| 02 November 2008
KPMG told us last week that there is something of a competition between countries
to attract highly mobile, better off people with lower tax rates, and it foresaw
a time when indirect taxes (VAT and the like) would be of more importance than
direct taxes such as income tax.
Individual citizens, except at the highest
levels of wealth, are firmly rooted within the nation state of their birth,
due to inertia, language, family ties and culture, allowing nation states to
tax them with little fear that they will decamp to rival countries. At least,
that is true during their productive (and most tax-generative) years. In retirement,
people have more choices. Recent surveys have shown that astonishingly high
proportions of people in high-taxed countries such as the UK would leave if
they could, and many are preparing the way by buying properties in countries
which they see as being more welcoming (warmer, less expensive and less taxing).
There are long term trends which will
gradually break down the convenient access nation states have to the income
and assets of their citizens, including:
- the ease of tele-working (you can
work for a Berlin company as a consultant while living in Malta);
- the fleet-footedness of companies,
noted above, which can quickly remove taxable activity from a high-taxing
jurisdiction, making it far harder for the jurisdiction to tax their residents'
income streams from such a company;
- the rapid growth of virtual (Internet) economic activity,
which is often hard to attribute to any particular taxing jurisdiction; and
- the growth in individual wealth, leading to higher
and higher proportions of 'rentier' income, allowing individuals to base themselves
in low-taxing jurisdictions while providing paid-for services to supplement
income.
It is not easy to forecast how this combination
of trends (and others) will work out, but it seems unavoidable at least that
the taxing countries will reach an agreed international solution, possibly based
on residence periods. Thus, there could be universal taxation based on physical
residence (you live in the Comoros Islands for six days in a year, you will
pay tax on 6/365 of your global income to the Comoros, at their rate of income
taxation). There will be no corporate tax ('People pay taxes, not companies'
- Mrs Thatcher, c. 1980), withholding taxes, VAT or double tax treaties (not
needed).
Alongside some kind of globalisation
of personal taxation, it is reasonable also to expect that there will be a global
currency, and world-wide insurance for health-care, pensions etc, with such
'social' benefits being provided by global, private companies rather than by
nation states.
There are some pre-conditions to such
a system, however, including (something inevitable) that individuals will have
tamper-proof biometric identification, that financial flows will be fully transparent,
and that language will have ceased to be a barrier to human interaction. These
conditions are likely to have been fulfilled by 2030, so that is the probable
timescale of personal fiscal globalisation. Once it has happened, it will be left
to countries only to compete in terms of what they can offer individuals: the
local income taxation rate, and non-economic goods such as quality of life,
law and order, planning and zoning, and 'culture'.
In the medium term there may still be national safety
nets for individuals and families; longer-term, they are likely to become part
of a globalized welfare system.
You have been reading an entry on the following blog:
Jeremy Hetherington-Gore Unleashed
Jeremy tackles the difficult issues head on!
Contact: jeremy@lowtax.net
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