There is no truth so obvious that it doesn’t generate an opposing following. The most elementary economics primer tells us that flooding the system with money causes prices to rise and purchasing power to fall. Yet the Treasury’s pact with the Bank of England is designed to “stimulate” the economy by pumping hundreds of billions of fiat pounds into the system. Despite its failure Sir Mervyn King, the outgoing Bank Governor, recommends more of the same – disregarding the inflation that must follow.
If government’s foolhardy intervention in the money market forces interest rates to near-zero, capital will find its way to better returns – equities, hedge funds, underwriting and, as ever, property. The remedy designed to cure the last bubble is generating the next one.
TAX AVOIDANCE MYTHOLOGY
Rhetoric tainted with moral outrage invariably blights objective analysis, as is the case with the corporate tax avoidance strategy applied by multinational giants such as Apple, Google, Amazon and Starbucks. It is hypocritical for politicians to pontificate about corporate irresponsibility. After all, who created the Byzantine rules under which multinationals may choose the jurisdictions in which they do business?
Our government’s own tax strategy aims to cut corporation tax to 20 per cent by 2015 to encourage foreign-based businesses to migrate to these shores. If hosting a competitive tax regime is such a good idea for us, why is it so objectionable when others do it?
Instead of implementing a low-tax philosophy ourselves we impugn the integrity of countries applying it with the stigma of “tax havens”, just as we do with the pejorative label of “tax avoidance” – a term, like “fair shares paid by all”, as emotive as it is ill-defined. The sub-classification of “aggressive” tax avoidance, capturing more imaginative yet entirely legal practices, has been coined by those wonderful politicians and Treasury officials responsible for the longest tax code on the planet at 17,000 pages.
IRELAND: FROM PAUPER TO PARIAH
When the Brussels mafiosi imposed bailout conditions on Ireland that would have enforced a steep rise in its 12.5% corporation tax rate, the Irish government sensibly declined. It knew that (i) such a move would destroy the competitive advantage (the very notion is anathema to EU dogma) needed to salvage its debt-laden economy; and (ii) the EU bailout condition was an empty threat anyway, because preservation of the euro demanded the bailout and nothing – but nothing – would be allowed to stand in the way of that.
As a euro-outsider the UK lent public and monetary support for Ireland’s position. But now that its low-tax strategy is seen to be so effective in attracting big business it has suddenly become an object of scorn by hypocritical moralists.
It is a double irony that EU law on “profit-shifting” is itself responsible for sponsoring the seamless business movements at the heart of current controversy. The European Court of Justice ruled in 2006 that companies can set up businesses in different member states, even if tax-mitigation is the primary motive.
The ultimate myth is that these wicked giants pay no tax in the UK. Starbucks has 8,500 employees, and rising, all of whom work for their “net” (take-home) pay. The “gross” is a fiction which none of them have ever seen, a device for calculating the employment taxes for which Starbucks alone is liable, and that amounts to around £13 million every month.
The duplicity of the critics beggars belief. Would Apple and Amazon shares feature in their pension funds if the policy of those companies was to maximise their tax burden?
To be the target of such vilification you have to be seriously successful.