Monday, August 02, 2010

Northern Ireland - a step closer to tax havenry

The pro-offshore organisation Tax-News is reporting that:

"A UK parliamentary committee is to hold an inquiry into the business tax regime in Northern Ireland with a view to recommending how Ulster can compete more effectively with its low-tax neighbour to the south. As part of the UK, companies in Northern Ireland currently pay a headline corporate tax rate of 28%. But firms pay corporate tax of just 12.5% over the border in the Republic of Ireland, and this disparity in rates is seen as major barrier to growth for the North. The Northern Ireland Affairs Committee is set to examine what can be done to boost Northern Ireland's competitiveness and discourage a steady stream of companies moving across the border."

This is being driven by the City of London, as part of its efforts to boost the power of its spiderweb of offshore jurisdictions around the world that channel business in its direction. It is another disgrace. Richard Murphy recently wrote in The Guardian about this, and explained why this is such an awful choice, not just for the world at large, but for Northern Ireland too. As Lord Oakeshott put it:

When talking of the low tax rates offered in the Republic he called Dublin "Liechtenstein on the Liffey", adding: "If you set out to attract mobile money from around the world, you run much bigger risks when things go wrong."

Indeed. The Irish Republic is one of the worst affected by the global crisis.

As if all this were not bad enough, the City is hoping to get Scotland into the race too. And then there is the Ghana/Barclays horror. And . . .


Blogger Physiocrat said...

Northern Ireland should go for the lower corporation tax rate. And the UK too.

But at the same time, the correct form of land value tax must be introduced to pick up the enhancement in land rental values that will result from the policy of lower corporation tax.

It would probably put the UK government's finances into better shape than persisting with the present tax regime.

5:10 am  
Anonymous TJN said...

Your suggestion that Northern Ireland should turn itself into a tax haven is pernicious and deeply misguided. Your suggestion that we should introduce a land value tax is a good one.

1:10 am  
Blogger Physiocrat said...

John, the low taxes on individuals and corporations go together. It is not just Northern Ireland but the rest of the UK that should follow that route.

Land values in Jersey are immense due to its status as a tax haven. Any government wishing to do so could use these as a base for raising huge tax revenues and there is absolutely no means by which they could be avoided, legally or otherwise.

Of course if Northern Ireland and the rest of the UK went in for this policy, other countries would have to follow suit or take the undesirable consequences of being left out. I gather there is a move in this direction in one or more of the Baltic republics. In that case the problem is that a substantial proportion of the economy is in the hands of small scale enterprises, with cash-in-hand transactions. Taxes on economic activity cannot keep up with what is going on and the individuals themselves cannot cope with all the form-filling, accountancy, etc, even if they wanted to, which they probably don't, not after having been under the Soviet yoke for so long.

What exactly is pernicious about shifting taxation from something which is readily avoided, and onto an entity which cannot be avoided?

12:23 pm  
Anonymous TJN said...

Sorry, but this is the land of make-believe. Anyone who thinks Jersey matters simply because of what the effects are in Jersey doesn't have the first grasp of what tax havens are about. They are designed to undermine tax systems (and other things) elsewhere. That word "elsewhere" is key.

To say "the problem is that a substantial proportion of the economy is in the hands of small scale enterprises, with cash-in-hand transactions" is to display a failure to grasp the most basic element of tax havenry. Think "elsewhere" any time you are writing about this issue. Land value taxes would be very good things, for sure, and TJN supports them strongly. But they do not "solve" the big problem. wealthy people would simply shift all their income-generating assets elsewhere to get around them. Income and wealth inequalities would remain entrenched.

And P.S. that wasn't John who wrote that.

1:00 am  
Blogger Physiocrat said...

"wealthy people would simply shift all their income-generating assets elsewhere to get around them. Income and wealth inequalities would remain entrenched."

Their principal wealth generating asset is land. Tax it and it is checkmate for them. There is nowhere for them to shift it to.

No longer can the wealthy simply sit and receive rent. They will have to go out to work.

12:29 pm  
Anonymous TJN said...

No. The point is very simple. If they don't want to pay land taxes, they shift all their income-generating assets somewhere else (that won't subject them to land value tax.) Offshore. They have escaped the land value tax. None of this is to say that land value taxes aren't good. Quite the contrary. It's just that they can only ever be part of a solution.

12:47 am  
Blogger Physiocrat said...

Most of central London is owned by half a dozen "aristocratic" families who got their hands on the land after the Reformation and have succeeded in avoiding inheritance taxes by exploiting the loopholes.

Most of their revenue is the rent of their land. How can they possibly shift that land? The Duke of Chelsea (fictitious) cannot dig up his property and shift it to the Cayman Islands. On the other hand, the Trustees of his estate can and do set up a holding company in the Cayman Islands or some other tax haven and thereby avoid corporation tax. But if the tax is levied directly on the land holding instead of on the company (which avoids paying much of it anyway, as you know), then there is no escape. That is the beauty of LVT. People have to pay their dues and after that they are left alone.

The Duke can abandon his land, but the land will still be there, and all he will be left with is his coronet to wear on his head.

There is one further point. People are not going to move their activity in order to avoid LVT, any more than they move their activity so as to pay lower rents. Rents are low in the Outer Hebrides, but it does not induce businesses to set themselves up there because the advantages are in being where there are good communications and plenty of people around. These advantages are what people are willing to pay high rents for. If the rent is not taxed it then ends up in landowners' pockets and the government has to try to tax labour and enterprise instead.

1:08 am  
Anonymous TJN said...

So you have solved the problem for six aristocratic families. That is good - and that is why we support land value taxes (since they'd capture a whole lot more people than that of course.) But we also believe it is important to solve the problem for those who wouldn't fall into the LVT net - notably those who invest overseas, or offshore, where their income and wealth isn't subject to LVT. That is why it can only be a part of any solution.

3:29 am  
Blogger Physiocrat said...

What are those who are investing offshore investing in, precisely? If they are investing in land in, say, a country in sub-equatorial Africa, it really is up to the governments in those countries to collect that revenue. Those earnings have not arisen from any action of the British government or the British community. The British chancellor has no rightful claim on them.

And if they do start spending these foreign earnings in the UK, then the first thing they will do is buy a property in a smart area, where they will promptly become liable for British LVT.

There really is no escape.

10:48 am  
Anonymous TJN said...

Yes, but they will invest all over the world. Unless you have LVT implemented simultaneously in every country in the world, the problems remain. Make no mistake - we are huge fans of LVT - but only as part of a broader tax system. And the 'no taxation without representation' aspect of direct taxation mustn't be forgotten either.

12:31 am  
Blogger Physiocrat said...

Most of the obscenely huge incomes that are remitted to tax havens consist of land rent, either directly or at one remove. Any country that imposes a substantial tax on land values will protect itself against losses of revenue to tax havens. They will also make their countries unattractive to parasites living of the backs of other people, and the parasites will indeed go elsewhere. But any other country is free to apply the same remedy and squeeze the parasites out of their midst too.

LVT deals with the whole wretched problem at source. The parasites will be left with little or nothing to remit to a tax haven. Unlike the Tobin Tax, LVT does not need concerted action by different countries. If governments wish to retain leaky tax systems for venal reasons of their own, it is up to the citizens of those countries to rise up against those who are holding them down. There is no other way, other than by showing the way ie that LVT prevents losses in tax revenue.

Tax competition will mean that if other countries are to succeed, they too must embrace LVT. It really is a case of the best system winning.

Trying to make existing tax systems work better is like trying to keep a diseased and rotten old tree standing, when what it needs is chopping down and a healthy sapling planted as a replacement.

3:46 am  

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