Category Archives: New Zealand

The way we punish crime adds to our prison bill – Julia Fyers.

Only the US has more of its population locked up per capita than New Zealand. Opting for more home detention would save a lot of money.

New Zealand has the second highest rate of imprisonment in the world. The only country with more of its population behind bars per capita is the USA and they’ve acknowledged it’s a problem. We are on par with third world countries with our population of prisoners.

This should be a source of great international shame for our country. Importantly though, the problem is not crime, it’s punishment.

Penal populism drives the social and financial disaster that is our prison problem. Criminal justice policies have escalated wildly in response to voters’ supposed desire for increased punishment of crime.

As tax payers, how our money is being spent should be of importance to us. The costs of running New Zealand’s 18 prisons are enormous. The public need to know the actual cost of prisons and imprisonment, and make an informed decision on whether a “tough on crime” stance is worth it.

Here’s some numbers: The operational cost of keeping one person in prison for one year is in excess of $120,000. Currently, we have 10,695 prisoners. This means the cost of our prisons is more than $1.28 billion a year.

Then there are the added capital costs of building and maintaining prisons. To give one recent example, the proposed expansion to Waikeria Prison is forecast to cost $1 billion.

Perhaps more importantly though, there are the inter-generational health and social costs of having a system that doesn’t work.

It is a common misconception that prison deters crime and that the best approach to offending is to “lock them up and throw away the key”. Lobby groups such as the highly unsensible Sensible Sentencing Trust appeal to that sentiment.

Thankfully, current sentencing laws don’t make this possible (much to the relief of the New Zealand taxpayer). Inevitably, prisoners are released back into the community.

However, in addition to the costs of incarceration, further avoidable social and health costs occur after release. Convicted criminals have the stigma of a criminal record, potential media attention around their offending and a gap in their employment history.

Although the Government spent $181 million on prisoner reintegration in 2017, it is unsurprising that, after 12 months of release, 31.2 per cent were back in prison.

We can’t stop crime, but we can change the way we punish it.

Two thirds of prisoners have addiction issues which remain untreated in prison. Rehabilitation programmes in prison don’t work because they are not transferable to a community setting.

Prisoners are released with $350 from Winz, no job, no home, no transferable life skills and nowhere safe to go. It doesn’t take a rocket scientist to work out what is likely to happen next.

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If we want to make our communities safer, we need to give offenders the tools they need to stop the cycle of crime.

Compare the cost of all this to the cost of keeping one person on electronic monitoring for one year around $40,000.

Home detention is no walk in the park. You are confined to the perimeters of your property 24/7. As your sentence progresses, you may earn the right to attend drug and alcohol counselling for a couple of hours a week or to go to the gym for two hours a week.

Besides that, you are confined to the four walls of your home. Towards the end of your sentence, you may be allowed four hours of social leave a fortnight. Some electronic monitoring has the capability to alert probation if drugs (including alcohol) are being consumed. Your every move is monitored by a GPS tracker.

Another benefit of this type of sentencing is that the offender is able to work, if he or she is lucky enough to find a supervisor to vouch for him. This means actual reparation can be made to victims, as opposed to $2 per week from a prisoner. Community sentences have the benefit of allowing an offender to stay within society whilst ensuring the public are kept safe, at a fraction of the price.

To deter crime, people need tools that enable them to reconnect with society. Downsizing prisons will free up money to be redirected to where it will help reduce the continuing cost of people who have been damaged and marginalised by the prison system. Remember, one third are back in prison within 12 months of release.

Addiction causes crime, and the opposite of addiction is connection. Offenders need to be reconnected to society with jobs, social inclusion, positive relationships and help with the issues that caused them to offend in the first place.

Decreasing the prison population will not increase crime or risk to public safety. It is time to stop the nonsense, end the war on drugs and create evidence based policies. Rather than more prisons and prisoners, increased management of electronically monitored offenders could help reduce recidivism. An extension of clean slate legislation could remove the stigma which can prevent an offender’s economic reconnection.

You wouldn’t buy a billion dollar house if it was eventually going to fall off a cliff, so why are we willing to make an investment that we know is going to fail?


Julia Fyers has a masters degree in law and is a legal researcher, working on issues of human rights and drug and prison policy reform.

Ring-fencing Rental Losses. An officials’ issues paper – NZ Inland Revenue Department.

Prepared by Policy and Strategy, Inland Revenue, and the Treasury.

March 2018

Background

The Government has committed to a number of policy measures aimed at making the tax system fairer and improving housing affordability for owner occupiers by reducing demand from speculators and investors.

One of these measures is to introduce loss ring fencing on residential properties held by speculators and investors. This means that speculators and investors will no longer be able to offset tax losses from their residential properties against their other income (for example. salary or wages, or business income), to reduce their income tax liability.

Current settings

Under current New Zealand tax settings tax is applied on a person‘s net income. We do not generally ring fence income and losses from particular activities or investments. This means that there is generally no restriction on losses from one source reducing income from other sources though there are some exceptions to this general treatment.

Investment housing is currently taxed under the same rules that generally apply to other investments. This means that rents are income. and interest and other expenses (other than capital improvements) are deductible. Capital gains on sale of the property are not taxed unless the property is on revenue account. This could be, for example, because you are in a land related business (for example, a land dealer or developer), bought the land for resale, or sell the property within the bright line period of either two or five years (depending on when you first had an interest in the land). Most rental property investors hold their property on capital account and are not subject to tax on the capital gain.

While rental housing is not formally tax favoured. there is an argument that it may be under taxed given that tax free capital gains are often realised when rental properties are sold. The fact that rental property investors often make persistent tax losses indicates that expected capital gains are an important motivation for many investors purchasing rental property. While interest and other expenses are fully deductible, in the absence of a comprehensive capital gains tax not all of the economic income generated from rental housing is subject to tax. There is therefore an argument that. to the extent deductible expenses in the long term exceed income from rents, those expenses in fact relate to the capital gain, so should not be deductible unless the capital gain is taxed.

Aim of the proposed changes

The introduction of loss ring fencing rules is aimed at levelling the playing field between property speculators/investors and home buyers. Currently investors (particularly highly geared investors) have part of the cost of servicing their mortgages subsidised by the reduced tax on their other income sources, helping them to outbid owner occupiers for properties. Rules that ring fence residential property losses. so they cannot be used to reduce tax on other income, is intended to help reduce this advantage and perceived unfairness.

Officials are interested in feedback on the suggested changes outlined in this paper.

How to make a submission

Officials invite submissions on the suggested changes and points raised in this issues paper. Send your submission to who.webmaster@ird. govt.nz with “Ring fencing rental losses” in the subject line.

Alternatively, submissions can be sent to:

Ring fencing rental losses

Deputy Commissioner, Policy and Strategy Inland Revenue Department

PO Box 2l98

Wellington 6l40

The closing date for submissions is 11 May 2018.

Submissions should include a brief summary of major points and recommendations. They should also indicate whether it would be acceptable for Inland Revenue and Treasury officials to contact those making the submission to discuss the points raised, if required.

Submissions may be the subject of a request under the Official Information Act l982, which may result in their release. The withholding of particular submissions, or parts thereof. on the grounds of privacy, or commercial sensitivity, or for any other reason, will be determined in accordance with that Act. Those making a submission who consider that there is any part of it that should properly be withheld under the Act should clearly indicate this.

Summary of the suggested changes

The proposed loss ring fencing rules will mean that speculators and investors with residential properties will no longer be able to offset tax losses from those properties against their other income (for example, salary or wages. or business income), to reduce their tax liability. The losses can be used in future years. when the properties are making profits. or if the person is taxed on the sale of land.

A summary of officials’ suggestions for the design of the loss ring fencing rules is set out below. These design issues are discussed in more detail in the chapters that follow.

Property the rules will apply to

It is proposed that the loss ring fencing rules will apply to “residential land”. We suggest that the rules use the definition of “residential land‘” that already exists for the bright line test which taxes sales of residential land bought and sold within either two or five years.‘

The rules would not apply to:

A person’s main home

A property that is subject to the mixed use assets rules (for example, a bach that is sometimes used privately and sometimes rented out)

Land that is on revenue account because it is held in a land related business (that is, a business of land dealing, development of land, division of land or building).

Portfolio basis

It is suggested that the loss ring fencing rules should apply on a portfolio basis. That would mean that investors would be able to offset losses from one rental property against rental income from other properties calculating their overall profit or loss across their portfolio.

Using ring-fenced losses

Under the suggested changes. a person’s ring fenced residential rental or other losses from one year could be offset against their:

Residential rental income from future years (from any property); and

Taxable income on the sale of any residential land.

Interposed entities

Under the suggested changes, there would be special rules to ensure that trust, company, partnership, or look through company cannot be used to get around the ring fencing rules. It is proposed that such an entity will be regarded as “residential property land rich” if over 50 percent of its assets are residential properties within the scope of the ring fencing rules and/or shares or interests in other residential property land rich entities.

Where that is the case. it is suggested that any interest a person incurs on money they borrow to acquire an interest in the entity (for example, shares. securities, a partnership interest. or an interest in the trust estate) would be treated as rental property loan interest. The rules could then ensure that the interest deduction is only allocated to the income year in question to the extent it did not exceed the distributions from the entity (deemed rental property income). any other residential rental income, and residential land sale income. Any excess of interest over distributions, rental income, and land sale income would be carried forward and treated as “rental property loan interest” for the next income year.

Timing of the introduction of the rules

It is proposed that the loss ring fencing rules will apply from the start of the 2019/20 income year. The rules could either apply in full from the outset, or they could be phased in over two or three years. We are interested in feedback on which of those approaches should be taken.

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Property the rules will apply to

Under the proposed changes, the loss ring fencing rules would apply to “residential land”. The rules would use the definition of “residential land” that already exists for the bright line test.

Definition of “residential land

There is already a definition of “residential land” in the Income Tax Act, which is used for the bright line test which taxes sales of residential land bought and sold within two years. It is proposed that the loss ring fencing rules apply to land within that definition with the exceptions discussed below. Using the definition already in the legislation would avoid the additional complexity of having different definitions for different rules.

“Residential land” means:

Land that has a dwelling on it

Land for which there is an arrangement to build a dwelling on it

Bare land that may have a dwelling built on it under the relevant operative district plan rules.

However, “residential land” does not include:

Farmland

Land used predominantly as business premises.

“Residential land” is not limited to land in New Zealand it would extend to overseas land. This means that losses from overseas residential rental investments could not be offset against other income in New Zealand.

Apart from the exceptions below, the rules would apply to all residential land, whether or not it is currently rented out. including bare land. This is because the proposed rules are aimed at levelling the playing field between residential property speculators/investors and people looking to buy their own home or land to build a home on.

Main home

The proposed loss ring fencing rules will not apply to a person’s main home. This is to ensure that a person who has a boarder in their main home, or who rents out a spare room occasionally, would not have to apply these rules, which are primarily targeted at residential investment properties. The meaning of “main home” would be the same as for the bright line test, which has a main home exclusion.

A person can only have one main home at a time. If someone has more than one residence, their “main home” would be the one they have the greatest connection with. That would be determined by looking at factors such as:

The amount of time the person occupies the dwelling;

Where their immediate family live;

Where their social ties are strongest;

Their use of the dwelling;

Their employment, business interests and economic ties to the area where the dwelling is located; and

Where their personal property is kept.

Trusts

A significant number of family homes in New Zealand are owned by family trusts. The definition of “main home” would therefore ensure that a home owned by a trust can be regarded as a main home.

Like with the bright line rules, we suggest that a dwelling owned by a trust only be considered a main home (so not subject to the loss ring fencing rules) if it is the main home for a beneficiary of the trust. provided that a principal settlor of the trust does not have a different main home.

This restriction would ensure that trust ownership cannot be used to claim multiple properties as main homes. and so not subject to the loss ring fencing rules.

Mixed-use assets

The existing definition of “residential land” in the Income Tax Act would also include holiday houses that are sometimes used privately and sometimes rented out. However, many such properties would be subject to the mixed use asset rules, which already provide for the quarantining (or ring fencing) of losses where there is low income earning use of the asset.

We suggest that property subject to the mixed use asset rules should be scoped out of the rental loss ring fencing rules, because the mixed use asset quarantine rules will cover most if not all mixed use asset losses. We are interested in feedback on whether property subject to the mixed use asset rules should be outside the scope of the loss ring fencing rules.

Revenue account land in dealing, development, subdivision and building businesses

Land that is held in certain land related business is on revenue account. so the profits on sale are taxed. This applies to land held in dealing, development, subdivision, and building businesses.

At balance date, taxpayers in these businesses are likely to have a number of properties on hand, though they may not be currently rented out.

It is proposed that residential rental or other losses could be used against taxable land sales to reduce the taxable gain to nil, with any further unused losses remaining ring fenced to future rental income or taxable income on land sales. While taxpayers in the business of land dealing, development of land, division of land, or building may have losses in respect of properties on hand at balance date, those losses being able to be used against income from other sales or rental activity in the year would mean that their businesses would be unlikely to be disadvantaged by the ring fencing rules. In most cases the income from their sale or rental activity would be expected to exceed their losses.

However, in any overall loss making year, we do not consider it necessary to ring fence losses for land held in these businesses. There is not the same concern about any of the deductible expenses in relation to land in these businesses relating to untaxed gains, as all of the businesses’ land is on revenue account. Therefore, we propose that the ring fencing rules not apply to land that is on revenue account because it is held in a land related business. This would enable taxpayers in these businesses to use losses arising in any year against other income for example within their corporate group (as they are likely to be companies).

Property owned by companies and trusts

There is an argument that the loss ring fencing rules should apply only to individuals (that is, natural persons), and not to companies or trusts. This argument could be made because company losses are effectively ring fenced inside the company, as are losses in a trust.

However, such an approach would leave open the possibility of individual speculators or investors operating through a company or trading trust, holding their residential properties in that vehicle, and offsetting the losses against their labour income. It would also mean that a family trust holding residential rental property and also some other investments could offset rental property losses against income from the other investments. For example, it would not be fair for a professional operating through a company or trust to not be subject to the ring fencing rules where another person operating as a sole trader would be.

It is acknowledged that there may be some compliance costs for some corporates that own some residential property incidentally to their business. However. it is considered that limiting the ring fencing rules to individuals would significantly undermine the fairness of the rules. For this reason. we suggest that the ring fencing rules should apply to all taxpayers, not only to individual taxpayers.

Portfolio basis

It is suggested that the loss ring fencing rules should apply on a portfolio basis. That would mean that investors would be able to offset losses from one rental property against rental income from other properties calculating their overall profit or loss across their portfolio.

The alternative, a property by property basis, would mean that each property would need to be looked at separately, with losses on one not able to be offset against income from another.

A property by property approach would be stricter than a portfolio approach, achieving the highest level of ring fencing. However, it would add complexity, as losses would need to be tracked separately for each property. Moreover, a property by property approach may just result in taxpayers with portfolios re balancing their debt funding to avoid having loss making properties (or at least minimising the extent to which any particular property is loss making). That response to the rules applying on a property by property basis would be inefficient. and may mean that this approach may have no real advantage over a portfolio approach adding considerable complexity and increasing compliance costs for no real gain.

Also, a property by property approach may be seen as unfair in that if a taxpayer has two properties and breaks even on the ponfolio overall, the taxpayer’s tax position would depend on whether they break even on both properties or make a gain on one and a loss on the other.

We therefore suggest that the ring fencing rules apply on a portfolio basis. so a person with multiple properties would calculate their overall profit or loss across their whole residential portfolio.

Using ring-fenced losses

Under the suggested changes, ring fenced residential rental or other losses from one year would could be offset against:

Residential rental income from future years (from any property); and

Taxable income on the sale of any residential land.

Most residential rental investors are not subject to tax on the sale of their investment properties under current tax rules. However, in some circumstances. the sale of a residential rental property may be taxed under one of the land sale rules in the Income Tax Act or the taxpayer may have taxable income on the sale of other residential property (not rented out). This could be the case, for example, because the taxpayer is in a land related business (for example, a land dealer or developer), bought the land for resale, or sells the property within the bright line period of either two or live years (depending on when they first had an interest in the land).

Under the suggested changes. where a taxpayer sells a property that is subject to the ring fencing rules (that is a residential property) and the sale is taxed, any ring fenced losses the taxpayer has could be used to reduce the taxable gain on sale to nil. Any remaining unused losses would stay ring fenced, and could be used against any future residential rental income or taxable income on other residential land sales.

There is an argument that in the case of a property with ring fenced losses that is taxed under one of the land sale rules on disposal, the losses should be able to fully utilised (that is unfenced) at that point. and be used to offset any other income of the taxpayer. This would reflect that all of the economic income from the investment has been taxed (the rental stream and the capital gain), and that the investor should not be penalised for making an overall loss on the investment.

However. if the rules are to apply on a portfolio basis, as suggested, allowing accumulated losses to give rise to a tax loss on a disposal subject to one of the land sale rules would create risks. For example, it would enable a portfolio investor to sell a property that has made a small capital gain within the bright line period. offset that gain with ring fenced losses from across their portfolio, and apply any remaining losses from the portfolio against other income. While there are ring fencing rules in relation to the bright line test, they only apply to deductions for the cost of the land, not other costs.

Enabling taxpayers to sell their lowest capital gain makers within the bright line period and access what might be substantial portfolio wide accumulated ring fenced losses would significantly undermine the credibility of the rules.

For this reason, we propose that where a disposal is caught by one of the land sale rules, ring fenced losses should be allowed to be used only to the extent they reduce the taxable gain to nil, with any further unused losses remaining ring fenced.

Structuring around the rules

There are two main structuring opportunities that we have considered, creating specific rules to deal with. These concern interest allocation and the interposing of entities.

Interest allocation

We have considered whether specific interest allocation rules are required, as without them investors may be able to structure around the loss ring fencing rules. For example, this could be done by reorganising funding so that business assets other than rental properties are debt funded, and rental properties are equity funded to the greatest extent possible.

However, interest allocation rules would add substantial complexity and compliance costs. Because money is fungible, it is very difficult to attempt to match borrowings to particular investments (tracing). Stacking rules (for example, allocating debt firstly to ring fenced investments) may be seen as unfair. And pro rata interest allocation between assets that are subject to the ring fencing rules and those that are not would require regular valuation of assets.

If interest on any loan that was secured by a residential property was included in the rules, this would create issues for many people who use their rental properties to secure loans for their businesses. This would impact on small and medium business’ access to capital. In addition. many arrangements could be even more difficult to apply interest allocation rules to, as revolving credit facilities are often used to fund both a rental property and a business.

We do not propose specific interest allocation rules because of the considerable complexity and compliance costs they would add, which would be particularly onerous on smaller taxpayers.

Interposed entities

Under the suggested changes, there would be special rules to ensure that a trust, company, partnership, or look through company cannot be used to get around the ring fencing rules. These ownership structures are referred to here as entities for simplicity.

Otherwise a simple way to get around the ring fencing rules would be for a taxpayer to interpose an entity to hold a residential rental property, and borrow money to invest in or acquire an interest in the entity. For example, a taxpayer could borrow money to buy shares in a company, which uses those funds to buy a residential investment property. Because the money is borrowed to buy shares, the individual taxpayer would be able to claim deductions for the interest on the borrowings. and offset those amounts against other income sources.

However, if the taxpayer had used the borrowed money to purchase the property directly themselves, the interest expense would be attributable to the residential rental investment, not shares, so would be taken into account in determining whether the person‘s residential rental activity was profit or loss making. And if the rental activity was loss making. losses would be ring fenced under the proposal rules.

This simple mechanism is illustrated in figure 1.

A suggested approach to dealing with interposed entities is to specifically define when such entities would be “residential property land rich”. It is proposed that this would be the case where over 50 percent of the entity‘s assets are residential properties within the scope of the ring fencing rules, and/or shares or interests in other residential property land rich entities.

The rules could then treat dividends, interest, or distributions from the entity as being “rental property income”, and treat interest on borrowings to acquire an interest in the entity (for example, shares. securities, a partnership interest, or an interest in the trust estate). as “rental property loan interest”. The rules could then ensure that the interest deduction is only allocated to the income year in question to the extent it did not exceed the distributions from the entity (deemed rental property income), any other residential rental income, and residential land sale income. Any excess of interest over distributions, rental income, and land sale income would be carried forward and treated as “rental property loan interest” for the next income year. This would mean that losses from rental properties would not reduce the tax on other sources of income.

This suggested approach is illustrated in figure 2.

We are interested in feedback on this suggested approach to preventing the simple interposition of an entity to get around the ring fencing rules.

Timing of introduction of the rules

It is proposed that the loss ring fencing rules will apply from the start of the 2019/20 income year.

The rules could either apply in full from the outset, or alternatively they could be phased in over two or three years. If the rules are phased in, this would be done by reducing the proportion of losses that could be used to offset other income over a two or three year period, until no losses could be used to offset other income sources.

For example, if phased in over two years, 50 percent of residential investment losses could be used to offset other income in 2019/20, and no offsetting would be allowed in 2020/21.

Tax law changes are not usually phased in. But this possible approach has been suggested to allow affected investors more time to adjust to the new rules, or to rearrange their affairs before the rules apply in full. However, we note that phased introduction of the rules would result in some additional complexity.

We are interested in feedback on whether the loss ring fencing rules should apply in full from the 2019/20 income year the simpler approach or be phased in over two or three years.


First published in March 20l8 by Policy and Strategy. Inland Revenue, PO Box 2198. Wellington, 6140.

Ring-fencing rental losses an officials” issues paper. ISBN 0-978-0-478-424454

Australia has lost its compass for the world, we should look to Jacinda Ardern for inspiration – Thom Woodroffe.

Australian values are neither clear nor consistent. If we want to make a difference in the world, we should follow New Zealand’s lead.

Of all the Generation X world leaders elected in the last few years, think Justin Trudeau in Canada, Emmanuel Macron in France, and even the 31 year old Sebastian Kurz in Austria it is New Zealand’s Jacinda Ardern who has the firmest sense of what kind of country she wants to lead on the world stage.

Just four months since taking office after a decade of conservative rule, and while trying to carefully balance the views of three parties in government, New Zealand is already showing signs of regaining its trademark standing as a small but confident, principled and creative presence internationally. And Australia should take notice.

“Foreign policy is perpetually a balance between interests values. But too often it is easy to focus on the security and economic imperatives of the first and forget the second, or not realise that the two are inextricably linked.

Australia used to be the gold standard for charting the right course. Our foreign policy in the 1980s and early 1990s was characterised by Gareth Evans’ concept of being “a good international citizen” which he used to say was about “no more and no less than the pursuit of enlightened self interest”. Our crafting of the Cambodia Peace Plan and the Canberra Commission on the Elimination of Nuclear Weapons were two clear examples, as was our opposition to apartheid. But these were pursued within a wider understanding that our future prosperity and security was in Asia and we also needed to cement a role for ourselves in the region, not least through our founding of Apec.

If anything, New Zealand wore their values even more strongly on their sleeves, famously sending a ship with a cabinet minister on board to protest at the edge of a French nuclear testing site in 1973, and then in 1985 refusing entry to the nuclear powered USS Buchanan (which unfortunately caused the breakdown of their involvement in ANZUS).

But it is important to remember this was driven by the people. These are clearly the days Ardern longs for. Speaking on Tuesday before travelling to Australia she said, “Being a child of the 80s affected me in many ways and that included international events. Rather than just reading about the impact of apartheid in South Africa for instance, or nuclear testing in the Pacific, I saw instead each of these issues through the lens of our response. They weren’t history lessons, they were lessons in our values, what mattered to us, and that our size bore no relation to the impact our voice could have.”

Ardern also said that she wants the next generation of Kiwis to see their country standing up for what it believes in on the world stage. And her announcement this week that her foreign minister and deputy, Winston Peters, will also take up the ministerial title and mantle of nuclear disarmament is one of the first manifestations of that. He will push for the early entry into the landmark treaty on the prohibition of nuclear weapons, which Australia opposes despite a long history of leadership on the issue at all levels. The campaign group that just won the Nobel Peace Prize was founded in Melbourne after all.

Ardern’s focus on climate change, what she has called her generation’s nuclear-free movement will be another. In December she said New Zealand would explore a new visa category for climate affected Pacific Islanders, and this week Peters announced at the Lowy Institute in Sydney that New Zealand would “reset” its engagement with the region taking a cue from the eloquent case put at the same lectern by Australia’s own Richard Marles last November. Indeed, it is telling that next week Ardern will visit the Cook Islands, Niue, Samoa and Tonga before she has been to the United States, China, Japan or Europe, New Zealand’s four largest trading partners besides Australia.

Admittedly, Ardern’s strategy to embrace the Asian Century and shore up relations with the United States and others is less clear and here Australia excels as Malcolm Turnbull’s reception in Washington last month demonstrated. But otherwise it seems, we have lost our own compass for the world.

While most people singularly and somewhat naively focus on international aid as a measure of a country’s global heart (where, all told, we have gutted more than $11bn in recent years), there are countless other examples, not least the fact that despite taking up a seat on the UN Human Rights Council this week, our international reputation continues to suffer as a result of the treatment of asylum seekers on Manus and Nauru, and because of a lack of progress on reconciliation (a point Kevin Rudd made in these pages this week). And for all the money we spend on peacekeeping, we don’t spend a dime on peacemaking.

Even in recent years when we have become exercised about particular matters diplomatically like our opposition to the death penalty there is a tendency for us to only stand up for these values as they apply to those who hold an Australian passport.

Take for example the case of Andrew Chan and Myuran Sukumaran in 2015. Former Liberal MP Phillip Ruddock argued at the time that our calls for clemency probably would have been received more powerfully if we had consistently made representations on behalf of the hundreds of Indonesians on death row in the Middle East. And if anything, we should have used their tragic executions to start a new regional push against the death penalty starting by trying to reduce the number of crimes that carry a death sentence and pushing for its removal for some crimes, with greater transparency on these executions in the meantime.

Put simply, when our values and what we stand up for are neither clear nor consistent, we cannot expect others to respect them. This was something New Zealand learnt in the 1990s when its principled opposition to a French resolution on Haiti at the UN allowed it to weather any impact to its bilateral relations, a far cry from John Key’s assertion in 2015 that sending troops to Iraq to fight Isis was simply “the price of the club”, referring to the Five Eyes intelligence network.

Unfortunately, last year’s Foreign Policy White Paper didn’t give you any sense of what as a country we believe in, or what we want to do. Understanding what we believe in as a nation, what we are good at, and what upsets us is central to crafting an effective foreign policy.

Penny Wong put it well recently when she said in a Fairfax interview that “to me, fundamentally, foreign policy is about your place in the world and how you see Australia in the world. Having a sense of what your purpose is as important as the day-to-day management.” We may be good at the latter, but we cannot expect to make much of a difference if that is all that we do.”

Either way, values are not the monopoly of any one particular side of politics, or even one country. If we want to make a difference in the world, we should watch closely what happens in Ardern’s New Zealand.

Thom Woodroofe is a UN Representative with Independent Diplomat, a non-profit diplomatic advisory group. @thomwoodroofe

The Guardian

New Zealand Neoliberal Corruption. Citizen Thiel – Matt Nippert.

Peter Thiel is an internet oligarch who believes in a stateless world free of regulation or limits on human endeavour. He made millions on PayPal, and billions on Facebook.

He lobbied New Zealand Cabinet ministers and public servants, presenting himself as our exceptional angel of venture capital.

He was secretly granted citizenship, but within months of his “solemn vow” appeared to move on. He has barely seen since and has recently been buying up real estate while selling down his local technology investments.

What remains are his boltholes in Queenstown and questions over whether political pressure played any part in his granting of citizenship.

Thiel declined to be interviewed for this story, but issued a brief statement about the saga saying, “I believe in New Zealand”, and noting that he’s invested $50 million in New Zealand tech companies.

This story is, instead, based on dozens of interviews and hundreds of pages of documents sourced under the Official Information Act.

This is the story of Citizen Thiel.

PART ONE: CRUSH

It was 1995 when Peter Andreas Thiel first visited New Zealand. He was 28 and the German-born naturalised American was yet to found a single company. The billionaire-to-be would have been indistinguishable from the hordes of middle-class tourists also enjoying the thrills of Queenstown.

Thiel was drawn to the region’s adventure tourism industry at least partly out of his disdain for government regulation. In his only local public speech to date, at an Auckland University conference in 2011, he spoke of his white-knuckled ride on the Shotover Jet as being among “all the crazy things you can do in New Zealand that you can’t do anywhere else, risky things that are probably not allowed [elsewhere]”.

Thiel — now worth $3.7 billion and with deep links to Western intelligence agencies, the Trump administration and the Silicon Valley firms dominating the internet — seemed, in 1995, to still be in search of a purpose. Around this time the Stanford graduate changed jobs from judicial clerk to securities lawyer to derivatives trader.

Three years later he’d find that purpose, co-founding online payment company PayPal to set himself up to make a small fortune that he’d later leverage into a large one.

According to his 2012 book Zero to One, his purpose is more than making money and extends to escaping limits of both the human body and social rules. An interest in lifespan extension (including transfusing blood from the young), musing whether freedom was compatible with democracy, and support for artificial island habitats free from the constraints of traditional government and laws have led critics to caricature him a Bond villain for the internet age.

PayPal: Co-founded by Thiel in 1999, he made $75 million when the online payments firm was sold to eBay in 2002.

And, as with most caricatures, underneath lies a grain of truth. Thiel says in Zero to One that his first company sought to do far more than simply make online transactions easier. “PayPal had a suitably grand mission — the kind that post-bubble sceptics would later describe as grandiose. We wanted to create a new internet currency to replace the US dollar.”

Zero to One sketches out Thiel’s vision of technology enabling a world post-government, and is broadly shared by PayPal’s other founders — a group of young men who grew into a new generation of technology oligarchs.

Elon Musk went on to create Tesla and SpaceX; Reid Hoffman started LinkedIn; Steve Chen founded YouTube. As their influence grew this crew would become known as the “PayPal mafia”.

While the other members of the PayPal mafia were spreading their wings and priming their rockets in the United States, Thiel took a short detour and sought to formalise his relationship with New Zealand.

His application included two years of tax returns, the disclosure of two reckless-driving convictions in February 2000 (officials ruled these were minor and wouldn’t count against his application), and a schedule of assets as part of a listing of his net worth.

Thiel made more than $1 billion from a 2004 investment of $750,000 in Facebook. While he’s since cashed out his shares, he still serves as a director on the social media giant’s board.

Incomplete redactions show Thiel was by this point rich from PayPal — sold to online retailer eBay — but not yet super-rich. His declared net worth at this point ran to only nine figures. His $750,000 punt in 2004 on a small start-up called Facebook was yet to level him up to the realm of the world’s billionaires.

But in the end, only a relatively small slice of wealth was needed to nudge Thiel’s application over the line. The points-based visa he sought awarded him eight for his age — young migrants being preferred — and four for business experience. Applicants are allowed to pump up their score by setting aside funds to invest and awarded one point per $1 million. Thiel was just one point short.
Correspondence from his advisers talked about the possibility of investing the required million into vineyards or property, and Thiel himself indicated on his application form he had a particular interest in the South Island.

Damper Bay: His $13.5m purchase of a 193-hectare section on the shores of Lake Wanaka first brought Thiel’s citizenship to notice as his new status meant the deal did not require Overseas Investment Office approval.

As it turns out, that $1m tagged for investment ended up stashed in a term deposit for the required two years. And, of all the financial institutions in all the places he could have chosen to park this money, documents show he opted for the National Bank’s provincial branch in Whanganui.

The choice of an out-of-the-way bank seems to speak to Thiel’s tightly-guarded privacy. Bank workers in Whanganui — hardly a tech mecca, with an agricultural economy and population of barely 40,000 — would have been unlikely to pick their new client as an offshore dotcom multimillionaire.

This preference for discretion didn’t end there. In a New York Times opinion piece explaining why he was bankrolling defamation action against a gossip site he stated: “The defense of privacy in the digital age is an ongoing cause.” Last year his lawyer lobbied New Zealand’s Department of Internal Affairs to redact information from material released under the Official Information Act.

And, shortly after news of Thiel’s surprise New Zealand citizenship broke in January 2017, Jeremiah Hall of San Francisco’s Torch Communications acknowledged questions for Thiel about the issue.

“I’ll be back in touch if we have any comment,” he said.

He did not get back in touch.

In the 12 months since, the Herald has 10 times asked questions of Thiel — about his citizenship, his shrinking holdings in Kiwi software firm Xero, why he appears to have ghosted New Zealand, ties between his firm Palantir and local intelligence agencies, and even the celebrity classic, “What do you think of New Zealand?” And 10 times he again did not get back in touch.
But on the eve of publication of this story — a year and a day after questions were first asked about this saga — Thiel broke his silence with a short statement.

“I believe in New Zealand, and I believe the future of New Zealand’s technology industry is still underrated. I look forward to helping it succeed long-term.”

Thiel has stayed in touch with the country with short visits every few years, but it was around the 2008 United States presidential election that he took a serious focus on Middle-earth.

Thiel’s horse in United States politics at this time wasn’t nearly as successful as Trump would be eight years later. He’d initially backed Ron Paul for the Republican nomination, and after the libertarian outsider tanked in primaries he switched to party candidate John McCain. But McCain also tanked and Democratic candidate Barack Obama swept into the White House.

John Key: Thiel was enamoured with the National government, and met the Prime Minister in 2010 to expound on his plans to boost the New Zealand tech sector.

Where one window to government closed in 2008, another opened. Days after Obama’s victory, a fresh-faced financier named John Key took control of the Beehive. Thiel liked what he saw.

Rod Drury, whose cloud software company Xero is the biggest winner from Thiel’s brush with New Zealand, says his keystone shareholder was then disillusioned with the United States.

“If you know Peter, and if you’ve tracked him for years like I have, he was always into small government. He really likes that, compared with the US at the time, we were pretty much a free-market economy, fairly lightly regulated. You can imagine the affinity he’d have with that,” he says.

Rod Drury: Xero founder and chief executive Drury counted Thiel as one of his earliest and most significant investors.

Drury acknowledges a closer examination of the National Party’s platform would likely see them placed on the left wing of the Democratic Party, but he says Thiel was more interested in the general direction the country seemed to be going.

This affinity escalated into a courtship that would see multiple meetings with Cabinet ministers, lawyers from a high-end law firm shuttle from Auckland to Wellington to lobby Internal Affairs, and bold statements made about rerouting rivers of Silicon Valley capital and the establishment of a high-tech incubator in Auckland.

By the end New Zealand — or at least some officials in Internal Affairs — were smitten. But even Drury acknowledges we may have been naïve.

PART TWO: COURTSHIP

Thiel came on heavy in the two years ahead of his audacious and ultimately successful bid for citizenship in 2011. He visited the country three times during the period in a whirlwind of lobbying, business deals and public relations.

He met no fewer than four senior members of the Cabinet — including the Prime Minister — to present his case for turbocharging New Zealand’s tech industry, arranged his first business investment (five years after first being granted an investment visa), started buying real estate, and gave his first and, so far, only interview with New Zealand media.

The formal part of his bold quest saw his lawyers Bell Gully travel from Auckland to Wellington in late 2010 to hand-deliver a letter from Thiel to the Minister of Internal Affairs with his truly exceptional request.

“In the course of pursuing my international business opportunities, my travel, personal philosophical commitments and benefaction, I am happy to say categorically that I have found no other country that aligns more with my view of the future than New Zealand,” Thiel wrote.

“It would give me great pride to let it be known that I am a New Zealand citizen.”
The letter was accompanied by a note from his lawyer making it clear his client’s application would require the Minister to exercise rare discretion under “exceptional circumstances” rules, as Thiel was not intending to live here and sought unprecedented “citizenship at large”.

“Mr Thiel’s principal place of residence cannot be described in the context of the ordinary rules,” Thiel’s lawyers said.

In mid-2010, Thiel had incorporated Valar Ventures, a limited partnership which he said in his letter was intended to “become an active player in New Zealand’s venture capital industry”. The fund’s name is a reference to the mythical beings who created the world in The Lord of the Rings. Its first major target was Xero.

The accountancy software company was floated in 2007 and, three years on, the local sharemarket still didn’t know what to make of this ambitious company burning cash which saw profitability as only a medium-term objective. Its share price was languishing close to its $1 launch.

Drury, the company’s energetic founder and chief executive, says Thiel’s representatives came knocking in early 2010.

“They came to our offices, we met them a few times, they seemed impressed. So we took distance out of the equation and said, ‘Well, shall we come up and meet Peter?’”

That trip to San Francisco to pay homage to Thiel’s court was, recounts Drury, “one of the most exciting meetings that I’ve had”.

Drury says he doesn’t share Thiel’s libertarian views but is laissez-faire when it comes to ideology.

“They’re quite intense those guys, those PayPal guys. They’re really seen as royalty in the global tech scene. And he’s incredibly bright, and he’s always been a contrarian. He’s one of those people [who will] always stretch you,” Drury says.

Recounting the mood at the time, Drury conveys the impression of a starstruck nation.

“Everyone was so excited to see him. I think we were so flattered that someone of that status in the technology industry was even interested in New Zealand.”

In October 2010, Xero announced Thiel had tipped $4m into the company.

Drury describes this development as a “massive deal” that was instrumental in growing his company into the multi-billion-dollar business it is today — and said Thiel began looking locally, unsuccessfully as it turned out, for more Xeros.

During this period Thiel seems to have made a conscious effort to court the new National Party Government, meeting Key, Finance Minister Bill English, Minister of Economic Development Gerry Brownlee and Minister of Science Wayne Mapp.

Bill English: The then-Finance Minister also met Thiel in May 2010, but officials say no records of what was discussed exist.

English confirmed a May 2010 meeting, but said no records of what was discussed existed. Official Information Act requests to the Prime Minister’s Office regarding the meeting with Key were not answered — but the then-Prime Minister told Parliament in 2013 he’d met Thiel on “a few occasions” and described the relationship as “cordial”.

In early 2011, Thiel’s camp made contact with the New Zealand Venture Investment Fund (NZVIF), seeking to partner with the taxpayer-funded body to invest further in local tech firms.

NZVIF staff also made the pilgrimage to San Francisco that August, and a deal was inked in December to set up a $40m fund. Of this, Thiel was supposed to kick in $15m and the Government $20m, with Stephen Tindall and handful of other smaller local investors making up the difference.

Crucially, the deal included a generous buy-back clause, allowing Thiel and his private-sector partners to split losses with the Government if the fund tanked, but collect all the profits if it did well. The clause had been standard in NZVIF deals — intended to encourage the development of local venture-capital markets — but its inclusion with the Valar fund would later raise questions in Parliament and help see the clause retired from use.

While this was being finalised, Nathan Guy replied to Thiel’s letter, advising him to submit a formal application to officials who would draft a report for the Minister’s consideration.

That report from officials highlighted his connection to ministers, especially Key. Thiel wasn’t just giving a talk at Auckland University that June, he was “presenting at a conference in Auckland in July (along with the Prime Minister)”. Thiel didn’t just donate $1m to the Christchurch earthquake recovery, he made a donation “facilitated by Mark Weldon, chief executive of NZX, on behalf of the Prime Minister”.
Thiel stated an intention to help establish a technology incubator in Auckland and set up a landing pad in San Francisco to assist New Zealand companies breaking into the United States.

Largely on the basis of these non-binding intentions, that single earthquake donation and the relatively modest $4m invested to date in Xero, along with another — failed — Pacific internet cable company, officials concluded he was an exceptional philanthropist and investor and recommended his application be approved.

“It is interesting … I think the Minister may go for it,” one official emailed to another at the time.

Gerry Brownlee: The then-Minister for Economic Development also met Thiel during his whirlwind of government lobbying in 2010.

Peter Dunne was Minister of Internal Affairs when news of Thiel’s citizenship broke a year ago, but he was not at the time of the application. He wouldn’t have gone for it.

Speaking from his Khandallah home, Dunne admits he initially didn’t know who Thiel was when the news broke. But after becoming aware he was a “person of significance”, Dunne immediately reviewed the citizenship file. His copy, of course, was unredacted.

Now retired and transitioned from his trademark bowties to an open-necked collar, Dunne is relaxed and frank in saying he is unconvinced by the case made by officials.

“I looked at the documentation the Minister would have received, which basically said, ‘These are the facts and, by the way, we recommend it’. I thought, ‘I can’t quite see how you to get to this conclusion on the face of the fact he’d been in the country only 12 days.’”

The 12 days became a minor national scandal for some when it was belatedly revealed — after having been initially redacted at the request of Thiel’s lawyers until the Ombudsman forced its release — and showed the billionaire had failed to meet even 1 per cent of the typically required 1350 days of in-country residence in the five years prior to being granted citizenship.

Information released by Immigration NZ shows his fleeting appearances during this period were typical. In the three years after he was awarded his investor visa in 2006, he spent six days in New Zealand. In total, during the 16 years prior to Guy awarding him a passport, his combined stay in the country amounted to fewer than five weeks, or around the same length of stay as a single visit by an typical backpacker.

Not a Dunne deal: Peter Dunne, Minister of Internal Affairs at the time Thiel’s citizenship became public, says questions remain over his predecessor’s decision.

Dunne’s opinion of Thiel’s bid is: “Give me citizenship: I want the passport, but don’t expect me to put in an appearance.”

Asked what he’d have done if he’d been in the chair in 2011, Dunne said: “To me, had the application come across my desk for consideration, I’d have said no.”

But he wasn’t the one occupying the Minister’s office. That was Guy who, in the days after his decision was revealed a year ago, pleaded ignorance.

“I don’t recall this specific application,” he said.

Dunne is unable to understand Guy’s decision to approve Thiel’s application. “I can only speculate. As I say, the documentation gives no clue. Whether it was the prospect of investment from Mr Thiel, or whether there was some form of political pressure, I don’t know.”

For its part, Internal Affairs denied their former minister’s suggestion that its advice was subject to political interference. “The Department is satisfied that it tendered robust information and advice on what the minister of the day had to weigh up in making a decision on whether or not to grant citizenship.”

The senior official who wrote the recommendation in 2011 has since retired from Internal Affairs and moved to Australia. He did not return repeated calls or emails from the Herald.

With a signature, Guy approved Thiel’s request application on June 30, 2011, and a month later, in a private ceremony at the New Zealand consulate at Santa Monica in California, the technology billionaire swore on the Bible to become Citizen Thiel.

An award of citizenship is effectively permanent and is granted without subject to conditions. It allows voting and residence rights and the ability to run for office, and can only be revoked under extreme circumstances.

Thiel’s lawyer used almost religious language in explaining how important his client considered this moment.

“Mr Thiel has advised that citizenship is irrevocable. It is the public recognition of a hallowed bond. For that reason and others, he is prepared to make this solemn allegiance to thereby embrace and contribute to the life, history and culture of New Zealand.”

PART THREE: GHOSTING

With passport in hand, the eye of Citizen Thiel began to wander almost immediately.

Six months after the Santa Monica ceremony that had made him a citizen, the mission listed on Valar Ventures’ website — which had previously billed itself as having been “founded to help grow New Zealand into a hub of technological progress” — was rewritten to remove references to the country that had just gifted him his new nationality.

Valar was instead given a global mandate and would go on to make investments in Brazil and Australia. The fund invested in precisely one new company locally after 2011 — retail software firm Vend. The investment used funds from a mixture of private and public sources through the NZVIF joint venture.

While publicised numbers around Thiel splurging capital locally look impressive — $4.5m initially in Xero and Pacific Fibre, $15m into the NZVIF partnership, another $22m into Xero in late 2012, with tens of millions more in 2013 — the headlines overlap.

Thiel’s initial $4.5m in local investments was included in the NZVIF deal as his initial contribution. The latter Xero and Vend investments also included co-investors and government cash from its matching contribution to the NZVIF partnership.

And this partnership fund itself languished and didn’t even meet half its billed potential — the NZVIF joint venture was initially touted as worth $40m, with Thiel contributing $15m — but he ended up tipping in just over $7m.

Thiel’s financial structuring uses multiple entities, and the terms of venture capital deals are notoriously secretive with hard numbers and details of third-party investors not made public, so the extent of his investment into local tech companies is difficult to confirm and has been redacted from official documents.

A spokesperson for Thiel said the billionaire’s total investment to date in local tech firms was $50m.

Meanwhile, offshore, Thiel was running into some challenges. His hedge fund Clarium Capital Management lost the house on a large and wrong bet on oil supplies collapsing. Outside investors fled and by 2011 it was one-twentieth the size of its peak with barely a couple of hundred million of Thiel’s own capital remaining.

But all was not lost. Facebook was edging towards a public listing that would allow Thiel to exit and crown one of the most spectacular deals of the internet era. The $750,000 investment he’d made in in 2004 was largely cashed out following the 2012 IPO for more than $1.3b.

If Thiel was growing increasingly distant from New Zealand, Xero’s Drury says he still noticed the halo effect from his celebrity shareholder. “It’s always hard to measure these sorts of things absolutely, but having Peter involved was a massive deal for us.”
Thiel sat for a time on the company’s US advisory board as it sought to break into the world’s biggest market, and provided introductions to new partners and investors in Silicon Valley.

Drury: The Xero founder says Thiel’s involvement was crucial in turning his company into a multi-billion-dollar business.

When Thiel became involved, Xero was loitering on the start-up crossroads to success or failure and had a share price of just $1.50. The company’s stock went on to pass $40, and the company is now one of New Zealand’s largest with a market capitalisation in excess of $5b.

“Look back to 2010. It was an incredibly important time for us and he provided a huge amount of value. And now, at 1.2 million customers, 1800 staff all over the world? That was a key time. We’re incredibly grateful for his support.”

The support for Xero — from which various Valar vehicles would make hundreds of millions of dollars in capital gains as the share price surged — is the most tangible legacy of Citizen Thiel.

Re-reading Thiel’s letter today, with the benefit of hindsight, it seems other non-binding claims made during his bid for citizenship are less fulfilled. Valar Ventures has been inactive in this country for years. Its New Zealand website resembles digital tumbleweed. The Auckland technology incubator never eventuated. Thiel’s touted involvement with the San Francisco landing pad for Kiwi companies reportedly ended once his three-year sponsorship deal expired in 2013.

The Herald could find no other charitable giving by Thiel in New Zealand since that $1m earthquake appeal donation and, given the opportunity to provide details, Thiel’s representatives did not respond.

And in hindsight, that million-dollar donation doesn’t seem entirely selfless. It occurred while officials were mulling Thiel’s application, and the application explained the donation in such a way to avoid it being seen as an attempt to influence decision making.

Thiel: A speech at Auckland University in 2011 remains the sole public appearance Thiel has made in New Zealand.

“Our client has been approached on behalf of the Prime Minister to play a role in the offshore initiatives in relation to the Christchurch Earthquake Fund. It is anticipated there will be publicity about this. This has arisen subsequent to the original application, such that its context is unique to the circumstances. Our client was anxious to avoid it being considered in any manner relative to the merits of this application,” his lawyers wrote in March 2011.

A month later that anticipated publicity for the donation did indeed occur, the result of self-promotion by proxy. Wide local coverage of this selfless act of charity was triggered by a press release: From Bell Gully on Thiel’s behalf.

And claims Thiel would use citizenship to act as an ambassador-at-large seem like mere pillow talk. In a widely reported interview with Business Insider, Thiel described New Zealand as a “utopia”. This interview also occurred during the citizenship application process, and Bell Gully quickly forwarded this clipping to Internal Affairs officials.

The Herald has been unable to find any public statements by Thiel promoting New Zealand since.

Tim Hunter, columnist for National Business Review, noted in February that Thiel and Valar had been distant from these shores in recent years.

“Looking back, it seems Mr Thiel’s love affair with New Zealand is less intense that it was when he was seeking citizenship,” Hunter wrote.

Even New Zealand’s Ombudsman, the statutory neutral arbiter for making decisions on government information, seemed perplexed about the case when compelling Internal Affairs to confirm Thiel had been in the country only 12 days in the qualifying period prior to being awarded citizenship.

“In Mr Thiel’s case, there had been and continued to be public disquiet that the minister granted him citizenship in circumstances where his connection to New Zealand was not publicly known and, even in hindsight, was not obvious.”

PART FOUR: BOLTHOLE

News of Thiel’s surprise citizenship — overnight he became New Zealand’s second-richest man — came as his profile in the United States reached its zenith.

In January 2017, Thiel was serving on newly elected President Trump’s transition team, after having been an early backer of the outsider candidate. He’d spoken at the Republican Convention and donated $1.5m to Trump’s campaign, with the biggest cheque coming during the candidacy’s lowest ebb — in the days after the release of the infamous Access Hollywood “Grab ’em by the pussy” tape.

Trump connection: Thiel’s support for Trump continued after the election, including organising a summit of tech leaders during which he was seated next to the president-elect.

His move into mainstream politics — having previously backed fringe libertarian candidates — caught those who knew him both here and in the United States by surprise. “We were all surprised that he was so into Trump. But it was consistent with his contrarian and small government point-of-view,” says Xero’s Drury.

Hard news about the extent of Thiel’s involvement with the Trump administration has been hard to come by.

In lieu of Thiel talking, fevered rumours have swirled in the American media about what role he plays in United States politics. He’s been variously reported: having soured on Trump; being considered by Trump as a candidate for the Supreme Court, intelligence director or ambassador to Germany; being suddenly concerned about technology company monopolies; and running for Governor of California.

But as Drury notes, despite the reports, there’s been little resulting evidence to underlie the above claims. Thiel is neither Trump’s man in Berlin nor suddenly seeking to regulate the likes of Facebook (of which he remains a director).

“He’s been relatively quiet since all of that [the US election]. I keep a really close eye on that stuff, and he don’t seem around that too much anymore.”

In a twist, Thiel also may have been ghosted — a slang term for the practice of ending a personal relationship by suddenly and without explanation withdrawing from all communication — himself. Michael Wolff’s explosive book Fire and Fury has him telling a fellow billionaire that, despite being forewarned Trump was prone to outrageous flattery and hollow promises, he’d taken the bait and now found himself on the outer.

“He absolutely was certain of Trump’s sincerity when he said they’d be friends for life — only to basically never hear from him again or have his calls returned,” Wolff writes of Thiel.
His sudden elevation to the centre of politics in the United States occurred as Thiel appeared to be busy trimming his remaining business exposure to New Zealand.

In October 2016 he activated the buyout clause in his NZVIF partnership — requesting his public partners keep this news secret — seeing him book a gain conservatively estimated at $30m from his contribution of $6.75m, while NZVIF was left barely breaking even.

The clause had been a feature of all NZVIF deals, and its original purpose to was to encourage new local venture-capital firms to invest in nascent start-ups. Its use by Valar — a savvy international operator which effectively went all-in on a single listed company — caused some concerns within the Government over what exactly it had got itself into.

A 2014 government-commissioned report into NZVIF said the deal with Thiel “creates some difficult optics where, in the Valar Ventures example, the taxpayer is offering an American billionaire a loan at less-than-market rates”.

The buyout led to finger-pointing in Parliament over who was accountable for the one-sided deal, and has cast serious doubts over the future of the fund as whole.

But Thiel wasn’t done cutting his local links. In the middle of 2017 he cashed out of his flagship New Zealand investment in Xero, with Crunchbase now listing the company among Valar’s exits. According to available records, Thiel’s only remaining local equity investments of note are small — recent valuations put it as worth a few million — stakes in Vend and e-reader technology creator Booktrack.

Drury sees Thiel’s subsequent ghosting as more a lack of opportunities than any misrepresentation. Despite boosters, with only four million people the New Zealand economy is on par with a mid-sized city internationally and our technology industry is nascent.

A flying visit by Thiel to New Zealand in December to visit an Auckland gallery gives some credence to an alternate explanation. The venue, on Karangahape Rd, was home to The Founders Paradox, the latest work by artist Simon Denny, with the ideas of Thiel as a central focus.

According to art critic Anthony Byrt’s notes accompanying the exhibit, Thiel’s hardcore libertarian and Lord of the Rings-inspired world-building fantasies — along with his position at the apex of the technology ecosphere — have seen him become “one of the most influential thinkers in the world”.

(Asked by another gallery visitor what he thought of the exhibition — including a large rendering of himself as a blue-skinned knight fighting the forces of fair elections and democracy — Thiel reportedly said: “It’s actually a work of phenomenal detail.”)

Denny’s work paints New Zealand as a stepping stone — and safe haven — for powerful technologists seeking to escape government limits on human activity.

A crude description of this attraction for New Zealand came last year in The New Yorker where Reid Hoffman, the co-founder of LinkedIn (and a member of the so-called PayPal mafia) said the country had become shorthand for apocalypse insurance in Silicon Valley.

Boltholes: Fellow PayPal founder Reid Hoffman has described New Zealand as a preferred hedge for Silicon Valley tycoons concerned about the collapse of the United States.

“Saying you’re ‘buying a house in New Zealand’ is kind of a ‘wink, wink, say no more’,” Hoffman says.

Drury says this trend started after the September 11, 2001, terror attacks on the US and hasn’t slowed, and considers Thiel as part of it.

No other Silicon Valley hedger has quite gone to the length of Thiel, however. Internal Affairs figures show the libertarian internet tycoon is the only businessman in at least the past six years to have secured citizenship despite neither living nor intending to live here.

Drury is aware of the controversy his one-time shareholder has caused, but says the episode was worth it.

“So, maybe we were all a little starstruck back then.” he concedes.

“My view is these people are net contributors, even though they’re not here all the time. I sort of joke, ‘If you can give me a 10-pack of passports, let me flick ’em around’.”

Dunne, however, is unimpressed by Drury’s enthusiasm, saying the Thiel episode raises issues about both how citizenship was obtained and how much the country values its passport.

“It’s a transparency issue,” he says.

“As far as I can tell, having been granted citizenship, Mr Thiel has been conspicuously absent ever since.”

Thiel’s presence in recent years appears to have been primarily related to real estate. An unexpected quirk in the tale of Citizen Thiel is how, despite his reputation as an investor with a Midas touch, he seems to be one of the few people to lose money in New Zealand’s recent frothy real estate market.
In 2011 he bought a striking four-bedroom Queenstown holiday home constructed with Swiss granite and known locally as the “Plasma Screen”, due to its expansive windows, for $4.8m.

Six years after he purchased the house, the local council assigned it a capital valuation of only $2.5m. Thiel similarly lost $200,000 on a Parnell property he bought in 2010 and sold two years later.

The value of the land that brought him to public attention in New Zealand — a 193ha block of former Crown leasehold farmland on the shores of Lake Wanaka — is also intriguing.

Bought by Thiel for $13.5m in late 2015, the previous owners had tried — and failed — over the previous decade to subdivide the section. Council planners said the site was classed as an “outstanding natural landscape” and it was unlikely they would approve consents for any more than the single building already present.

Real estate agent Graham Wall told the local paper while the land itself — rolling scrub hills — wouldn’t seem out of place on the Desert Road, Thiel was immediately sold on its isolation.

“You turn up there with a jaded billionaire from San Francisco and it’s, ‘Oh my God, I could have a house here and not see anything except lakes and mountains — the best thing on Earth and for $10m!’”

For now council records show this land appears to be being banked. In the two years since Thiel made his purchase, no resource or building consent applications have been filed.

Exactly what is intended for the land at Damper Bay is unknown, but Thiel has built at least one physical bolthole in this country.

According to building consent records, his Queenstown Plasma Screen holiday home last year suffered a serious fire, causing more than $500,000 in damage. Building consents for the repairs filed with the Queenstown Lakes District Council in May show Thiel took this opportunity to rebuild and repurpose a walk-in closet.

Plans now describe this nook as a panic room.

NZ Herald

‘World’s finest walk’: New Zealand’s Milford Track being spoiled by tourist hordes – Eleanor Ainge Roy.

Epic trail in the wild south was once a path to inner peace but popularity has trampled its tranquillity.

Dawn is hours away on a cool Fiordland night but the packed bunk rooms of Clinton Hut are seething with activity. Tramping boots stomp against wooden floors, bunks creek as their inhabitants fling their bodies around, and an urgent, sleep-fogged crescendo of angry whispers is building in the gloom.

“Shhhhhh,” hisses someone from a top bunk, directing their wrath towards the noisy hiking party who like to tramp in the dark, the New Zealand bush enveloping them in a silent black cloak.
“Shhhhh!” hisses another low voice, from the other side of the hut. “It is against the rules to be so noisy!”

The day before 40 strangers had set off from the tourist hub of Te Anau, full of energy and wearing fresh socks. Final flat whites were sculled at overpriced cafes and out-of-office signatures attached to emails.

In a soft, grey drizzle typical of this remote corner of New Zealand, trampers of varying abilities heaved 20kg packs on to a speedboat proclaiming “Adventure starts here” for the 40-minute journey across Lake Te Anau to the start of the world-famous Milford Track, in Fiordland national park.

Milford has become synonymous with beauty, a 54km, four-day tramp through beech forest, over glacier-fed rivers and up the climatic MacKinnon Pass, an alpine crossing more than 1,100 metres above sea-level.

100 years ago the Spectator magazine declared Milford “the finest walk in the world” – and the name has stuck.

There are nine “great” walks in New Zealand, with Milford the jewel in the crown. But as its popularity has surged so too have fears from New Zealand trampers and conservationists that the pristine natural environment is being spoilt by the hordes of tourists drawn to its beauty and supposed tranquility.

Last year, nearly 120,000 people hiked the great walks; a 12.4% increase on the season before and nearly 50,000 more than a decade ago.
Nearly 8,000 walk Milford in the summer season, which is booked out again this year, and has raised hut fees from NZ$54 to NZ$70 a night. If you choose to tramp privately with Ultimate Hikes, you’ll be paying between NZ$2,000 and $3,500 for your wilderness experience, which includes booze, three-course meals and “total comfort in the last place you would expect it”, according to the website.

Contractors preparing the tracks over the winter season say they’ve barely finished clearing the native bush of human faeces and toilet paper in time for the next deluge of hiking boots about to descend.

“On some of the great walk tracks, you find poos and toilet paper just littered down the side of the tracks,” a contractor told Radio New Zealand. “It’s disgusting.” It is now harder to book a walk on the Milford Track than it is to see Justin Bieber or Adele live in concert in Auckland.

Ross Harraway, 74, has been a Department of Conservation hut warden on the Milford Track for nearly a decade. At close to seven feet tall, Harraway looks like Gandalf the wizard, and in the evenings moves silently through the beech trees with a staff, explaining the local flora and fauna to visitors. “A lot of people aren’t interested in what is around them anymore, that’s what I’ve noticed,” says Harraway, talking to the Guardian from his cosy warden’s hut over a cup of billy tea.“

They are ticking off their bucket list and getting through it as quickly as possible. They have their headphones in, head down, get up on the pass [Mackinnon], take their photos and the tick is over. People do have a lot of different reasons for doing it … but increasingly, people do it because it has become a bit of a status thing. ”Gerard Emery decided to tramp all of the great walks after seeing them advertised on an Air New Zealand flight. He tramps with old friends and they dine lushly every evening – steaks, tin mugs of whisky and creamy puddings for dessert.

Like many trampers, Emery hits the great walks to enforce a digital detox in his life, but he’s been surprised by how few New Zealanders walk the famed tracks any more – and how crowded and tetchy the huts have become.

These days, 67% of trampers on the great walks are foreigners. “My latest adventure is to do the nine great walks, and this is number six of the nine,” says Emery outside Mintaro Hut, where he’s gone to escape the cacophony inside at dinner time.“

I am quite disappointed there aren’t more Kiwis on here … there should be a hell of a lot more Kiwis walking on these tracks; we see very few.” John Kapeleris, an Australian, didn’t get interested in tramping till middle age. He is walking the Milford alone, a solitary, slightly aloof figure who strides ahead of the 40-strong group to try and be alone in nature, no easy feat when there are more than 90 people walking each section of the Milford each day, plus guides, hut wardens, maintenance workers and chopper pilots flying in supplies.

Kapeleris, who booked his Milford walk in 2015, tramps as a way to detox from his intensely urban life; the office-block job, suburban home and long daily commute in Brisbane, Australia.

“For me it is an appreciation of what there is in the world other than urban life … it’s an escape. You can get away from the routine of work, the routine of commitment, the routine of obligation,” he says.

Last season, tickets for the Milford sold out within 90 minutes of being released. Mary, a vet nurse from Australia, tried for three consecutive years to secure a spot on the track. Last year – her fourth attempt – she set her alarm for midnight on the day tickets were released and was successful.

“Its become a highway, a conveyer belt,” says a Department of Conservation worker on the track, who didn’t want to be named. “People come here looking for meaning, searching for some sort of solace. But the bush doesn’t just give that up. In the huts there’s so much squabbling and showing off. To me, Milford isn’t about tramping anymore, at least, not how Kiwis know it. ”

On day three, the 40-strong group rise in the dark after a disturbed night, in which a man who snored loudly was yelled at and booted down to the kitchen.

“It made me feel really self-conscious,” he tells the Guardian later. “I felt ganged up on.”

The climb up Mackinnon Pass is graded but challenging, and swaths of low cloud blow over the mountain, obscuring the view and bringing stinging spits of rain to frozen cheeks.

Along the way you pass signs designated as “Safe stopping areas” and “Bus stops”, and as your thighs begin to ache the beech trees thin and eventually disappear, giving way to mountain buttercups, alpine daisy’s and gentian.

The peak at the top of the pass – 1,154m – brings a brief and united merriment to the disparate and at times fractious group. Selfies are snapped, proud couples embrace and the paying hikers are presented with mugs of hot chocolate and biscuits from their guides.

Soon the wind picks up and the temperature drops dramatically, prompting walkers to slog on to the Mackinnon Pass Shelter, which is split in two – a gas ring for the public walkers, and hot drinks, biscuits, blankets and warm clothes for the Ultimate Hikers.

At the shelter, briefly, there is peace. The clouds sweep north to reveal golden tussock tumbling into the Arthur Valley below, and kea soaring from Mt Balloon to Mt Hart, and Mt Hart to Mt Eliot, their cries piercing and prehistoric in the fleeting reprieve of silence.

Then, another cry, different. A whirr, a bashing, a mechanical stirring of the crisp alpine air. A chopper soars up the valley, swooping down to land outside the shelter. Has someone fallen, been injured – is this a medical evacuation?

A guide from Ultimate Hikes runs out to greet the chopper, carrying a sack in his hand, bent low to avoid the chopper’s blades. Quickly, he throws the bag in the chopper and grabs a similar bag from the pilot; the entire exchange taking less than a minute before the chopper shoots directly upwards and rushes back down the valley.

“What’s in the bag?” I shout to the guide, as he runs to his clients in the shelter, where heaters and steaming mugs of Milo are fogging up the windows.

“Blankets,” he shouts back. “Clean blankets – we’ve just had them washed.”

The Guardian

Passing panorama: New Zealand’s glory from a train window – Susan Grossman. 

It’s 8.15am on the dot and with one mellow toot the TranzAlpine passenger train is off on its journey from Christchuch to Greymouth. As we rattle through the flat and fertile Canterbury plains we are soon climbing up steep gorges in the foothills of the Southern Alps, the backbone of South Island. Below, I can see the startling blue water of the Waimakariri river valley. Pink and blue lupins line the tracks along with rows of pines.
The railway covers 223km, tracking its way over four viaducts and through 16 tunnels, taking four and a half hours to Greymouth on the west coast – a tad faster than the stage coaches that took two days to get food across to gold prospectors in 1866. The stage coach was once known as “The Perishable” because of the fruit and vegetables it used to transport along the way.

It’s a very different story now the train has reached its 30th anniversary year. The carriages are modern, with wide, non-reflective windows, wifi and a running commentary in Mandarin and English. The seats are spacious and windows panoramic, perfect for enjoying the wide-screen scenery – from the pastoral Canterbury plains, through forest and lowland rivers, up to tussock sheep stations. The landscape we pass through from the comfort of our carriage tells the story of New Zealand’s prosperity. There are defunct coal mines, stubbly hillsides and saw mills, while the temperate rainforest is dense with native pines, beech and conifers – the same ones used by the Maori to make their traditional canoes.

Two hours into the train journey we arrive at Arthur’s Pass, where, through rolling white mist, we can just about spot snow-capped mountain peaks. This pass, the highest over the Southern Alps, was used by Maori hunting parties long before the railway was built. We approach the 8.5km Otira tunnel, completed in 1923; up to 18 trains a day still climb up and down its 1:33 gradient, transporting coal from west to east. Even now it’s a hazardous process preventing locomotives from overheating and shutting down. The train stops while our duty manager uncouples the carriages to get us through safely.

Soon after, we are in Greymouth, a town known for its hunting and jade-mining past, and also the end of our journey. You can while away an hour or two on a tasting tour at the local brewery or a visit to Shantytown to learn about gold mining. But for most visitors it’s a setting-off point to see the spectacular Fox Glacier, a 13km-long maritime glacier on the west coast that is perfect for ice-climbing and walking. Instead, I stop for a pie and a cup of tea in a local cafe and an hour later start the return journey back to Christchurch.

There, in New Zealand’s third-largest city, badly damaged by the earthquake of 2011, I am surprised to see hoardings and bulldozers, and the cathedral still propped up on splints. When British settlers arrived in 1880, Christchurch was destined to become a model of class-structured England, with churches rather than pubs, and land owned by gentry with English-style gardens.
The earthquake fortunately had little impact on the botanical gardens. Here, the smell of eucalyptus and mock orange wafts through avenues of trees while visitors take a leisurely punt along the Avon river. Creative Christchurch survives in the “container city”, where pop-up shops and banks do business. Cycleways have helped the revival, but those who live there are frustrated with the slow progress of its regeneration.

I head to the Heritage Hotel, a historic local government landmark which now offers 32 stately suites, “Italian renaissance palazzo style”, each with state-of-the-art kitchens. A sweeping central staircase and long corridors remind me of the grand hotels in London’s Park Lane. From Christchurch, I fly back up to Wellington and then I am off again, this time on the Northern Explorer train that runs from Wellington to Auckland and takes 10 hours.

Completed in 1908, after 23 years of construction, it is New Zealand’s longest-running passenger service. My journey starts at 8.55am, rumbling through the heart of the North Island and an ever-changing landscape of baize-green hills with folds like origami and gorges plunging into turquoise lakes. As we cross the Wellington fault line, Kapiti Island, a predator-free bird sanctuary, sits slumped in the Tasman Sea like a giant jelly baby. Photographers pile into the open-sided observation carriage, greedy to capture every vista.
By lunchtime we reach a stop named National Park, where some passengers get off to trek the Tongariro Alpine Crossing, New Zealand’s oldest national park and a World Heritage area. The rest of us stay put and enjoy lamb shanks and mashed potato with a glass of Brancott Estate Sauvignon Blanc.

We reach Hamilton at 4.30pm, a small land-locked town on New Zealand’s longest river, the Waikato. I disembark to catch a bus to Rotorua, well known for its geothermal activity and Maori culture. The bad-egg smell of sulphur that greets me is no deterrent. My final destination, the Polynesian Spa, offers mud wraps and a Priori Coffeeberry Yoga Facial for $179NZ (£95), but I decline. Instead, I steam in mineral pools overlooking the lake, and admire the sunset. What better way to unwind after New Zealand’s two most scenic railway trips?
Way to go.

The Guardian