Tread with care when lifting taxes
Thursday 14th May 2009, 2:38PM BST.
WHEN UK Chancellor Alistair Darling announced on 22 April that the top rate of income tax was to rise to 50p in the £, he defended the measure by saying it was only fair that those with the broadest shoulders paid more.
Understandably, the business press criticised the move as an attack on success and predicted that it would trigger a flight from Britain as top earners decided to protect their incomes.
That weekend, a number of leading businessmen were identified as potential tax refugees, among them Guy Hands, the high profile founder of private equity house Terra Firma.
Confirmation that he has now moved to Guernsey is further evidence that high tax rates have a significant effect on people’s behaviour – and on the underlying economy.
One of Guernsey’s business plan aspirations is to create the conditions that help to maintain a prosperous and resilient business environment because that means well paid jobs, a rising tax take for government and, crucially, a better standard of living for islanders.
The importance of this is vividly illustrated through Tax Freedom Day, the point in the calendar when the average person in the UK finally stops working for Gordon Brown and instead gets to keep what they earn.
Guernsey’s freedom day is 11 March, weeks ahead of today’s UK date and a reminder for islanders of the benefits of a low tax jurisdiction.
There is, however, a potential difficulty with attracting the very wealthy here – that of keeping them.
One reason why the States decided against lifting the earnings cap on social security contributions was that it would – not might – force the rich to leave.
That might be true but, to use Mr Darling’s expression, if those with the broadest shoulders are spared the burden, it falls as ever to middle earners. What those middle earners have, of course, is an absence of mobility. They can be clobbered because they cannot simply get up and leave. So the very rich remain protected.
Equally, the business plan calls for a ‘wise’ redistribution of wealth within the community, which explains why chancellors in any jurisdiction should tread carefully when raising taxes.
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The heading of this thread should be “Why we are a Tax Haven”!!!!!
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It is nothing of the sort Stephen, this article is about people moving here, not about using this as a jurisdiction in which to base investment.
But I do think that the States is misguided on capping the tax/SS of the very wealthy. If those people really are only here for the super low tax, rather than for the great lifestyle, wonderful community, beautiful surroundings, and the general low tax, then do we really want them?
I think we should be more confident about the draw of this place. There are not many places where the ultra rich could go and be taxed less, and I certainly cannot think of any such place where I would rather live.
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All this mentality achieves is a widening wealth gap and social division. Tax needs to be seen less as ‘chains to be free from’ and more of an ‘investment in social infrastructure’.
The facts are there to be seen. We have the same problems as we did 30 years ago despite those decades of boom. How can anyone say we’re a successful model?
Especially as the bulk of our business is tax mitigation, morally dubious at best and increasingly proven to be highly detrimental to global welfare at worst.
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TL
it is understandable that Guernsey would not see itself as a tax haven but as a low tax jurisdiction.
What Guernsey needs to understand is that tose outside of the island will take, and are entitled to take, a very different view – one that it is a tax haven.
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so Stephen, are you now challenging the right of individuals to move to a new country an pay tax only in their new country?
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