In defence of tax havens

Read on ConservativeHome here.

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Old Teaser

25 August 2011

Tom writes on the importance of low tax jurisdictions and why tax competition is a good thing on ConservativeHome.

In defence of tax havens

Taxing secret Swiss bank accounts held by British citizens is an easy win, and a helpful contribution to reducing the budget deficit, right?

Well, perhaps. But I find it hard to muster much enthusiasm for the agreement announced by the Treasury today. In reality, this is just one part of a concerted and ongoing effort by big, high-tax governments around the world to clamp down on international tax competition – a process by which other governments use low effective tax rates to attract capital and business activity to their country.

Put simply, the fiscal incontinents of the Western World – with the help of the EU and the OECD – are doing their best to form a politicians’ cartel, and rig tax rates internationally.

This is problematic because tax competition is a very good thing. Firstly, the existence of low tax jurisdictions gives people and companies an exit option – sometimes legal, sometimes not – through which they can escape from unfair and punitive rates of taxation. High-tax governments know this: they realize that if they raise taxes too much, wealth creators will just take their money elsewhere. The result is that those high-tax governments do not raise taxes as much as they otherwise would.

This is welcome in terms of its results – lower taxes boost economic growth – and as a matter of principle – lowers taxes mean more money left in the hands of those who have earned it, and less being forcibly confiscated by the state. To put it another way, given the inescapable tendency of government to grow ever larger and more intrusive, tax competition provides that all-too-rare thing: a check on the state’s rapacious ambitions.

Secondly, the existence of low tax jurisdictions plays an important role in making international capital markets work properly. The fact is that national tax systems do not cope well with international investment. When investors, fund mangers, operating companies, and holding companies are all based in different countries with different tax regimes, the same profits often get taxed several times as they are passed up the chain. The result is that profits get swallowed by governments, and international investment becomes uneconomic. Ultimately, that makes us all poorer.

Low tax jurisdictions help us to overcome this problem: their tax-free vehicles minimize the problems of multiple taxation that can occur with cross-border investment and allow for greater international pooling of capital. This does not mean that tax havens “poach” international capital – very often they merely act as conduits for investment back into industrialized countries. And in the long run, more international investment capital and less tax distortions means greater increases in wealth and faster rises in living standards.

The other point to make about low tax jurisdictions is that we shouldn’t be trying to eliminate them: we should be trying to learn from them. We would be far more prosperous if we stopped punishing saving and investment and started encouraging it instead. In an ideal tax system, we would simply tax all UK income once at its source – be it an individual’s wages or a company’s profits – and then leave well alone. In this time of economic uncertainty, it’s hard to think of a more pro-growth policy than that.

Read on ConservativeHome here.

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Old Teaser

25 August 2011

Tom writes on the importance of low tax jurisdictions and why tax competition is a good thing on ConservativeHome.

Response to Public Sector Net Borrowing Figures

19 August 2011

In response to the fall in public sector net borrowing figures

Sam Bowman, Head of Research at the Adam Smith Institute, says:

“Unfortunately, the drop in public sector net borrowing is due to the government taking money out of the economy through the bank levy. As a double-dip recession looms, taxes and levies will make the UK's economic position even more precarious than it is.

“The government should go for growth by cutting taxes and close its deficit by cutting spending. Taxes may make things look better for the government in the short term, but will hurt growth in the long term. We can't afford not to cut spending faster and deeper than the government has planned. The Chancellor should know better than to take money out of the economy through taxes at a time like this.”

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Media on the Tobin Tax

Below are some of the highlights:

Reuters - Flawed financial tax could raise volatility - UK think tank
Daily Mail - Sarkozy and Merkel announce plans for closer EU integration
Daily Telegraph - Government would veto tax on financial transactions
The Guardian - European markets hit by eurozone Robin Hood tax plans
The Sun - City levy suicide
City AM - Tobin tax would be suicide, report says
Spectator - Tobin's Folly
FT Alphaville - The Tobin Tax lives on - part two
ConservativeHome - A Tobin tax would be economic disaster

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Old Teaser

18 August 2011

In print and online

The release of the Adam Smith Institute's latest report 'Tobin Tax: Reason or Treason?' coincided with Merkel and Sarkozy's announcement in favour of a European financial transactions tax. The report received considerable media attention.

Iconoclasts, Radio 4: Is inherited wealth bad for the nation?

You can listen to the programme here.  

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Old Teaser

17 August 2011

Dr Madsen Pirie went on Radio 4's Iconoclasts to debate against Julian Le Grand, LSE Professor of Social Policy and one of the thinkers behind New Labour.

City Supertax

Published in City AM here. 

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Old Teaser

17 August 2011

Sam Bowman criticises plans for a Europe-wide Tobin Tax in City AM.

Tobin Tax would be economic suicide

18 August 2011

• European Commission’s proposal to introduce a financial transaction tax would drive a significant proportion of the financial sector out of Britain
• Tobin tax is unlikely to increase market stability and may even increase volatility
• Sweden is the only country to have introduced a pure Tobin Tax – it brought in less than one thirtieth of promised proceeds and was scrapped within 5 years

New research released today (Thursday) by the Adam Smith Institute (ASI) shows that the introduction of a Tobin Tax in the UK, as argued for by the ‘Robin Hood Tax Campaign’, would be disastrous for the financial services industry. If the Tobin Tax is introduced in the UK or across Europe (as proposed by the EC), it will be all too easy for financial services to relocate their activities to jurisdictions with lower taxes and less regulatory burdens.

The Robin Hood Tax campaign has argued that £20billion can be removed from the UK financial sector without causing significant disruption through a proportional tax on currency conversions. This is a reckless and ill-informed claim that ignores evidence to the contrary.

The ASI report, ‘The Tobin tax: Reason or treason?’, looks at Sweden, the only country to have previously introduced a ‘pure’ Tobin tax of 0.5%(1). It was a disaster, raising only one thirtieth of the proceeds predicted by its proponents and being scrapped within five years. In an attempt to avoid the tax, 60% of the 11 most actively traded Swedish shares migrated to London and over 50% of Swedish equities had moved to London by 1990.

Many proponents of the Tobin Tax argue that the tax would increase market stability. However there is no consistent, empirically convincing evidence to support this claim. The UK’s experience with stamp duty suggests the opposite is true, whilst in both equity and foreign exchange markets, a large number of empirical studies reveal a clear relationship of higher transaction costs being linked to higher levels of volatility.

In reality the Tobin Tax would lead to significant decline in turnover, stock prices and a migration of trading activity. This would lead to job losses in a sector employing over 1 million people in the UK. London is currently the world’s leading centre for foreign exchange, with twice as many US dollars being traded on the UK foreign exchange market than in the US itself. It’s enviable status as a financial centre would be devastated if a politically motivated but economically flawed Tobin Tax was introduced.

Sam Bowman, Head of Research, adds: “When something seems too good to be true, it usually is. The “Robin Hood Tax” is as vague as it is economically illiterate, and would cripple Britain’s financial sector, which is already on the ropes. We can’t tax our way out of this economic depression.

“Brussels wants a fiscal union to save the euro. A Europe-wide Tobin tax would bind Britain into the first real EU-wide tax and be a massive step towards a fiscal union. When Sweden tried a Tobin tax it was a colossal failure – why does anybody pretend this time would be different?”

ENDS

[1] A tax of 0.5% was placed on the purchase of all equity securities (and stock options) in Sweden in 1984. They also implemented a 0.003% tax levied on 5year bonds. Despite this tax being considered low at 0.003%, trading volumes dropped by 85% alone in first week after implementation. Futures trading fell by 98%, and the options market was virtually non-existent.

Notes to editors

• Economist James Tobin proposed the Tobin Tax: a tax on all spot conversions of one currency into another to manage exchange-rate volatility. However the term is often used interchangeably with a specific currency transaction tax (CTT) and general financial transaction tax (FTT).
• One of the main proposals of the Robin Hood Tax Campaign is to introduce a financial transaction tax on stocks, bonds, foreign currency and derivatives. This proposal has gained support in Europe where both Barroso and Semeta are publicly in favour, and Germany and France are promoting the tax. Support for an FTT is also high in the UK, where 65% of respondents to a recent Robin Hood Tax Campaign survey were in favour of the tax. Their campaign is focused primarily on raising funds from a tax on banks to tackle poverty and climate change.
• Author Adam Baldwin is a financial analyst based in the City of London.  
• Read the full report here

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Only spending cuts will save us from the financial abyss

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14 August 2011

Dr Eamonn Butler writes on the turmoil in the world's financial markets in the Sunday Post. He argues that governments need to convince investors that they are getting their spending out of control.

Review of Condensed Wealth of Nations

At over 950 pages long, Adam Smith’s The Wealth of Nations is a book that only few have ever read. Yet contained within are thoughts that changed the course of the history.

The Condensed Wealth of Nations is Adam Smith Institute director Eamonn Butler’s answer to the conundrum of spreading the ideas of an author virtually nobody reads. It is neither biographical nor historical, but a distillation of Smith’s key thoughts in modern language – managing to condense his thoughts in less than ten per cent of the space.

Bouncing off other intellectuals in the hub of genius that was the Scottish and wider European enlightenment, Butler’s book shines a light on just how radical the founder of economics really was on the division of labour, the benefits of exchange and free trade.

Given that few will read the real the thing, Butler’s 84 pages are the best way to get a taste of a man whose ideas – both in economics and ethics – shed much light on the human condition and helped make the modern world.

Eamonn's book was also reviewed in the following blogs:
 - Blogcritics
 - Cobden Centre
 - Adam Smith's Lost Legacy
 - Mises blog

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Old Teaser

11 August 2011

Philip Salter reviews Eamonn's latest book The Condensed Wealth of Nations in City AM.

Weaker economies should be allowed to leave the Euro

11 August 2011

In response to Osborne’s statement on the Eurozone and UK’s recovery.

Dr Eamonn Butler, Director of the Adam Smith Institute, says:

On greater fiscal integration in the Eurozone

“Greater fiscal integration in the Eurozone may be the only way to keep the Euro together. But few people in Europe, apart from its leaders, actually want to be part of a tax and welfare union. It would be better to let the weaker economies leave the Euro. Unfortunately the Euro is a political project rather than an economic one. But you cannot defy economic reality forever. It is bound to split, and Britain should be trying to make sure that happens in a measured way rather than as another crisis. And we should be urging that European governments need to do much more to balance their books and get out of debt – which is the whole reason why markets have ceased to trust governments and central bankers.”

On this autumn’s growth agenda

“The Chancellor's promise of further action on the growth agenda this autumn is now vital. He should start by lowering company taxes and national insurance, both of which make firms hesitate to take on workers. The 50p tax rate should be abolished, because it simply drives investment abroad. And most regulation on the smallest firms should be scrapped entirely.

“Claims that the UK recovery have been 'choked off' by public spending cuts are plain daft. The public sector is the least productive part of the economy – indeed, its productivity has been falling. If we are to get out of our debt hole, we must lift the burdens on the private sector, which is our only hope of economic growth.”

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