Thursday, 13 January 2011

The case for tax competition...

I see that the idiot left have found a new term – “tax shirker”. As far as I can work out this term covers people who the organisers either don’t like or who are large enough for any marginal variance in accounting to produce really big numbers. It is of course utter nonsense and, as I’ve said before, wholly immoral for people like this to urge action to take other people’s money off them in such a high handed way.

However, the tweet that brought this sad little web-page to my attention was especially interesting:

They said they wanted more "tax competition". proclaimed before providing the link to the “tax shirker” page.

Now recently, I’ve been pondering a little about so-called ‘tax competition’, especially given the tendency for assorted European leaders to criticise the practice. The European Union even goes as far as to describe “harmful tax competition” (suffice it to say that this Bonapartist state considers such things bad):

The criteria for identifying potentially harmful measures include:

  • an effective level of taxation which is significantly lower than the general level of taxation in the country concerned;
  • tax benefits reserved for non-residents;
  • tax incentives for activities which are isolated from the domestic economy and therefore have no impact on the national tax base;
  • granting of tax advantages even in the absence of any real economic activity;
  • the basis of profit determination for companies in a multinational group departs from internationally accepted rules, in particular those approved by the OECD;
  • lack of transparency.
This definition – written as these things often are in as all- encompassing a manner as possible – is, we’re told, targeted at the practices of some countries who insist on using low rates of personal and corporate taxation (plus protection of privacy). These are bad places because it means that people who earn money in, say, Germany or France are able to reduce the amount of tax they pay by shifting to Luxembourg, Liechtenstein or Monaco. Naughty, naughty rich people – how very dare they!

I think tax competition is a good thing – something to be encouraged and, from the personal perspective, beneficial. Not just because it reduces the ability of government to succumb to the politics of envy and, as Dennis Healey put it, ‘squeeze the rich till the pips squeak’ but it also makes those governments pay attention to the efficiency and effectiveness of public service delivery. By removing the escape valve of raising taxes (or reducing its effectiveness) we encourage government to be less wasteful, more open and more effective in the work it undertakes.

So instead of trying to stop that so-called ‘race to the bottom’ on tax rates by banning a competitive approach, we should be encouraging such an approach as a means of ensuring the efficiency of government. Not that’s a thought!


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