Prosper Australia’s Post

Norway's wealth tax results should be a warning to the UK Government... 🇳🇴 In 2022 Norway increased wealth tax to 1.1%... the expected revenue? $146M The result? Individuals with a net worth of $54B left the country, leading to a $594M loss in tax revenue... Now, don't get me wrong, the ultra wealthy don't need more protection from tax, but in a world where capital, both human and financial, are highly mobile there needs to be a properly thought through strategy. ...I really hope Labour are doing this but on the evidence of the last budget and those measures that have not been costed out... it doesn't look good. Imagine if Labour were advocating for a national entrepreneurial strategy and an integrated tax strategy to go with it? ----- The great thing about Linkedin is that debate gives more data, so for completeness: Michael Maz (sorry don't why it won't @) adds: "..The data shows that revenue of $830m offsets potential loses and would net $300m. The authors of the graph could have chosen to point this out but you have to question their motivation. Also to add we don't have the data on how much the government will collect in exit taxes so these numbers will likely go up!"

Norway’s experience with its wealth tax provides an important case study for policymakers worldwide, including here in Canada. 🇳🇴 In 2022, Norway raised its wealth tax to 1.1%, projecting an additional $146 million in revenue. The actual outcome? A significant migration of high-net-worth individuals—collectively holding $54 billion in net worth—resulted in a net revenue loss of approximately $594 million. This raises a critical issue: while it may seem straightforward to target the wealthiest individuals for additional tax revenue, the mobility of both capital and people in today’s global economy must be accounted for. When tax policies are implemented without a comprehensive strategy, they risk triggering unintended consequences, such as capital flight and a shrinking tax base. Canada faces similar challenges. A well-designed tax system must balance fairness, competitiveness, and economic growth. It’s crucial to implement measures that not only ensure equitable contributions from the wealthy but also encourage entrepreneurial investment, economic participation, and retention of high-net-worth individuals within our borders. As the conversation around taxation evolves, one thing is clear: without a nuanced, strategic approach, well-intentioned tax policies can backfire, as Norway’s case demonstrates.

An interesting example of what happens when wealth taxes are increased - this time in Norway. Now, the Norwegians have a proper wealth tax, which was substantially increased, leading to a flight of capital of c. $54bn leading to a decrease in people paying wealth tax and therefore reducing tax yields. The U.K. doesn’t have a wealth tax but it does have taxes on wealth - the most notable being IHT at 40% on death plus relevant property charges on trusts. Due to Labour’s hardline stance on extending IHT to non doms and their trusts we will see the predictable behavioural response of a flight of individuals and their capital out of the U.K. There have now been a number of studies which put this number above 20% (which includes the OBR). At that level the total tax take will decrease - as predicted even by Labour’s ideological friends at Warwick University/LSE. This does beg the question - why go ahead if you know it’s not going to work? Answers on a postcard please …

According the report of Tax Justice Network, with the caveat their numbers are correct, 75% of the $480 bln are due to OECD countries multinationals. Imagine if these firms pay more tax how much more can be invested by developing countries which are losing so many billions. The OECD should propose a Fund that solely invests in social impact and green transition from any additional tax revenues. Is this in the pipeline? If not why is the OECD producing so many reports about the green transition and for the source of funding when taxation by its members can be one source source?

As I informed Ali Lyon of City AM, Gabriel ZUCMAN's Global Minimum Income Tax is just an academic pipe dream. As the old saying goes, "Watch what they DO not what they SAY!" All the Finance Ministers could virtue signal in Brazil but to actually make this a reality, EVERY country would need to pass domestic enabling regulations. They hadn't even left Brazil before the US said they were NOT going to pass enabling regulations. This proposal is Dead on Arrival as a result of the Prisoner's Dilemma. If one country does decide to actually implement this domestically they will see the same result as Rt Hon Rachel Reeves is seeing in closing the Remittance Basis. Numerous countries are more than happy to attract the UHNW departing the UK to their shores. It was no coincidence that Portugal selected UK election day to announce their new tax regime to attract HNW individuals. That is because politicians in those countries don't get and stay elected because they are fulfilling the aspirations of the UK government (or a certain Professor's bid for tenure!). Dhananjayan Sriskandarajah points to the Global Minimum Corporation Tax Agreement, as a precedent for the future success of the personal tax minimum proposal. Now let's compare what was said with what was actually done. According to Wikipedia, in October 2021, 136 countries agreed to a OECD plan to implement 15% global minimum tax rate, starting in 2023. Unfortunately 2023 is long in the rearview mirror and there has been no countries which have actually implemented it! As a final note, although I would like to add three inches in height and lop my age in half at this point just keeping my hair is all I can realistically hope for! https://lnkd.in/e_5u2BGr

THE FOLLY OF EXIT TAXES The exit tax is a fiscal acknowledgment of failure - when you have yanked up tax rates so much your own citizens are fleeing, then you know your tax policy has failed. Exit taxes are reactive, petty and ineffective. Whilst they may squeeze a little more money out of departing taxpayers, exit taxes discourage foreign investment and prompt high-net-worth individuals to relocate preemptively to avoid taxation. The French experience with its wealth tax, which led to capital flight and a subsequent net loss in tax revenue, is often cited as a cautionary example. Despite this, European countries can’t help themselves, being continually seduced by the idea of exit taxes. As this Economist story shows (sorry it’s behind a paywall) - the reason Norway is tightening its exit tax is because so many rich Norwegians are moving to Switzerland. And why ? Because Norway increased its wealth tax. So, Norway is trying to fight the ineffectiveness of one tax increase by increasing another. Surely, the definition of madness ? Norway is not alone - Germany, France, Sweden, the Netherlands and Spain all have variations of the tax. It’s questionable whether any of them work but, for now, they remain fashionable. Let’s hope our Chancellor isn’t a dedicated follower of fashion.

Europe in the grip of bureaucracy and tax burden Europe is at a critical point. Excessive bureaucracy and high taxes threaten the continent's economic backbone. This combination, so supposedly necessary to maintain the welfare state, is proving to be a brake on innovation and economic growth. Bureaucracy in Europe has reached a level that suffocates companies and individuals alike. New laws and regulations are often introduced without sufficient assessment of their impact. These regulations can hit smaller companies that do not have the resources of large corporations to adapt particularly hard. The result is an economy that is concentrated in the hands of a few large players, which contradicts the idea of a fair and equal market. In addition, tax rates in many European countries are among the highest in the world. Although high taxes are intended to finance a wide range of public services and help redistribute wealth, they restrict citizens' financial freedom and demotivate entrepreneurial initiatives. The high tax burden reduces disposable income and thus purchasing power, which in turn hampers economic growth. It is ironic that the systems designed to promote social justice are often the very obstacles that hinder efficient and fair economic performance. Bureaucracy distorts competition and creates an environment where only the most adaptable can survive – often at the expense of innovation. For a truly progressive future, Europe must rethink its approach to bureaucracy and taxation. A leaner, more agile bureaucratic structure is needed to ease the burden on both businesses and individuals. Tax reforms that encourage investment and create a level playing field are equally necessary. By rethinking its strategies, Europe could create an environment that promotes both economic vitality and social justice. This would not only boost growth but also ensure that wealth is distributed more fairly. It is time for Europe to take a new path, away from crushing bureaucracy and tax burdens, towards greater economic freedom and innovation.

SORRY, BUT WEALTH TAXES JUST DON’T WORK❗️ Just because you’re well intentioned and you want a wealth tax to work, doesn’t mean it will work. Out of all the OECD countries, only 4 impose a wealth tax and the reasons for this are clear: ➡️ they raise pitifully low revenues (the WT in Spain, despite having confiscatory rates of up to 3.5%, raises only 0.19% of its GDP in tax) ➡️ the administrative costs are disproportionately high ➡️ they discourage investment in local businesses and real estate ➡️ they raise real human rights issues in many countries (which is why, for instance, Germany and the Netherlands abolished their WT). ➡️ nearly every country which introduces a WT later repeals it - only the most stubbornly dogmatic retain them (step forward Spain and Columbia). In too many instances I see heartfelt calls for the introduction of a WT, citing inequality, poverty and so on, but these advocates have little or no understanding of economics or tax policy. They believe that good intentions are enough - they’re not. If WTs really worked then more countries would both introduce and keep them. If you don’t believe me then have a look at this interesting study. Perhaps I should send this report to the Guardian? Then again, what’s the point?

Yes, there is an urgent need for a decent tax reform accompanied by an overhaul of the inefficient and corrupt tax administration in Cyprus. Otherwise, income and wealth inequalities will be further widened and the generation of balanced growth and the green transition derailed. Read "correct" article below for details.