Tax havens play limited role in a financial crisis - Economy and Politics - livemint.com .
Two academics from the Oxford Centre for Business Taxation claim that tax havens only played a limited role in the current financial crisis.
My question for them is a simple one: given the massive opacity of these places that I have helped document, how do they know that?
I know from discussion with this Centre that those there seem to know almost nothing about secrecy jurisdictions, except that they are a profit centre for them through their work for the Isle of Man government, a connection the authors fail to disclose so undermining any scrap of academic credibility they have on this issue.
But worse than that, the article is trite. The authors claim:
To understand this issue, one must distinguish between three different concepts: tax evasion, tax avoidance and financial regulation avoidance.
I assure you all three have the same purpose: to undermine the regulation of states - which is precisely what secrecy jurisdictions do. Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.
As such secrecy jurisdictions did play a major role in the current financial crisis. Of course, the crisis did not start there: by definition nothing really happens in a secrecy jurisdiction. But by creating risk by massively increasing opacity, which regulator's models did not recognise as of consequence secrecy jurisdictions contributed enormously to the crisis.
And a couple of Oxford law academics interested only in the form and not the substance of transactions can't change that: by refusing to engage with the substance of this issue they show that places like the Oxford Centre for the non-Taxation of Business are part of the problem in tackling secrecy jurisdictions, not part of the solution.
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Well this proves the old adage..
“Those who can – do.
Those who can’t – teach.”
.. and those who can’t teach are academics at Oxford.
I have no high opinion of economics faculties especially Oxford’s but I would suggest that they have accidentally and for the wrong reasons come to the right conclusion.
If one looks back to the genesis of the present situation, it was literally grounded on creating credit for the purchase of land titles, wrapped up in house purchases. Which is simply an inappropriate use of credit. But I would suggest that the real problem is not one that will be prevented by controls on the use of credit. It is necessary to make the purchase of land titles unattractive by a substantial shift of the burden of taxation onto the rental value of land. If this is not done, land titles will always be the subject of speculative trading using credit in some shape or form, no matter what regulations are put in place. That is the source of the problem, not failures in bank regulation.
Henry, you make an interesting point, but are missing the fact that much of the house price bubble in the UK was caused by Brown deliberately manipulating the market price for credit by not allowing the (supposedly independent)Bank of England take into account house price inflation in setting interest rates. Without this manipulation the demand for houses, and hence their price, would have been considerably different.
Alastair, how do you explain the contemporaneous land/house price bubbles in US, Spain, Ireland, etc? There was also a price bubble in agricultural and commercial land/property. And how do you account for the precise predictions of Fred Harrison in The Power in the Land (1983) and Boom Bust (2005)?
For US see the failed policies re Fannie Mae and Freddie Mac. You might also spot that the US is in a better position to weather the storm – not least because it is well diversified – doesn’t really need the rest of the world.
For Spain and Ireland – see the EC interventionist policies and their attitude to tax, which brought inflows in the good times. For Spain, also refer to the influx into the Costas of shivering Northerners looking for sunshine, and escape from the daily grind.
The commercial bubbke has burst in a maelstrom of fall out – see the bad debt provisions in all of the finance houses for a view of the extent – they all got burned on this one.
NEXT
@alastair
I seem to recall that in the early 2000s there was concern about rising house prices and that an important reason for not raising interest rates was that this would have had a damaging effect on the more fragile economies away from London and the South East.
When interest rates are the only instrument of economic management, there is no one interest rate that is right for the whole country.
Hi Henry – thats a good starting argument for letting markets find their own level! Like it
No, it is an argument for land value taxation – which is the only system of taxation which takes account of geographical advantage and disadvantage. After that, perhaps there is a chance that markets can be allowed to sort themselves out. 😆
Alastair, do you think the land market works efficiently? Does it allocate to best use? Consider the size of developers’ land banks; the number of derelict sites, even in our major cities; how many families cannot afford a decent home; how many flats, bought off-plan by greedy ‘investors’, which remain vacant; how many empty shops in our high streets, how many young people wanting to become farmers who are blocked by billionaire landowners.
Hi Carol. I’m not in the business of judging markets. I suspect you are refering more to inequality, and a political system that might be required to alter outcomes, although I don’t recognise your statistics. But most intrigued by your concept of greedy investors in buy to lets – you might have noticed that it is now somewhat difficult to get a mortgage on a flat, which to my mind suggests there is a market doing its stuff.
And what do you have against developers?
Alastair,
I cannot speak for Carol, but developers buy up land and just sit on it for years on end, often despite the fact that there is planning consent for development. There are derelict sites and buildings just a stone’s throw from the town centre area where I live. If you like rats and buddliea this is good. And much of the developers’ profits actually come not from development, but from the increase in land value accruing over a period, or from the planning consent, or construction of enabling infrastructure, usually at public expense. The usual term for that is free-riding.
When they do that, they are not developers but land speculators.
The buy-to-let problem has taken about a decade to work through to its inevitable d?©nouement. In the meantime, all sorts of undesirable things have happened, as is observable in my own area. A lot of poorly-designed, undersized and cramped rubbish has been built to the point of glut, which even now is starting to turn into a slum area. The neighbourhood has been transformed, as owner-occupiers have been squeezed out and replaced by transients, thereby making what was formerly a pleasant neighbourhood into a place to be got away from.
Markets that only work over the course of a cycle lasting more than a decade or two cannot be said to be working efficiently.
Oh Henry, there is a lot wrong with your analysis, but where are you going with it? Is it markets that are the problem, or is it buy to let landlords, or is it developers/land speculators? And what do you see as the solution?
Alastair, of course there’s a solution to land market dysfunction: see Henry’s http://www.landvaluetax.org or our http://www.labourland.org – and there are many others here and abroad. Ignorance of the land issue is at the heart of our economic woes.
Unfree markets are the problem. You cannot have a free market unless the land market is free, since land is essential for all human activities.
The problem is not buy-to-let landlords, developers, land speculators or even the Duke of Westminster who is one of the half dozen families who between them own the lion’s share of the most valuable land in London. But these are just taking advantage of a situation that has been created as a result of ignoring how the land market operates and how it affects the economy.
What I see as the solution is well known. People, including Richard, get bored if I keep on repeating myself.