purchase sum from the seller interest free;
4. The vendor then forgives the loan at $27,000 a year, each year they file a tax return to this effect and provide a deed of gift.
5. On the death of the vendor they forgive the remainder of the loan, and because there is no death duty in New Zealand that residual gift does not attract any taxation either.

There are tens of thousands of trusts in New Zealand which have been set up in this fashion. Many MPs have them as do many professionals working in fields in which there is a possibility that they may be sued by their clients.

Rich individuals, families and corporate entities of all kinds also use trusts to manage their property and wealth. Companies and corporate use them also for a variety of purposes including creating structured tax arrangements designed to minimise taxation liabilities.

The policy issues around the abolition of Gift Duty were initially addressed by IRD’s Policy Advice Division in a commentary on the bill published when it was introduced on 23 November 2010.

This paper includes a very brief commentary on the Gift Duty provisions in the bill. This states that the abolition of gift duty had been considered when death duty was abandoned in 1992 but ruled out in 1992 due to concerns around it enabling tax avoidance.

The full reasoning follows as it is not overly long (emphasis added by the author):

“In light of the increasing number of requests for exemptions from gift duty, a review was initiated. Options considered included:

• narrowing the scope of gift duty to apply only to gifts between individuals, trusts and closely held companies;
• raising the thresholds at which gift duty applies;
• removing the requirement to file gift statements for non-liable gifts;
• introducing electronic systems for the filing of gift statements and payment of gift duty; and
• updating life-expectancy tables for valuing annuities under the Estate and Gift Duties Act 1968.

As the review progressed, a strong case for outright abolition emerged. Some of the concerns which existed in 1992 have been addressed or reduced by the strengthening of existing legislative provisions. Remaining areas of concern were scrutinised in consultation with the Treasury, the Ministry of Economic Development, Ministry of Justice, Ministry of Health, New Zealand Police, the Ministry of Social Development, and Housing New Zealand Corporation. None of these agencies opposed gift duty abolition.

The review concluded that gift duty no longer raises any significant revenue and imposes a high level of compliance costs on the private sector. The protections offered by gift duty in the areas of income tax, creditors and social assistance have been incidental rather than intended policy goals. The analysis undertaken across government revealed that the protection gift duty offers is inefficient and limited and is outweighed by the significant compliance costs it imposes on the private sector.

The bill abolishes gift duty with effect from 1 October 2011. The government agencies mentioned above will monitor the effects of gift duty abolition and Inland Revenue will initiate a post-implementation review to ensure there are no unintended consequences.”

The bill received relatively few submission, just nine.

In a report on these submissions officials dismissed all the concerns of submitters – several of whom even though supporting the move in theory, asked for the Law Commission to be allowed to complete its report before the change was made.

According to the summary of submissions six supported the change and one opposed.

But while this may be technically correct – it does not really do justice to the nature of the submitters opinions.

The Institute of Chartered Accountants for example said that while it welcomed the abolition of gift duty – in its view “there are a number of tax avoidance opportunities that may arise in the absence of gift duty”, going on to list five.

The Institute said further consideration was needed of these and other issues and suggested a staged approach to allow this. In the first instance rather than abolishing gift duty the threshold for its application should be raised to $80,000, they said.

Officials response to the Institute’s submission on Tax Avoidance was curt and dismissive:

“The key feature of all the avoidance practices raised by the New Zealand Institute of Chartered Accountants is that gift duty does not prevent them. Legal title to assets (as well as any income they generate) transfers immediately when a gifting programme is set up. The outstanding debt, progressively forgiven, is of no assistance in remedying these avoidance behaviours.”

It should probably be left to tax practitioners to critique this response in detail, but what seems to be being ignored here is that more complex arrangements will be able to be built faster and cheaper.

The Institute of Chartered Accountants, The National Council of Women and the Law Society all expressed concerns regarding the impact of the abolition on Family Protection and Relationship Property proceedings.

The Family Protection Act protects children and spouses who are excluded from inheritance in wills. By allowing full gifting prior to death the interests of children who miss out on any inheritance will be extinguished.

In the case of relationship property a non-property owning spouse or partner may find that the matrimonial home has been gifted to a trust without their knowledge and is therefore out of reach when they separate.

The officials response to this submission was somewhat lengthier than the one on tax but similarly curt.

On the issue of relationship property they begin by saying that gift duty is not the best means of protecting these interests.

They then say that the Ministry of Justice disagreed with the submitters, listing a bunch of legal remedies available to those who lose their inheritance or have their matrimonial property alienated.

Finally they say that while a small number of people won’t have any legal avenue open to them, ” there is no evidence that these cases would be significantly affected by the removal of gift duty.”

On the issue of succession the officials again take the view that gift duty is not intended to prevent live people for disposing of their assets as they wish. It appears that officials see this as an unintended consequence of gift duty and therefore illegitimate in some principled sense.

“Generally, property that is owned jointly with another person or that is disposed of while a person is alive, whether by transfer to a trust or otherwise, does not fall into their estate and is therefore not available to claimants under the Family Protection Act or the Law Reform (Testamentary Promises) Act. This is consistent with the policy that these Acts do not restrict what a person may do with their property while they are alive, including gifting that property to another person. It is not clear why transfers to a trust should be treated differently.”

The third major area of concern, creditor protection, was similarly disposed of in a few brief sentences by officials.

It is notable that this problem was only addressed by one submitter to the bill according to the officials summary – but in fact would appear to be the most serious area of concern in terms of its implications for property law.

It appears the officials have forgotten that when it comes to property possession is nine tenths of the law.

Officials stated that there are three existing provisions in the law which allow for gifts to be clawed back for the benefit of creditors.

“In the context of these existing provisions, officials do not consider that any new creditor protection measures are necessary at this time. The Ministry of Economic Development has committed to monitor future cases brought under these Acts, and a government-wide post-implementation review will consider any effects resulting from gift duty abolition.”

As anyone who has ever attempted to pursue fleeing money will tell you the provisions which allow for the claw back of assets passed between entities are very hard to enforce, mainly because by the time you can find a court to address the location of an asset it has moved somewhere else.

However after dismissing all the above concerns officials concluded in summary that:

“Submitters have called for further work to be done in some related areas, notably in the area of relationship property rights and the law of trusts, and while some want to delay abolition, the general consensus is that gift duty should not be retained for these purposes.”

The question then arises – will the wider legal fraternity actually believe any of the officials’ assertions on these issues? And will Parliament?

And when answering this question the ground quickly moves to the difference between the reality of the operation of law and the theory.

Yes in theory tax law is there to collect tax and so a tax which collects very little tax and costs millions to administer is on its face something of an aberration.

And so yes Gift Duty was not intended to protect creditors, make tax avoidance more difficult or protect children and spouses from losing family property – however at present it does play a role in all three.

The relatively few submitters to this bill argued pragmatically that the unintended consequences of this reform mean that any policy move in this area should be accomplished more slowly and carefully because of this. All of them can see the potentially huge implications that this change has in several different fields of law.

IRD policy officials have responded with a very narrow and principled view that law should not act by way of unintended consequences.

On Tax Avoidance they respond that the law contains other protective provisions which it does. However the tax lawyers spoken to in the course of writing this article do not believe this for an iota.

In practice sophisticated tax avoidance involved the use of deliberately confusing structures to hide the true effect of financial arrangements. Removing gift duty will make the design, construction and execution of these arrangements easier. It will therefore make the enforcement of anti-avoidance law harder.

Meanwhile the effect the provisions will have on the IRD’s ability to recover bad debts does not appear to have been considered at all by the IRD officials. It will be interesting to find out what officials from IRD’s debt enforcement section really think about this, have they even been asked?

On the issue of Trusts officials clearly point towards the Law Commission’s work. They seem to expect the Law Commission to solve the various problems that may emerge as a result of their making a fundamental change to the nature of trust law practice in New Zealand.

This approach seems to have the IRD looking towards the Law Commission to provide the appearance of policy rigor to the change. However the timing of the Law Commission project is such that they are at present assuming that the gift duty change will be made before they begin the bulk of their work.

On Family Protection and Relationship Property matters the officials are even odder. In their report on submissions the following obiter remarks scrape the surface of a huge area of law in which IRD officials simpy have no experience of competence.

” There is a risk that making ad hoc amendments to any of these Acts may undermine the long-standing policy that underpins them and could affect the legitimate use of trusts. For example, requiring all parties to a relationship to receive legal advice before one party to a relationship transfers assets into a trust (or makes major changes) would impose significant compliance costs on couples that have a trust for a genuine purpose, particularly when the value of the trust was relatively low. It is also likely to be unnecessary, as couples who transfer significant assets into a trust would be likely to seek professional advice.”

So why then is the Government doing this?

The following section in the officials report seems to answer that question.

IS GIFT DUTY ABOLITION A TAX CUT FOR THE WEALTHY?

Submissions

(Federated Farmers, National Council of Women of New Zealand)

New Zealand’s wealthiest citizens have a continuing economic advantage of transferring assets to trusts, and as major beneficiaries of recent tax cuts, a further move to relieve them of costs is unfair. (National Council of Women of New Zealand)

Abolition of gift duty will cost the Government just 0.003% of total tax revenue, while relieving the private sector of $70 million in compliance costs. Gift duty has been an impediment to farm succession from one generation to the next. Although farmers must have land assets, this does not mean they have high incomes, with recent data from the Ministry of Agriculture and Forestry showing meagre incomes for farming, with poor rates of return and increasing agricultural debt. (Federated Farmers)

Comment

Officials note that gift duty applies only to aggregate gifts over $27,000, made by a person in any 12-month period. Therefore, abolition affects only those who have assets greater than this value and who wish to give up their legal ownership of them.

It has been noted that gifting programmes are widely used; therefore gift duty is rarely incurred, often only by mistake. The extent to which abolition can therefore be considered a tax cut is limited to the $1.5 million (before administration costs) that it raises annually, resulting from approximately 900 gift statements.

The real savings will be in compliance costs (an estimated $70 million each year). The benefit of these costs goes to private practitioners who assist with drawing up deeds and filing gift statements.

Recommendation

That the submissions be noted.

So in the opinion of the report writer the beneficiaries of the law as it stands are “private practitioners who assist with drawing up deeds and filing gift statements.”

Not mentioned are the wealthy who have to pay these fees in order to organise their affairs to protect and administer their assets.

Therefore, the correct answer to the question – Is gift duty abolition a tax cut for the wealthy?- is YES.

ENDS