Home | Business News | Browse by Publication | T | The Australian Journal of Politics and History

Norfolk Island and its tax haven.

Article Excerpt
The first Pacific Islands offshore financial centre was born in 1966 on Norfolk Island, a unique external territory of Australia with a peculiar form of self-government. (1) Promoters of Norfolk Island's tax haven (2) have seen its potential to become a major global offshore financial center (3) (OFC) blocked by the Australian federal government. There have been enormous opportunities for OFCs around the world during this period--with bank deposits in offshore centres rising from US$11 billion in 1968 to US$2,000 billion in 1996 (4).

Advocates of OFC development contrast Norfolk's frustrations with the success of the British-affiliated territories and dependencies such as the Cayman Islands. While the Cayman Islands were a minor haven and backwater at the time Norfolk Island began to attract offshore clients in 1966, today this British Caribbean territory is the world's fifth most important financial centre--with 50,951 companies, five hundred banks holding deposits of US$600 billion, 2,200 mutual funds with assets of US$200 billion, 497 insurance companies, over one thousand flag of convenience ships, and a Cayman Islands Stock Exchange listing securities worth more than US$23 billion in 1999. Cayman's OFC generates approximately 30% of the newly affluent archipelago's GDP (5). Similar developments have occurred in Jersey, Guernsey, the Isle of Man, Bermuda, and the British Virgin Islands. The OFCs of these UK-affiliated territories make major contributions to their islands' local economic development and play significant roles in liberalising the global political economy.

While the British state and the City of London have encouraged tax haven development in present and past UK colonies, the Australian government has usually been antagonistic toward this sort of offshore development in its own external territories and more generally in the Pacific Islands region within its sphere of influence (6). This has meant that development of Norfolk's OFC has been repeatedly thwarted by the Australian federal government, although the island continues to be a tax haven for its residents and it still provides some offshore possibilities. This paper analyses the historical trajectory of Norfolk Island's tax haven in terms of its dialectical tensions with the Australian federal government--tensions between self-determination and subordination which emerge from Norfolk's anomalous status as a self-governing external territory of Australia.

The question of Norfolk Island's evolving political relationship to Australia remains not only substantially unresolved, but has become more complex and conflictual in recent years. Norfolk is subjected to Australia's supreme powers and yet important Australian laws do not apply. The island is granted substantial de facto self-determination--on which its tax haven is based. Norfolk Island uses Australian currency, but it operates its own government, tax system, immigration, customs, and separate postal, health care, and social welfare systems. Norfolk Islanders do not need to pay any Australian taxes. The island government basically funds itself through local taxes on all goods sold (including liquor and cigarettes) and income from services such as telephones and electricity. Canberra provides defence, foreign affairs, and support for historical preservation, national parks, and some infrastructure. The question of Norfolk Island's exact status (and the closely related issue of the future of its tax haven) have been at the centre of local political controversy since the mid-1960s.

Over the last three decades Norfolk's status has been the subject of parliamentary debate and scrutiny in Canberra. As we shall see, events in the national capital have had an overwhelming effect on the island's tax haven. Australia claims sovereignty over Norfolk (which is an Australian territory) and yet islanders do not have (and most do not want) any voting representatives for Norfolk Island in the national parliament for reasons which are connected with its tax haven status. OFC development is hindered by the constant perception that Norfolk Island's political status may change in some unwelcome way at Australia's behest and without the islanders' consent.

Nevertheless Australia has also checked or partially abdicated its power over Norfolk (at least temporarily)--leaving the island with some autonomy and its tax haven suspended for an indefinite period in a sort of ambiguous existence. Since 1979 Commonwealth legislation has not extended to Norfolk unless this has been explicitly indicated.

Most residents are descendants of the mutineers of The Bounty and can claim part-Polynesian racial, ethnic, and linguistic distinctiveness; many consider themselves to be Norfolk Islanders and not Australians. Norfolk's relative autonomy appears to be connected to the feeling of a number in the Australian government that Canberra's exercise of plenary powers over a distant island territory is ethically problematical, inflammatory and likely to fuel separatism. This sentiment is, however, challenged by others in the central government who see Norfolk's polity as consistently violating fundamental rights of Australian citizens (e.g., freedom of movement and residence, the right to vote in federal elections, and the right to welfare). To placate this faction in Canberra, any Commonwealth legislation that is extended to Norfolk over-rides local law and the Governor-General can veto any bills passed by the Norfolk Island Legislative Assembly. The conflict between the local community and the overarching sovereign of Australia continues to produce uncertainty. It is not the purpose of this paper to describe all the shifting dimensions of this limbo, but to concentrate only on those central aspects of Norfolk Island's ambiguous relations with Australia that have led to the maintenance of Norfolk's residential tax haven and the rise, decline and partial revival of its OFC.

Nowhere in the Pacific Islands region has there been such consistent and generally successful opposition to OFC development as from the Australian federal government in relation to Norfolk. Its offshore centre was effectively attacked from the 1970s and yet residual survivals of the OFC (which was never completely destroyed) continue to be important to the island's political economy and identity. The residential tax haven survives intact. There is still no income tax on Norfolk. Islanders have resisted a major Australian offensive on their residential tax haven in the mid-1970s and another, more protracted assault in the 1990s, but neither of these threats have yet been able to integrate Norfolk into Australia's taxation system. At major critical junctures (in 1976, 1991 and 2000) the...

View this article FREE - Now for a Limited Time, try Goliath Business News
Free for 3 Days!