It seems I ruffled a few feathers yesterday with my comments on the Isle of Man’s new GDP calculations. I was accused of being disingenuous because I used he one and only consistent data set the Isle of Man has issued — it’s first published data for each year. I was accused of overstating my case when I chose the smallest possible uplift in GDP I could when assessing the uplift in the VAT claim the Isle of Man will make from the UK. And all of that for the one usual reason that underpins all opposition that comes my way from the Crown Dependencies — a hatred of all who oppose them in a world where the finance industry and its friends have crushed all effective political opposition within these places. Remember it was only recently that an Isle of Man newspaper described me as the political opposition in the island.
But let’s move on from the petty desire to undermine objective comment of those whose vested interest in abusing all forms of information is apparent to instead deal with some facts.
First, the official population of the Isle of Man is about 80,500.
The GDP is now claimed to be about £3.1 billion.
So that is GDP per head of £38,500.
GDP per head in the UK is about £23,000 (my estimate, prepared on a train where I’ve lost internet access, based on 61 million people and GDP of about £1.4 trillion for the period we’re talking about).
The disparity is apparent, I think. And let me be candid: the people of the Isle of Man are not so clever that this disparity can be justified by their productivity. The Isle of Man is simply proving that, like other tax havens, it can induce companies to artificially relocate transactions to its jurisdiction to be recorded there although the substance arises elsewhere.
So four things follow. The first is that the Isle of Man is more than able to be self sufficient in tax terms. It does not need, and has not needed, a subsidy from the UK.
Second, the case for demanding reform in its tax system through the EU Code of Conduct is overwhelming: it is very obvious it is still running ring fences to ensure that there is a wholly artificial tax advantage to appearing to locate business there that must be stopped.
Third, if the UK cannot successfully renegotiate the Common Purse Agreement to prevent the Isle of Man exploiting the UK taxpayer to claim a reallocation of tax resources from the poor of the UK to the rich of the Isle of Man then the UK has one option left — and that is to cancel the agreement altogether. And then it must ensure, of course, that it cannot exploit VAT as do Guernsey and Jersey. That this will pay the UK is obvious, of course. VAT is meant to be a tax on consumers: there is a not a shadow of a doubt that consumption of the scale that the Isle of Man’s claimed GDP suggests is not taking place there. That means a tax reallocation in its favour must arise if the existing arrangement continues.
And finally, the UK has to maintain its anti-tax haven stance. As is apparent from this data, these places are free-rides on the back of ordinary people. When the UK needs every penny of revenue it can get subsidising the free riders of the Isle of Man (and that is all who live there unless they actively oppose its tax haven / secrecy jurisdiction status) cannot continue.
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Would it make any difference if the Manx figures were calculated on the basis of GVA/GNI (as Jersey’s are) rather than GDP?
And if so – should someone suggest it to HM Treasury?
(for a non-expert like me, the following statement – from the 2009 Jersey GVA report – is not entirely clear, so some background would help:
Gross Domestic Product (GDP), the traditional measure of a national economy, requires special treatment for profits made through interest rate differences. The System of National Accounts (SNA) does permit a flexible treatment. However, SNA68 (involving a negative adjustment) leads to an unrealistically low measure of GDP for Jersey whilst the more complete treatment specified by SNA93 (allocation by user sector) is not currently feasible.
Therefore, GDP determined under the SNA framework is considered to be a less representative measure of the Jersey economy than either GVA (before FISIM adjustment) or GNI. Any future modification or addition to the SNA relating to the measure of GDP for small economies dominated by offshore financial services could provide further guidance.
James in Jersey
Richard, having now read a bit more about you on the home page, your dislike of tax havens and offshore jurisdictions makes sense!
Do you also disagree with the OECD white paper of 2010? http://www.oecd.org/dataoecd/50/0/43606256.pdf
Where the Isle of Man is actually included?! Please stop referring to the IOM as a Tax haven when it is obviously not, unless of course you disagree with the OECD?!
@James
Fascinating suggestion
I’ll look at it
What it says is GDP can’t be calculated
Odd that the IoM thinks it can do it then
@Rodger
Of course I disagree with the OECD
They’re wrong
The whole wordl knows they’re wrong
Search http://www.secrecyjurisdictions.com and check the IoM to see why
And then look at http://www.financialsecrecyindex.com
Richard, you in your article are saying that we are in effect a tax haven, in the link to secrecy jurisdictions, I couldn’t find the list, but the BBC http://news.bbc.co.uk/local/jersey/hi/people_and_places/the_states/newsid_8341000/8341209.stm
Shows 15 and the IOM is not there, but the UK and USA are, so why are you having a go at the IOM, shouldn’t you be investigating the larger secrecy jurisdictions and highlighting their shortcomings?
The IOM as a small Jurisdiction is working with other countries, the lastest is shown on this press release dated the 6th Oct 2010! “TAX AGREEMENTS WITH GERMANY COME INTO FORCE
On 2 March 2009, the Isle of Man concluded two tax co-operation agreements with Germany.”
http://www.gov.im/lib/news/treasury/incometax/taxagreementswit2.xml
I disagree with your arguments and your constant attacks on the IOM, I hope that people read your articles with a pinch of salt due to your obvious bias on this issue!
The IOM Treasury is attempting to make itself more transparent which is surely to be commended. No?
Furthermore, the 2009 VAT agreement notes says this:
“Both jurisdictions’ national incomes are calculated on the same basis to ensure fairness, consistency and equivalence.”
I doubt the IOM is stupid enough to try to pull a stunt like Richard suggests!
That said, Richard is correct in pointing out that IOM GDP/head growth higher than the UK is unsustainable and indicative of some abuse of foreign markets. The Island’s politicians are just committing economic hari-kari.
Furthermore, it is a poor show to state “a 26th year of unbroken growth” based on these restated figures – I assume this is political bias.
The IOM will always have lower direct taxes than the UK, and will always demand subsidy. In the same way, the UK’s long-term equilibrium demands lower direct taxes than the EU and some sort of revenue equalising subsidy.
That, I hope, is a little more balanced.
@James
But the same basis may not be appropriate
As Jersey notes – when much of your national income is artificial sameness may be wrong – and an artifice
And yes the IoM is stupid enough to pull such stunts – it has done 0/10 which is even more blatantly abusive after all
And they keep being rumbled
If only by me
@Rodger
I meet a lot of officials in a lot of governments
And I talk to a lot of poloticians
And only the wilfully blind – most from Douglas – say the IoM is not a tax haven / secrecy jurisdiction
Sorry – but it’s you who needs to open your eyes
There’s a big world outside your goldfish bowl
The same basis is appropriate because it lets folks diagnose when an economy has a scarce natural resource or whether a ‘haven’ policy is in effect. Yes, a straightforward comparison of time series GDP per head does the trick -i t’s that simple, and I’ll leave you to comment on the specifics.
My view on Jersey’s non-standard metrics is they’re driven by a desire to skew information in their favour (the classic “information asymmetry” problem). This works very well in an unregulated market, and simply makes it more difficult to regulate.
@James
Jersey data is definitely odd
I aqree consistency is good – but is the IoM really using consistent bases?
Richard, the point I was making is that there are a lot of other jurisdictions (outside the goldfish bowl)that are not working as hard as the IOM to be internationally responsible on taxation. Where on the table is the IOM, it isn’t in the top 15? and Oh look, another tax agreement, this time with France http://www.gov.im/lib/news/treasury/incometax/taxagreementwith.xml
The 0/10 issue from the other blog is business, are you saying that there shouldn’t be business competition, Tesco should charge the same as Morrisons, ASDA and Sainsbury’s? Try thinking as if the countries are businesses looking to attract more investors and there are a limited amount of investors, you therefore need to offer a good deal.
Your pension for example, is it purely ethical fund based? Does it include businesses that attract investment to expand to improve dividend/return? If the pension didn’t perform I am sure that you would move it to another broker.
Whichever way the calculations are made, by GDP/GNI or any other for that matter, the main basis, should be the same for all, therefore the percentage of the pot would be fair, there can only be a cut of the 100%.
Competition effects between nations lead to escalating rates of tax, and reduced economic output (i.e. the 1970s). Unfortunately, it ain’t that simple!
Firms compete, countries should not.
James,
Various countries have different benefits to attract businesses and high net worth individuals. Countries do compete, over many things!
Firms also compete, true, won’t they go where they can get the best business advantage, export oportunities, tax liabilities and suitably trained staff, as well as many others. This is why there is global procurement, how many of us refuse to buy chinese made goods, before that it was Tiawan etc etc.
There comes a point where countries most definitely should not compete. Competition becomes both externally damaging, and internally destructive when resources become constrained. The Isle of Man is 15-18 years beyond that point.
The EU is founded on that principle (whether or not it actually achieves it is another matter). As you know, the EU was formed as recognition that economic hegemony escalates – in this case, War.
If you want to compete as a nation, you will accept competitor nations’ reactions (e.g. VAT, Health)? Is it also acceptable that only the fittest competitors-nations survive? What is the Nash outcome of country-level competition? What happens to the IOM?
In sum, competitive frames are inappropriate in the Isle of Man case, and the world is quite right to react.
@James
Absolutely