‘Tax the wealthy to pay for coronavirus’ – first Argentina and now the UK?

In today’s podcast I discuss some of the biggest news stories in the last few days which have caught my eye.

They include:

  1. Argentina could be bringing in a new wealth tax soon targeted at “the wealthy” and expats. I predicted that some other countries could follow suit. Could the UK follow in Argentina’s footsteps and bring in a wealth tax? Certainly it is what some people want.
  2. The self-governing island of Taiwan will grow more quickly in 2020 than it did in 2019, despite the coronavirus. It will also grow more quickly than Mainland China for the first time since 1991. What does this incredible achievement show, and could the trade war between China and the US continue to help them?
  3. UK shoppers have been “warned” that they shouldn’t panic buy goods due to Brexit, after similar scenes were seen in the early days of the coronavirus. I discuss what things could change next year, if the UK doesn’t get a deal with the EU.

For your convenience, and to give credit to the original writers, I have included links to the articles I referred to and copied them below.

  1. ‘Tax the wealthy to pay for coronavirus’ – The BBC

A one-off “wealth tax” would be the best way to patch up UK public finances battered by the coronavirus crisis, tax experts have said.

Rather than increasing income tax or VAT, the government should instead look at a tax on millionaire couples, the Wealth Tax Commission said.

Taxing those households an extra 1% above a £1m threshold could raise £260bn over five years, it said.

The Treasury said it had already taken steps to ensure the wealthy pay their fair share of tax.

Tax proposal

The coronavirus crisis has led to soaring public spending.

This year alone the government is spending £280bn on measures to fight Covid-19 and to support the UK economy, including £73bn on job support schemes.

The Wealth Tax Commission, a body made up of academics, policymakers and tax practitioners, said that the government should consider a tax on the wealthy if it decides to raise taxes to try to get back some of this outlay.

This would be more fair than raising tax on incomes, or goods people buy, or by increasing national insurance contributions, the Wealth Tax Commission said.

Report author Dr Arun Advani, an assistant professor at the University of Warwick, said: “We’re often told that the only way to raise serious tax revenue is from income tax, national insurance contributions, or VAT.

“This simply isn’t the case, so it is a political choice where to get the money from, if and when there are tax rises.”

There are indications that the coronavirus crisis has already increased income inequality, with the Institute for Fiscal Studies reporting in June that the bottom 10% of earners were the most likely to have jobs in sectors that had shut down or could not be done from home.

A 1% per year tax rate could be imposed for five years on wealth of more than £1m per two-person household, the Wealth Commission said.

That would be equivalent to raising VAT by 6p or the basic rate of income tax by 9p for the same period.

One-off taxes have been used after major crises before, including in France, Germany and Japan after the Second World War and in Ireland after the global financial crisis, it said.

This week Argentina passed a tax on the wealthiest to pay for medical supplies and relief measures amid the ongoing coronavirus pandemic.

A one-off tax on high net worth individuals wouldn’t discourage economic activity, and it would be very difficult to avoid by moving money offshore or by emigrating, the commission said.

The suggested tax would include all assets such as main homes and pension pots, as well as business and financial wealth, but not debts such as mortgages. It would be paid by any UK resident, including “non-doms”.

The commission also proposed an alternative where a threshold of £4m would be set per household, assuming it contained two people with £2m each, taxed at a rate of 1% per year on wealth above that threshold.

It said that a one-off wealth tax in this scenario would raise £80bn over five years after admin costs.

‘Morally repugnant’

Emma Chamberlain, a barrister at Pump Court Tax Chambers, said: “The trouble is that our current way of taxing the wealthy is far too complicated leading to avoidance and resentment. We need a better way forward.”

Dr Andy Summers, associate professor at the London School of Economics said: “A one-off wealth tax would work, raise significant revenue, and be fairer and more efficient than the alternatives.”

Rebecca Gowland from Oxfam said: “It is morally repugnant to allow the poorest people to continue to pay the price for the crisis, when it is clear that a fair tax on the richest could make such a difference.”

‘Petty theft’

However, Madsen Pirie, president of the Adam Smith Institute free market think tank, said the tax proposal goes against “what most people see as a fair principle: that buyers, sellers and facilitators of transactions take a cut – including the state through tax.”

He said the proposals amount to “attempting petty theft by instalments, only the numbers they’re proposing to rob from people’s pockets are pretty substantial.”

“Your cash in the bank is not stacked in vaults gathering dust, it is invested,” he said. “If we tax those investments we end up with less produced, less produced means lower wages and lost pensions, that means a worse life for all of us.

“Money would move out of the country at a time we really need more of it flooding in to help us rebuild after the pandemic ends. A wealth tax would leave the country a poorer place and the fact it would be brought in over a five year period reveals the true intention of it being a tax for all time,” he added.

‘Fair share’

The Treasury said that “getting people back to work, encouraging and incentivising businesses to take on new employees and new apprenticeships, ultimately creates the wealth that funds our public services.”

A Treasury spokesperson said: “We’re committed to a fair and efficient tax system in which those with the most contribute the most.

“Our progressive tax system means the top 1% of income taxpayers are projected to pay over 29% of all income tax, and the top 5% over 50% of all income tax in 2019-20.”

“We’ve also taken steps to ensure the wealthy pay their fair share, reforming the taxation of dividends, pensions and business disposals to make the tax system fairer and more sustainable,” the spokesperson added.

2. Taiwan’s 2020 economic growth looks to outpace mainland China’s for first time in decades – SCMP

  • Not since 1991 has self-ruled Taiwan seen greater annual economic growth than that reported by the world’s current second-largest economy
  • The island’s economy grew 3.9 per cent in the third quarter from a year earlier, and it is expected to grow 3.3 per cent in the fourth quarter

Taiwan’s economic growth rate may exceed that of mainland China for the first time in nearly 30 years, according to official estimates and those from economists.

The Taiwanese government revised up its annual growth estimate to 2.5 per cent at the end of last month. Although the mainland government has not announced a growth target for this year, economists have said it could be around 2 per cent, in light of a relatively quick recovery from the coronavirus this year.

If confirmed when the figures come out early next year, it would be the first time Taiwan’s growth has surpassed mainland China’s since 1991.Both mainland China and self-ruled Taiwan emerged as two of the best-performing economies in containing the coronavirus, despite their different approaches. China has also tried to retain foreign investment from Taiwan, which has been falling.https://datawrapper.dwcdn.net/j2UDL/2/

“The main reason why Taiwan may end up with average growth data that is about the same or even higher than China’s is that Taiwan was able to avoid a very large fall in output at the beginning of the year,” said Louis Kuijs, head of Asia economics at Oxford Economics.“In China, we saw a lockdown and the closing down of a huge part of the economy in the first quarter. Taiwan is probably the best example that didn’t have to [resort to] such a broad-based closing down of the economy.”

In the third quarter, the island’s economy grew 3.9 per cent from a year earlier, and it is expected to grow 3.3 per cent in the fourth quarter, according to the Taiwanese government. The island’s economic growth has been propelled by strong domestic investment, particularly in the semiconductor industry, and by exports of electronic products.

“World demand shifted this year towards goods that the island excels at – namely consumer electronics. With work-from-home arrangements raising demand for laptops and other electronics, Taiwanese exporters directly benefited,” said Frederic Neumann, co-head of Asian economic research at HSBC.

“Related to this was also a continued surge in global semiconductor demand, a wave that Taiwan has been riding for quite some time.

“More broadly, Taiwan’s impressive economic performance this year reflects a little renaissance in its economic dynamism in recent years, being well positioned for high-end electronics and semiconductor manufacturing, all while remaining deeply embedded in regional supply chains.”

The US-China trade war and the United States’ expanded restrictions over exports of semiconductor components to China partly pushed up Taiwan’s exports to China to a record monthly high in November.

In the first 11 months, the island’s exports to mainland China rose 11 per cent to US$92 billion – accounting for a third of its total exports – as many mainland firms have been stockpiling chips in preparation for future US export bans.

“In many chip factories in Taiwan, most processes are fully automated. Even if Taiwan is affected by Covid, chip factories are ready to continue running because of automated processes,” said Lloyd Chan, an economist focused on Taiwan from Oxford Economics.

While demand created by the pandemic for electronics might die down in 2021, as the virus gradually comes under control globally, new technologies such as 5G and the reshoring of manufacturing from mainland China to Taiwan will sustain shipments from Taiwan to the rest of the world, Chan said.

Data from China’s Ministry of Commerce showed that, since 2019, foreign investment from Taiwan, including that which goes through free ports such as the Cayman Islands, has been falling sharply. In the first half of the year, it dropped 46 per cent from a year earlier.

Charles Wu, an associate professor of diplomacy at National Chengchi University, pointed to Taiwan’s strong exports to mainland China this year as evidence that the island could not decouple from the mainland market.

“The increasing reliance on mainland China only implies Taiwan’s limits in its economic environment, especially after the signing of two major regional trade agreements: the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which Taiwan is not part of,” Wu said.

At the same time, it is not guaranteed that Taiwan’s economic growth will ultimately outpace the mainland’s this year, given that the latter’s recovery in late-2020 has been particularly strong, with a 4.9 per cent rise in the third quarter.In October, the International Monetary Fund (IMF) put Taiwan’s 2020 gross domestic product forecast at zero, revising it up from a negative 4 per cent.

The Taiwan government responded by saying that the IMF had underestimated the island’s potential.If Taiwan does manage to surpass the mainland in terms of growth this year, most analysts expect it to be a one-off occurrence, as they foresee a stronger rebound for the mainland economy next year. Taiwan’s government estimates economic growth to increase to 3.83 per cent for next year, which would still be strong for a developed economy.

3. Britons told not to stockpile food ahead of January

Households have been warned not to stockpile food and toilet roll ahead of 1 January when the UK stops trading under EU rules.

On Sunday, the UK and the EU agreed to extend a deadline aimed at reaching a deal on post-Brexit trade.

The British Retail Consortium (BRC) said ongoing uncertainty made it harder for firms to prepare for the New Year.

But it said shops had plenty of supplies and shoppers must not buy more food than usual.

“Retailers are doing everything they can to prepare for all eventualities on 1 January – increasing the stock of tins, toilet rolls and other longer life products so there will be sufficient supply of essential products,” said BRC chief executive Helen Dickinson.

“While no amount of preparation by retailers can entirely prevent disruption there is no need for the public to buy more food than usual as the main impact will be on imported fresh produce, such as fresh fruit and vegetables, which cannot be stored for long periods by either retailers or consumers.”

Supermarkets are now used to dealing with anxious shoppers.

During the first lockdown earlier this year to stop the spread of the coronavirus, grocers introduced limits on goods such as toilet roll, dried pasta and UHT milk after panic buying by Britons.

There are fears shoppers might think disruption at ports after 31 December could lead to shortages in shops as the UK transitions to new trading rules with the EU.

The UK and the EU have agreed to carry on trade talks past Sunday’s deadline.

In a joint statement, Prime Minister Boris Johnson and European Commission President Ursula von der Leyen said it was “responsible at this point to go the extra mile”.

But Mr Johnson told the BBC the two sides are “still very far part on some key things”, and said the “most likely” course is an Australian-style trade deal with the EU.

He admitted that this type of deal “it is not where we wanted to get to but if we have to end up with that solution the UK is more than prepared”.

However, Ms Dickinson warned: “Without a deal, the British public will face over £3bn in food tariffs and retailers would have no choice but to pass on some of these additional costs to their customers who would see higher prices filter though during 2021.”

Other business groups welcomed the extension to trade talks but also cautioned that it was imperative that the UK avoid a no deal Brexit with the EU.

“The news that talks will continue gives hope,” said Tony Danker, director-general of the CBI business lobby group. “A deal is both essential and possible.”

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Analysis box by Simon Jack, business editor

This torture is better than no deal. The fact that talks are ongoing is a good thing. Business groups are unanimous in their view that if a deal is at all possible, it should be pursued with every last effort.

However, the problem with this uncertainty is two-fold.

First, political and business timetables are getting increasingly misaligned by the day. Businesses need to know whether tariffs are coming or not as it effects pricing of products and services for next year. How can firms place or take an order if they don’t know what that price needs to be?

Second, there is a danger that businesses who watch this process being dragged out will take their eye off the ball while waiting for some rabbit to appear out of the hat.

No deal is very bad but a deal still leaves an awful lot of work to do in preparing for new procedures, for example customs, that will change in any event.

But the fact remains that while this may be torture, it could be worse. No deal would not put UK business out of its misery – it could put some sectors out of business.

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While Mr Danker said that “ongoing delays are frustrating and cost businesses,” he urged the government to “make use of the time”.

“Government must move with even more determination to avoid the looming cliff edge of 1 January.”

‘Statecraft failure’

British Chambers of Commerce director general Adam Marshall said it is a “very frustrating time for business”.

But he added: “If a few more hours or days makes the difference, keep going and get an agreement that delivers clarity and certainty to businesses and trade on both sides. Businesses will need time and support to adjust in a New Year like no other – whatever the eventual outcome.”

Mike Hawes, head of the motor industry’s trade body, the SMMT, said that although it was good the two sides will continue to talk, they must now “finish the job”. A no-deal “would be nothing less than catastrophic for the automotive sector, its workers and their families and represent a stunning failure of statecraft. Quite simply, it has to be ruled out,” he said.

And Make UK, the manufacturers’ trade body, said that after more than four years of uncertainty “UK manufacturers are now facing the most challenging start to the New Year, dealing with a pandemic and the risk of having no trading arrangement with our largest market”.

News that talks will continue pushed sterling higher against the euro and dollar, although trading on Sunday would have been limited. Against the dollar, the pound rose 1.1% to $1.3360, compared with Friday’s close. Against the euro, it strengthened 1% to 90.58 pence.

Sterling fell to a one-month low last week on fears Britain would leave the EU without a deal.

Further Reading

I regularly answer reader questions on adamfayed.com, YouTube and Quora.com.

In the article below I discuss some of my recent Quora answers, which include:

  1. What are the multiple reasons that people sell their stocks when the market crashes? 
  2. Which investment strategies work out for most people long-term and which don’t?
  3. Why do many night-clubs and entertainment businesses go bust? Perhaps there could be an interesting reason few consider when answering such a question. 
  4. Can high-income people fall into poverty, and what does the coronavirus tell us about that?
  5. Is saving money pointless, or is it just not as effective as investing the cash instead? Also, what mentality prevents people from savings or investing in the first place?

Click below to read more.

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