tax competition: lower taxes means less poverty
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Tax competition: lower taxes means less poverty. Richard Teather Bournemouth University. Tax competition. “Tax competition brings great benefits, to all society and not just to those who directly take advantage of it” The Benefits of Tax Competition. Tax competition. - PowerPoint PPT PresentationTRANSCRIPT
Tax competition:
lower taxes means less poverty
Richard Teather
Bournemouth University
Tax competition
“Tax competition brings great benefits, to all society and not just to those who directly take advantage of it”
The Benefits of Tax Competition
Tax competition
the use by governments
of low effective tax rates
to attract
capital or business activity
Benefits of tax competition
taxes = wealth
Benefits of tax competition
taxes = wealth
• encourages entrepreneurship• encourages savings & investment• encourages work
Benefits of tax competition
taxes = wealth
• “Growth in government stunts general economic growth.” (Federal Reserve)
• Tax increases “result in a net efficiency loss to the whole economy” (IMF)
Benefits of tax competition
75 20
VAT (12)
Tax (25)
38.
Tax 13NI 4VAT 7
44
Benefits of tax competition
taxes = wealth
• efficient global capital markets
Efficient global capital markets
Benefits of tax competition
taxes = wealth
• encourages entrepreneurship• encourages savings & investment• encourages work• efficient global capital markets
Benefits of tax competition
GDP per capita (1999 $)
-
5,000
10,000
15,000
20,000
25,000
1950 1975 2000
UK
Hong Kong
Who benefits?
• the rich get richer ?
• multinationals avoid tax ?
Who benefits?
$100 tax
$75
Who benefits?
Cayman finance industry generates:
• 55% of Cayman’s GDP
• 40% of all government revenues
• 30,000 business visitors
• 36% of employment - 12,500 jobs
Who benefits?Spending vs population
0
100
200
300
400
500
- 25,000 50,000 75,000 100,000 125,000
Population
Go
ve
rnm
en
t s
pe
nd
ing
2
00
8 U
S$
m
Cayman
Low tax characteristics
Offshore finance centres vary:
• No taxes on income
• Low taxes on income
• High taxes but exemptions
• High taxes but specific treatments
Alternative taxes
Different sectors:
• Vanilla banking
• Private wealth management
• Fund management
• Insurance
• Hedge funds
Alternative taxes
Income taxes:
• Prevent most offshore finance
• Highly competitive world
• Mobile customer base
• Exemptions difficult to justify
• Reduces confidence
Alternative taxes
Payroll taxes:
• Reduces employment
• Directly harms workers
• Discourages high-value operations
• Reduced to back-office function
• Increased ‘brass plate’ operations
Alternative taxes
VAT:
• Highly complex
• Can’t deal with financial services
• Still harms finance industry
• Discourages flexibility
• Unnecessary in small economy
VAT
VAT
VATAgriculture 0.4%Mining 1.2%Manufacture 1.1%Construction 5.4%Power & water 3.2%Retail 9.2%Tourism 3.7%Transport 6.8%Finance 53.5%Real estate 20.7%Government 6.6%Education 2.4%Health 2.7%
Cayman GDP
VATAgriculture 0.4%Mining 1.2%Manufacture 1.1%Construction 5.4%Power & water 3.2%Retail 9.2%Tourism 3.7%Transport 6.8%Finance 53.5%Real estate 20.7%Government 6.6%Education 2.4%Health 2.7%
Cayman GDP
Alternative taxes
Different sectors:
• Vanilla banking
• Private wealth management
• Fund management
• Insurance
• Hedge funds
The future
• Tax competition is mutually beneficial• embrace it
• Lower taxes:• increase domestic economy• attract international capital• main benefit goes to workers
Tax competition:
lower taxes and more growth
Richard Teather
Bournemouth University