Swiss tax deal lowers UK budget gap? Really?
This Swiss tax-and-secrecy model is a challenger to the much stronger emerging model of automatic information exchange, recently endorsed (feebly) by world leaders. A seminal paper on this last year noted that:
"The international tax system is in the midst of a contest between automatic information reporting and anonymous withholding models for ensuring that nations have the ability to tax offshore accounts.So there is a lot at stake here.
. . .
the contest . . . implicates broad questions about the future of tax sovereignty in a globalized economy and the treatment of the wealthiest vis-à-vis other taxpayers."
We noted in a detailed research report in 2011, however, that the deal was absolutely riddled with loopholes, and that official UK forecasts that the deal would raise £4bn - £7bn are likely to be confounded. We reckoned that because of the loopholes - some so egregious as to amount to a flag planted in the agreement saying 'evade me here' - the UK would be lucky to raise much beyond the CHF 500 million Swiss Francs guaranteed downpayment, paid (to the tune of £342 million) in January.
So the news this morning would suggest that our calculations were wrong. Bloomberg, for instance :
"Britain’s budget deficit narrowed in May as government spending fell and the Treasury got a 3.2 billion-pound ($5 billion) boost from a deal with Switzerland to fight tax evasion."That is far more than we could ever have contemplated under our analysis. This deal was politically very useful for the UK's embattled Chancellor (finance minister) George Osborne:
"The underlying deficit in May was little changed if money from the tax on Swiss bank accounts held by Britons is excluded."And the narrowing deficit was taken by a government spokesperson as a reason to say:
“It shows the deficit-reduction plan is working. Obviously that needs to be stuck at."So: we were wrong.
Or were we?
Let's see, now. From the Office for National Statistics Bulletin, backing the budget documents:
"The payments are currently estimated by the Office for Budget Responsibility to be £3.2 billion and although the cash is anticipated to arrive over the coming year, under National Accounts rules the full cash amount is being accrued to May 2013 when the liability fell due."(With more details provided on p15 here: thanks to Richard Brooks.)Ah. Well. So -- beyond that guaranteed £342m, the cash has not arrived yet, after all. This is not revenue, but an expectation. Perhaps it would better be called a hope.
So we will stick by our forecast: that the UK-Swiss tax deal, because of its egregious and in some cases deliberate (see e.g. Section 3.1 here, with follow-on story here) loopholes, will fall far, far short of what Dave Hartnett and other UK cheerleaders for the secrecy-riddled deal have been promising. Remember: we sent our analysis to the UK's and the Swiss tax authorities, to the Swiss Bankers' Association, and to private practitioners - and none of them (save this rather feeble effort) was able to explain how our numbers or analysis were wrong.
Is this an exercise in counting chickens before they hatch?
We shall see.