The rise and rise of greedy government

The rise and rise of greedy government
The most powerful countries are going to see to it that no little upstart island can sit on a penny that they might decide is rightfully theirs

Making his point: David Cameron addresses the press after the G8 summit in Northern Ireland Photo: GETTY




By Janet Daley
4:33PM BST 22 Jun 2013
229 Comments

David Cameron said something last week that was the precise opposite of the truth – by which I do not mean, obviously, that he told a deliberate falsehood. What he did was simply relay the perversely inverted logic that has become conventional wisdom. What the Prime Minister said was: “If you want a low-tax economy, you have to collect the taxes that are owed.” When what he should have said, of course, was: “If you want to collect the taxes that are owed, you have to have a low-tax economy.”
Mr Cameron’s statement was one of the more subtle threats contained in the declaration by the G8 – which was pretty much all they could agree on – that they are now the rightful owners of all the wealth produced by anyone except for certain exemptions that they will, subject to minimal notice, decide upon. His remark, presumably designed to provide moral justification for the unprecedented levels of shared surveillance and breaches of data protection that governments are preparing to launch, actually stood on its head the truth about effective tax collection. Which is that the lower rates of taxation are, the less likely it is that payment of them will be avoided or evaded. We have had yet another demonstration of this famous principle (the Laffer curve) in our very recent national history. The introduction of the 50p rate of income tax caused two-thirds of those earning a million pounds per year simply to disappear from the reach of HM Revenue & Customs. Whereas under the previous highest tax level of 40p, 16,000 people were prepared to declare earnings of one million pounds, that number shrank to only 6,000 after Gordon Brown, bless him, raised it to 50p. Result: the Treasury lost £7 billion in revenue.
Got that? If people regard levels of tax as fair (in the true sense of the word, not the Left-wing sense, which actually means “vindictive”), they will not go to expensive and dangerous lengths to escape from paying. The more punitive and discouraging of wealth-creation taxes are, the more they are avoided by stealth or geographical relocation – or by the even more economically disastrous measure of people being disinclined to increase their own productivity. Ah yes, but isn’t this the problem that those heads of government are determined to address? Rather than lowering taxes to levels that those who are taxed find acceptable, they will simply close off all the avenues of escape. There is to be no more possibility, by international agreement (which is to say, the coercion of smaller, less rich countries), of geographical movement for tax advantage. It will not be acceptable any longer for large corporations, or even private individuals whose profits or income are global, to lodge themselves in places that charge low business or personal taxes. These wicked places, known as “tax havens”, are the criminal “fences” of the international financial world: accepting, and sometimes agreeing to hide, the wealth that rightly belongs to other governments.
There are two really big things wrong with this view of things. One is that it conflates, as does almost everybody now, tax evasion with tax avoidance. Tax evasion is the criminal use of deception or fraud to pay less tax than you legitimately owe. Tax avoidance is what you do when you invest in an Isa, or put your life insurance policy – as any good solicitor will advise – into trust so that it will not count as part of your estate when you die. Tax avoidance (as opposed to evasion) is perfectly legal and, in the great majority of cases, morally unexceptionable because it helps individuals to save and therefore to prevent themselves and their families from becoming welfare dependents. (And that is what the Government is urging us to do more of, right?) Countries that are “tax havens” can make such legal avoidance easier. But, so long as they are not colluding in evasion, all that their wickedness consists of is offering lower rates of tax.
Ireland, for example, has had an exceptionally low rate of corporation tax, which has helped its economic recovery by attracting inward investment. Brussels is furious about this “unfair” competition for business and is insisting that Ireland raise its business taxes in conformity with EU levels – which would mean that Ireland would be more likely to remain an economic basket case.
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If you eliminate tax competition – if you create a uniform, universally policed tax standard – it is the poorer countries that suffer because they are deprived of the capacity to attract foreign capital. And oddly enough, Mr Cameron seems to know this. Because almost in the same breath with his illogical statement about needing to collect the tax that is due before you can have lower taxes, etc, he also said that he was determined to reduce the UK’s business taxes to make them among the lowest in the world. Excuse me? Doesn’t that mean, Mr Cameron, that we would become – um – a “tax haven”?
What is at the heart of all this is the growth of governments: the treasuries of the world are becoming needier and greedier. And the most powerful countries are going to see to it that no little upstart island or remote corner of the earth can sit on a penny that they might decide is rightfully theirs – even if it resides in those outlying places perfectly legally. We are approaching a defining moment in the relationship between private property and the democratic state. Underlying almost all political debate on this matter now is the unspoken assumption that privately owned wealth is inherently evil, and that its only moral justification is to provide revenue that governments can redistribute. Unless you are an unreconstructed pre-Gorbachev Marxist, or an anarchist follower of Proudhon (“Property is theft”), you should not believe this. Yet it has become the received wisdom of the age. So let me remind you of what you may actually believe, shocking as it may sound in the context of prevailing public discourse. Are you ready? It is not the primary function of business to provide funds for politicians to spend.
To speak of rich individuals or corporations contributing their fair share to the cost of government services sounds reasonable enough but it raises the question of how much government should be spending – of whether, in other words, it should be owning and directly financing the provision of services. If it does own and provide them directly, then the cost of those services can easily (probably inevitably) exhaust the capacity of tax revenue. The expense of the public sector either bankrupts the private one or drives it underground into the tax avoidance we know so well. But if government purchases and regulates services, rather than owning them, then the service providers become tax-paying net contributors to the Treasury, instead of being a drain on it. And that is the discussion that we really need to have. Maybe we could start this week with the Chancellor’s spending review.