Tax havens under attack: Germany vs Switzerland
27 March 2009
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Economic Theory
28 March 2009
Monetary Policy
30 March 2009
Government and Institutions
Switzerland and other so-called “tax havens” have finally succumbed to international pressure and threats to be “blacklisted” by the OECD. Banking secrecy laws will now be weakened, which will make it easier for tax authorities elsewhere to get hold of their fiscal renegades. On hearing the news, Germany’s finance minister, Peer Steinbrück, triumphantly commented: “It is not even necessary for the cavalry to ride out. It is sufficient if the Indians know that the cavalry is there.”
His remarks caused a furious outcry in the Swiss press and a minor diplomatic scandal. For this isn’t the first time that this crusader against tax oases has criticised his southern neighbour. In October last year, he threatened to “crack the whip” if the Swiss were unwilling to cooperate.
So what is it that makes Steinbrück so obsessed with this small pocket of wealth in the Alps? Is it really just the banking secrecy laws which are at issue? Or does it anger him that each month Germany is losing thousands of highly skilled, productive taxpayers to the Swiss? Is it the well-known aversion of policy-makers, especially in high-tax nations, to tax competition in general?
At the end of the day, Switzerland, by its sheer success, exposes the deceit of big-government advocates in Germany and elsewhere. In high-tax countries it is often asserted that current public expenditure levels are indispensable to maintain the high standard of public services. But if this is the case, why is it that Switzerland, where government spending amounts to 36% of GDP (as opposed to 47% in Germany), manages to provide infrastructure assets, hospitals, schools and universities which are at least as good as their German counterparts, if not better? Could it be that governments do a better job if they are under fierce competitive pressures, through legal tax competition or even the threat of tax evasion?
The chairman of the Liberal Party in the German parliament got it right when he said “the problem is not the oasis, the problem is the deserts around it.”
His remarks caused a furious outcry in the Swiss press and a minor diplomatic scandal. For this isn’t the first time that this crusader against tax oases has criticised his southern neighbour. In October last year, he threatened to “crack the whip” if the Swiss were unwilling to cooperate.
So what is it that makes Steinbrück so obsessed with this small pocket of wealth in the Alps? Is it really just the banking secrecy laws which are at issue? Or does it anger him that each month Germany is losing thousands of highly skilled, productive taxpayers to the Swiss? Is it the well-known aversion of policy-makers, especially in high-tax nations, to tax competition in general?
At the end of the day, Switzerland, by its sheer success, exposes the deceit of big-government advocates in Germany and elsewhere. In high-tax countries it is often asserted that current public expenditure levels are indispensable to maintain the high standard of public services. But if this is the case, why is it that Switzerland, where government spending amounts to 36% of GDP (as opposed to 47% in Germany), manages to provide infrastructure assets, hospitals, schools and universities which are at least as good as their German counterparts, if not better? Could it be that governments do a better job if they are under fierce competitive pressures, through legal tax competition or even the threat of tax evasion?
The chairman of the Liberal Party in the German parliament got it right when he said “the problem is not the oasis, the problem is the deserts around it.”
6 thoughts on “Tax havens under attack: Germany vs Switzerland”
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For forty years in the UK, between 1939 and 1979, the top rate of tax on income was above 85 per cent (and usually above 90 per cent). Rates that high are impossible to justify on revenue-raising grounds (though the Royal Commission in the 1950s, completely misunderstood this elementary point). Aristotle said long ago: ‘Modern demagogues curry favour with the people by confiscating large amounts of property through the medium of the law courts.’ More like Harriet Harman’s already notorious ‘court of public opinion’, which would apparently operate retroactively without a qualm. Switzerland was a haven against the Nazis between 1933 and 1945: it is needed today more than ever.
For forty years in the UK, between 1939 and 1979, the top rate of tax on income was above 85 per cent (and usually above 90 per cent). Rates that high are impossible to justify on revenue-raising grounds (though the Royal Commission in the 1950s, completely misunderstood this elementary point). Aristotle said long ago: ‘Modern demagogues curry favour with the people by confiscating large amounts of property through the medium of the law courts.’ More like Harriet Harman’s already notorious ‘court of public opinion’, which would apparently operate retroactively without a qualm. Switzerland was a haven against the Nazis between 1933 and 1945: it is needed today more than ever.
Tax heavens issue is based on diference of the taxes in states.
Since states wish to exclude any possibility of tax heavens, one has to use systematic approach by equalizing tax rates in the states involved. But this will never be the case due to differences in development level of states, with some need of attracting more funds to develop that areas. How else would one develop economy of little islands and states (Cayman Islands and Bahamas, Man, Island and Ireland etc.)?
So tax heavens need rather systematic approach to the issue, requiring analysis of complete picture, and not only money laundering, leak of the funds etc.
Tax heavens issue is based on diference of the taxes in states.
Since states wish to exclude any possibility of tax heavens, one has to use systematic approach by equalizing tax rates in the states involved. But this will never be the case due to differences in development level of states, with some need of attracting more funds to develop that areas. How else would one develop economy of little islands and states (Cayman Islands and Bahamas, Man, Island and Ireland etc.)?
So tax heavens need rather systematic approach to the issue, requiring analysis of complete picture, and not only money laundering, leak of the funds etc.
And it’s getting worse by the hour. In an interview with Spiegel Online, the Swiss foreign minister all but apologises for the tax policies of her country:
“We are not a tax oasis and we never have been. We are not on the OECD list. The Swiss tax ratio is about in line with the OECD average…
And I want to make clear that we are willing to cooperate and be good neighbours. [In Paris and Rome] I have explained the Swiss tax policies and it was received positively. The French foreign minister has confirmed that Switzerland is not a tax oasis.” http://www.spiegel.de/politik/ausland/0,1518,616138,00.html
Why does she believe she has to self-exculpate? She owes no account to Berlin/Paris/Rome.
And it’s getting worse by the hour. In an interview with Spiegel Online, the Swiss foreign minister all but apologises for the tax policies of her country:
“We are not a tax oasis and we never have been. We are not on the OECD list. The Swiss tax ratio is about in line with the OECD average…
And I want to make clear that we are willing to cooperate and be good neighbours. [In Paris and Rome] I have explained the Swiss tax policies and it was received positively. The French foreign minister has confirmed that Switzerland is not a tax oasis.” http://www.spiegel.de/politik/ausland/0,1518,616138,00.html
Why does she believe she has to self-exculpate? She owes no account to Berlin/Paris/Rome.