Wednesday, 13 April 2016

Taxation and Fairness

Now that the furore about David Cameron's tax arrangements are dying down (primarily because they are perfectly legal and above-board), the usual gang of useless Lefties are attempting to stoke the argument. The most oft-repeated whinge is that 'it doesn't matter whether it was legal or not - it's about fairness!'

Ah, fairness. What is fairness, exactly? What do you define as fair? Oh, that person ought to pay more tax, because that's fair. Really? Fairness is a subjective term. I, for example, do not consider it to be fair that anyone, no matter how much they earn, should have nearly half of their income confiscated by the State. I don't consider it fair that someone who is prepared to save up, put their money at risk and stand any potential losses, should have to hand over nearly a third of their profits to the Government. I don't think it's fair that people who have worked hard all their lives, paid tax on all of their income and capital and determined to leave money to their kids should be taxed again when they die.

Taxation and fairness go together like oil and water. Taxes aren't fucking fair - it's the Government demanding that you pay money over to them, otherwise they'll throw you in prison. What taxes are is necessary - there are some things that realistically need providing by the State. The dispensation of justice, defence of the realm, upholding property rights, that sort of thing. And there's reasonable arguments for State involvement in education and healthcare.

But all of these are effectively facets of the one unifying aspect of Statehood which is the rule of law. It is the law which determines everything, including how much tax a person has to pay, and in what circumstances. Rule of law is really good, because it's certain. It's not always fair, but at least you know where you stand. Fairness is subjective - what I consider fair is different to what other people may consider to be. They're usually wrong if they disagree with me, obviously.

Tax isn't fair, and the reason why is because fairness is a daft, woolly concept which is no basis for policy. We don't have rule of fairness, because that's just a euphemism for making it up as we go along. We have rule of law.

So, actually, the only issue at all was whether it was legal or not. If it was legal, then it's fine. If you think it should be illegal, then that's a different debate entirely.

Friday, 8 April 2016

The Panama Papers

The leak of the so-called 'Panama Papers', have implicated a number of high-profile global politicians in tax avoidance. The firm in question is now also implicated in tax evasion, money laundering and breach of international sanctions. It all looks a bit nasty, and is the subject of several official investigations in various jurisdictions.

One of the things that seems to be implied is that 'tax havens' - jurisdictions with particularly opaque or relaxed tax regimes - have been involved. Various tax havens around the world are British Overseas Territories or Crown Dependencies - places like the British Virgin Islands, the Cayman Islands, the Channel Islands etc. It's also been confirmed that David Cameron owned holdings in a Panama-based Investment Trust, a type of offshore collective investment. Panama itself is a 'tax haven' - it has a very low tax regime, and so companies or investment funds based there enjoy low tax rates on their profits.

Now, it is important to remember the difference here between tax avoidance and tax evasion:

  • Tax Avoidance - arranging your financial affairs to as to minimise any tax due, either by using legally permissible reliefs and expenses to offset against the tax due, or by timing or framing transactions. Tax avoidance is perfectly legal and above board;
  • Tax Evasion - misinforming or not informing the authorities about funds and/or transactions in order to mask the true extent of a tax liability. Effectively, not paying tax which is owed. Tax evasion is illegal. By law, that tax is due and belongs to the State.
The two ludicrous suggestions from the Left so far on this story is that:
  1. Direct rule should be imposed on the Overseas Territories and Crown Dependencies; and
  2. David Cameron should resign.
Let's deal with them in turn.

Imposing direct rule on the Overseas Territories and Crown Dependencies (let's call them offshore territories) is laughable. Firstly, they have their own democratically elected assemblies, and do not elect members to the House of Commons. Having our Government muscle in on them just because a bunch of basket-weaving Lefties want it would be basically imperialist. Our Government has no accountability at all to the people that live there.

Secondly, many of the offshore territories are pretty small places, usually remote islands with low populations and tiny economies. The only thing that makes these places viable in their own right at all is the fact that their low-tax regimes attract international finance. If we imposed direct rule, you would get huge amounts of capital flight as all that lovely international money scrambled to avoid Her Majesty's Revenue and Customs, and buggered off to other tax havens outside our jurisdiction. This would result in at least half of their tax revenue drying up, and the only way that they could continue to fund their public services is by a UK bailout. And we're still borrowing about £75billion a year.

Not to mention the fact that having an unaccountable government, no representation and de facto rule by decree would represent a significant change in the constitutional relationship between the offshore territories and the UK, and with no mandate from the people living there. Indeed, all the evidence (including recent referenda in Gibraltar and the Falkland Islands) suggests that the locals are happy with the status quo. Direct rule would revert them to the status of colonies, whereas they are at the moment self-governing territories in free association with the UK.

So whilst imposing direct rule is technically and constitutionally possible, it is undemocratic, imperialist, unaffordable, economically ignorant, divisive and regressive.

Next is the suggestion that David Cameron should resign.

For what, exactly? What great misdemeanour has he conducted which warrants his resignation? Let's look at the facts, shall we? He and his wife invested about £30,000 in an offshore Investment Trust run by his father and domiciled in Panama. The reason it was domiciled in Panama was because of the comparatively low tax rates on company profits, which means that its investors can receive higher returns. There is nothing illegal about moving your money out of the UK to pursue better returns. This fund was legitimately established and commercially available.

Shortly before he became Prime Minister, he and his wife sold their holdings and repatriated the cash. When they did so, they paid Income Tax on the share dividends, and the capital gains they had made were within the annual Capital Gains Tax allowance. In other words, they paid all the taxes they were required to by law. David Cameron's 'crime' seems to have been seeking better returns on his money.

It's got sod-all to do with tax, and everything to do with jealousy. Most people calling for his resignation are just pissed that they don't have £30,000 to play with in offshore funds. If they did, they'd probably do the same. He made a bit of profit for himself through intelligent and legitimate investment. Good for him. If you're arguing that the UK should have a bigger slice of revenue from international finance, I agree. What attracts international finance to tax havens is their low tax rates. So if we cut our taxes, we'll get more foreign investment, and therefore more revenue.

Excellent, let's abolish Corporation Tax and introduce a flat Income Tax rate of 20%.