Tax Break

John Fisher, international tax consultant

Archive for the tag “Taxation”

Did you hear the one about..?


French comedy at its (silent) best

This year’s Booker International prizewinner, ‘A horse walks into a bar’, follows the routine of an over-the-hill stand-up comic as he coaxes and manipulates his audience, painfully aware that one failed joke could send the entire act crashing through the stage floor.

I often wonder why modern politicians don’t take their cue from stand-up comedians. While much of what they say and do is laughable, they never seem to be afraid of wheeling out the old, failed one-liners. And, unbelievably, far from throwing rotten tomatoes, their constituents and the international community at large lap up their corny nonsense.

For example, did you hear the one about the French Finance Minister who walked into a press conference …?

Following five years of clownish misrule by socialist Francois Hollande, last month France’s independent auditor uncovered a budget shortfall of seven billion euros. Meanwhile, France has failed to meet the EU maximum deficit requirement of 3% of GDP every year for the last decade – a target that is particularly important for the stability of the single currency. And, then there is the protected labour market, with maximum working hours and early retirement, to name but two loony-left policies.

All that misery led the new Prime Minister to announce earlier this month that President Emmanuel Macron’s campaign-promised tax cuts would have to wait until 2019 while the government set about balancing the books. That invited an immediate reaction, not from the opposition, but from the government’s Finance Minister, evidently acting with the backing of his boss’s boss. According to the quickly revised script, the first stage of the planned reduction of corporate tax from 33% to 25% would go ahead next year – down to a cordon bleu, mouth-watering 28%. Meanwhile, housing taxes would be reduced, and there would be a reform of wealth tax (the latter would be delayed).

The amazing thing is that the Finance Minister declared that the required budget deficit target would still be achieved in 2018 – the gap evidently to be closed by the expected additional tax revenues from the economic growth arising from the change. You can fool some of the people all of the time. History is full of no-hope fiscal promises from governments. A larger than expected deficit, plus labour rigidity that will take years to unravel, would be a no-brainer to any tenth-grade pupil who could think past his infatuation with his teacher. Short of a miracle – like the bonanza of more than a billion euro back-taxes the French courts refused to sanction from Google last week, or the Finance Minister getting lucky with the country’s foreign currency reserves on the tables at Monte Carlo – the deficit target is going to be missed once more.

I realize that politicians, more than most, do not like to be bearers of bad tidings, but what about the French equivalent of the man on the Clapham omnibus? Do people really just hear what they want to hear?

While governments and their cohorts can, at a price, mess with the money supply and the amount of fiscal spending, as well – in fairness – as tax policy, they clearly cannot micromanage the annual tax-take.

Lousy one-liners aside – in politics, like in stand-up, it is all a matter of timing…..


A Sheikh’s home is his English castle

There was one invastion...

There was one invastion…

‘Cry — God for Harry! England and Saint George!’ This year marks the 600th anniversary of King Henry V’s victory over the French at the Battle of Agincourt. While Britain has had quite a successful run over the years overrunning other countries, it is almost exactly 950 years since Albion was last invaded. (We prefer to connect the French with Waterloo than the Battle of Hastings.)

I have long had a hunch that Britain’s secure island status is the reason successive British Governments have been slow to adopt the universal policy of charging non-resident investors in real estate to capital gains tax. Until 2012, as long as odious foreigners planned their affairs correctly, the sale of commercial or residential property did not attract the taxman’s greedy gaze. Then it was decided that, while commercial property was harmless, there was too much speculation and long-term investment in high-end properties by less-than-desirable strangers.

That year, properties valued at more than £2 million that were held in corporate ‘envelopes’ (Cameron-Osborne-Clegspeak for companies) were inflicted with the combined horrors of 15% Stamp Duty Land Tax on purchase, a yearly holding charge – Annual Tax on Enveloped Dwellings – that increased exponentially with the value of the property, and capital gains tax at 28% on sale. A clear case of ‘Up yours, Mr Greaseball!’

'Let me get my wheels on the foreigners!'

‘Let me get my wheels on the foreigners!’

Despite the Draconian measures, it was still not entirely clear that sealing the property in an envelope was the wrong thing to do – given the exposure of personal holding in property  to 40% Inheritance Tax if the purchaser was unfortunate enough to be run over by a double-decker bus while crossing Knightsbridge’s Brompton Road to buy Harrods. Also, if a deal could be done selling a company – the non-resident still paid no tax (other than half a percent stamp tax in the case of a British company).

Well, if our non-native friends thought it was bad up to now – it is about to get one hell of a lot worse.

Assuming the Government manages to pass this year’s Budget before Parliament is dissolved  for the General Election, residential properties held by foreigners are going to be liable to capital gains tax virtually full stop (there are some exceptions for such things as Principal Private Residence). What is more, SDLT is going to be yanked up to a whopping 12% for non-enveloped purchases over £1.5 million. In the meantime, 15% SDLT has been in force for enveloped purchases of over half a million quid since 2014, and the £2 million threshold for ATED is to be reduced to half a million pounds over two years.

The Empire will strike back.

The Empire will strike back.

The trade-off between the holding of residential properties directly or through an envelope has just got that much more complicated. Given the British assumption that foreigners (especially the non-English speaking variety) are fundamentally stupid, a lot of confusion is now expected. Having said that, all the UK has really done is brought itself closer to the rest of the world. It is a sign of the crumbling of Empire. Mr Churchill, and King Harry, would have definitely had what to say.


Saving Income Tax

Learning the dangers of offshore structures

Learning the dangers of offshore structures

Early in my tax career, in my role as stenographer, porter and punkawallah to the great and the good, I was instructed to join one of the senior partners at a meeting with Roy E. Disney’s right-hand man. The conversation was going well (I had a walk-on part taking notes and fluttering my eyelashes, or whatever pseudo secretaries were supposed to do in those days) until the partner dropped a fatal clanger. Discussing the need for substance in the international structuring of the proposed investment, he mentioned that the tax authorities did not take kindly to…wait for it…Mickey Mouse Companies. As the orchestral tumult of Fantasia’s  Sorcerer’s Apprentice banged about inside my head, I sheepishly looked up to observe the silent visitor barely controlling his taut facial muscles. “Please do not refer to Mickey in that way,” he eventually complained. “Mickey is very close to our hearts.”

Where did this Disney character hide her floppy ears?

Where did this Disney character hide her floppy ears?

I recalled that incident recently on a rare visit to a movie theatre (my cinematic repertoire over the last decade has been generally restricted to Messrs Batman, Bond and Potter in various incarnations, shapes and sizes). The occasion was the local release of “Saving Mr. Banks”, loosely based on the negotiations, over half a century ago,  between Walt Disney (uncle of the famous Roy)  and PL Travers for the film rights to Mary Poppins. History is written by the victors and this was a Walt Disney production, so I suppose, even though this was a live-action movie about the making of a live-action movie,  I should not have been surprised to see that bloody mouse coming out of the woodwork at every opportunity, not to mention Walt’s (you have to call him Walt – Mr Disney, we are comfortingly told,  was his father) repeated declaration that Mickey is family.

Rereading the first two books on which Mary Poppins was based before attending the movie, I was reminded how much children’s literature has changed during my lifetime. Although not in the same league as Noddy or Tintin, Poppins has its moments of political incorrectness. An example was the housekeeper’s objection to  the soot-encrusted Chimney Sweep (not Dick Van Dyke’s Bert – Julie Andrews’ platonic friend – who was an amalgam) grabbing her arm: “Ow! Let me go, you Hindoo!” Now, two exclamation marks in one short exclamation is unfortunate, but use of the ancient derogatory form of “Hindu” is unforgivable. Nobody would, for very good reasons, get away with that sort of thing today nor, evidently, for that matter, making disparaging comments about an oversized rodent. However, it would seem some things are still fair game. And one of them is “close to my heart”.

Mr Banks of the books is in a perpetually bad mood (the title of the film alludes to that, but I am not in the mood for spoiler alerts so prospective cinema-goers fear not); if it is not because the household gopher has brushed his bowler hat with  polish, it is because he has prepared him non-matching shoes. His biggest blow-out however is over his mislaid bag which his goofy wife locates in the study. Demanding to know who had moved it there, she replies: “You did, my dear, WHEN YOU TOOK THE INCOME TAX PAPERS OUT OF IT LAST NIGHT”. Later in the book she refers to “that AWFUL INCOME TAX”. Say no more; ignorant cow.

I must say that I do not remember many protests against Mrs Travers’s racial prejudice but, one thing is for sure,  there was not even a murmur over her subversive statements about taxation. Isn’t it bad enough that, as kids growing up, we burned with resentment over the annual  sacrifice of a whole early evening’s Children’s TV in favour of a load of boring nonsense called the Budget (in a dreaded election year that crime was committed twice)? Is it really appropriate for our children’s literature to be laced, Tea Party style,  with incitement to revolt? And what are they supposed to be revolting against (as French students have been asked many times in their history)?

Tax is an essential part of modern civilization. Tax is of the people, by the people, for the people.  Tax is no less critical to the moral fibre of 21st century society than Freedom, Democracy and Mandela. But we continue to educate our kids to write it off as bad. (Please note: tax accountants have not yet found a way to write-off taxation but I can assure you, as the consummate hypocrites we do not admit to being,  we are working on it). The time has surely come to excommunicate those who denigrate taxation. It is time for our youth to sport tee-shirts announcing: “My Friend is a Taxpayer” or “Tax is Beautiful” or, for the truly courageous, “I Believe in Safe Tax”.

When you see the whites of his eyes - shoot!

When you see the whites of his eyes – shoot!

While, thankfully,  the time came long ago for the banishment of racism and mockery of the afflicted, I want to stick my neck out and make one exception: Americans (other than Meryl Streep) trying to imitate an English accent. Such people should be pilloried until they give up or die or both. The most dreadful specimen in movie history was, of course, Dick Van Dyke’s diabolical cockney cock-up in Mary Poppins. It bothered me when I saw the movie as a 6 year-old and it still bothers me today. But, in the Disney World, there is one thing perhaps worse. Exactly 10 years ago this month, our family spent a week in Orlando. Despite the cynicism that, I am informed by friends and family alike, oozes out of my very essence (I am sure they are wrong), that was one of the most amazing weeks of my life, not to mention that of the kids. A few years previously we had been to EuroDisney in Paris. Mickey Mouse and Merlin in French? Forget your husband’s bag, Mrs Banks. Why can we never find a guillotine (or better still, an atom bomb) when we need one?

What’s in a name?

View Of A Pig

View Of A Pig

The first poem I studied in secondary school began: “The pig lay on a barrow dead, motionless”. Poet Laureate Ted Hughes’ ensuing nine sickeningly graphic, non-rhyming stanzas made me want to vomit and scuppered any chance that Wordsworth, Byron or Shelley might offer the  key to my romantic soul.

It was not surprising, therefore, that the death of Nobel Laureate Seamus Heaney a few weeks ago caused nothing but a slight flutter in the iambic pentameter of my heart.

Heaney,  like  many modern poets who had studied the works of William McGonnagal – the world’s worst practitioner of the art – did not feel constrained by the need for the perfect rhyme-ending. He would happily plump for the partial rhyming of assonance (rhyming vowels) such as: “Between my finger and my thumb/ The squat pen rests; snug as a gun” or consonance, which is the same concept but with the consonants matching rather than the vowels: “We trekked and picked until the cans were full”. Assonance and consonance are, evidently, great ways to get a message across into the readers subconscious. Had I started my poetry appreciation career with Wordsworth’s “On Westminster Bridge” rather than Hughes’ pigswill, I might now be in a position to explain this – but I didn’t so I aint.

In recent years the heavily oil dependent economies of the western world have been energized by the development of “FRACKING” – the hydraulic fracturing of underground rock formations by the high-powered injection of water and other liquids to free enormous quantities of shale gas and oil. The Americans, particularly, have discovered that by widespread FRACKING they can raise the proverbial digit to the medieval dictatorships of the Middle East who have, for 40 years, been able to periodically  hold the world to ransom for a barrel of the black elixir. FRACKING is helping to fuel  the US economic recovery.

What is interesting is that  British hunting for shale gas has been less successful than in America. This has been largely due to greater public discourse on the subject and a much more significant populist backlash than across the Atlantic.

The Economist ran a leader a couple of weeks ago on the successful protests in a South East English village against FRACKING. Objections are based on environmental issues – there is a fear of greenhouse gas emissions and water pollution (not to mention earthquakes and the implosion of the earth’s crust), as well as the disruption caused by the diviners. The free-market Economist dismissed the environmental thing as balderdash (and who am I to argue?) but chose to understand the NIMBY (Not In My Back Yard) argument.

The neighbours make less of a fuss about this

The neighbours make less of a fuss about this

The reason FRACKING has worked in America, the Economist claims, is that landowners own the rights to what is under their fields and the States (rather than the Federal Government) tax the extracted oil and gas – pumping the revenue back into the local economy.  In Britain the State (strictly, the Crown, which is the thing the Queen wears on her head sometimes) owns the rights and almost all tax revenue flows to the central government coffers. Thus, the NIMBYs do not feel any advantage rising from the ashes of their disadvantage. As with so much else in the Tax Conundrum, ordinary people need to feel ownership of their taxation  – be it fracking, health care, education or bombing Syria – to make the system work. For once, the British should take a leaf out of the Americans’ book.

However, I think there is more to it than that. What’s in a name? For a word that does not officially exist (you try and find it in a respectable dictionary), FRACKING has penetrated the English language most effectively. In its various fictitious forms it is a noun, a transitive verb, an intransitive verb and, even, an adjective, closely shadowing its most infamous consonantal relative.

To the delight of the protesters, FRACKING even has a construction as a phrasal verb in the imperative  form followed by a particle. As a result, the protesters have been winning support waving banners with a short, punchy message that gives  more bang for its buck.  For those of you who spent your time in school studying the various metres in English Verse rather than English Grammar, the imperative in this case is FRACK and the “particle” is “OFF”. A hyphen between the two words is optional.  By association, FRACK is not a nice word, FRACKERS are not perceived as nice people and, as for FRACKING – absolutely “Not In My Back Yard”.

Perhaps the Power of Speech has taken on a new meaning.  Could it be that Consonance is helping to screw up the recovery of the British economy?

Chanson d’Amour

2006 Eurovision Song Contest winners. Real class act.

2006 Eurovision Song Contest winners. Real class act.

I don’t think it is a coincidence that the French Government proposed a new Culture Tax in the same week as tonight’s Eurovision Song Contest.

The Europeans have  made some pretty bad mistakes over the years such as two World Wars, the Euro and Belgium. On the other hand, like the Common Market and the Division of Germany, the Eurovision Song Contest seemed like a good idea  at the time. Back in 1956, the concept of an entire continent seeing a live TV broadcast was the stuff of science fiction – but so was going to the Moon, and the Americans had got that out of their system by 1973 when Anne-Marie David won the competition for Luxembourg with “Tu te reconnaitras”.

French, that language of haute culture, has always had a special place at the Contest. Scoring is in French and English just to needle the Germans and , as recently as 1962 when France won with “Un Premier Amour”, no fewer than 5 of the 16 entries were sung in that beautiful tongue.  In 1967, although the winner was Britain’s barefoot Sandie Shaw, Luxembourg’s 4th placed ” L’Amour Est Bleu”  became by far the bigger international hit (The Austrians came inexplicably nowhere with a ditty entitled: “Warum Es Hunderttausend Sterne Gibt”).  It seems that, as long as the French and their satellites were singing about their favourite cultural pastime “Amour” they were in the ascendant. Fifty-odd years later, with the annual contest resembling a circus freak show, the 2013 songlist only includes one French entry: “L’enfer et moi”  performed by Amandine Bourgeois (you couldn’t make it up) with the recurring refrain (translated): “I’m gonna give you hell”. No chance. The Gauls should have stuck to what they know best – surrendering to love (or should that be, loving to surrender?).

Although the Eurovision Song Contest is no longer a bellwether of a country’s musical prowess – the British have even taken to using it as a Testimonial for hard-up-and-over-the-hill artists such as last year’s 76-year-old Engelbert Humperdinck and this years 61-year-old Bonnie Tyler – the poor French really are losing the international culture wars. Even the language of international diplomacy is being continually eroded as English marches on.

However, it is heartwarming to observe the stubbornness and tenacity of the French people in standing alone with North Korea in rejecting the spread of US  culture across the globe (although accounts suggest that Kim Jong-un is a far more ardent consumer of American everything than his “Let’s go Armageddon” image portrays). Even the Chinese have just elected (in the most obtuse sense of the word)  a Ronald Reagan hairdo look-a-like  as their president.

I genuinely hope not

I genuinely hope not

A French Government commissioned report issued last week – President Dumbo-L’Elephant  likes reports as they buy him time – recommended a 1% tax on the sale of internet hardware products such as smartphones and tablets in order to help fund the “French Cultural Exception” policy.  For the Philistines among us (which really means “the Philistines among YOU” but, unlike the French, I am being polite), the French Cultural Exception policy is designed to protect France from  market forces (sacre bleu!) and foreign competition. “Foreign” is a barely disguised euphemism for “American.” The justification provided by the French Culture Minister, Aurelie Filipetti (who I picture making her announcement in a Christian Dior silk gown, her ears and neck dripping with diamonds) was that the tax would compensate for the fact that so little revenue is contributed to State coffers by digital content, which is probably true since most of it is in English.

With the annual inflow of an estimated €86 million, perhaps French directors will be able to afford music in some of their films while dubbing Hollywood classics like “The French Lieutenant’s Woman”, “French Connection”, “Le Deuxiemme French Connection” and  “Minuit in Paris” (pronounced Pareeeee).

Meanwhile distinctive Paris architecture (amazingly untouched by the ravages of 20th century wars mainly because they were ravaged elsewhere), a national commitment to the eccentricities of French cuisine, loyalty to French-built cars (consumer masochism), a violent reaction to the use of English and a commitment to a work ethic that should safely bring the country to its knees within two years,  result in a truly distinctive French experience for the visitor to France.

Of course, they are not totally immune. A walk down the Champs Elysees, host over the years to a multitude of foreign-made jackboots, reveals a quiet invasion by multinational retailers that have replaced many of the quaint Cafes of old – but at least they are trying.

The Eurovision Song Contest has, over the years, moved from an elegant boast of the continent’s popular music, to inane tosh (the all-time classic of which was “Boom-Bang-a-Bang”) to a competition fit to be sponsored by national garbage collection companies.

That was the day

That was the day

The high-water mark of its nearly 60 year history was definitely 1974, when a young Swedish group decided not to sing in Swedish; future artists, putting  two and two together,  worked out that there was a reason – other than being hated by the Greeks -that  Turkey always seemed to gravitate towards “no points”, and started to follow suit.

The French would have done well to note the title of the winning song for Sweden that night. It was, of course, “Waterloo”.

Brussels Sprouts

Quiz: Name the President and Foreign Minister of the EU. Clue: He was Belgian Prime Minister. Second Clue: Belgium is a country next to France

Quiz: Name the President and Foreign Minister of the EU. Clue: He was Belgian Prime Minister. Second Clue: Belgium is a country next to France

“I never forget a face, but in your case I will be glad to make an exception”.

Groucho Marx’s famous line haunted me the other day as I tried, in vain, to remember  the name, face or other distinguishing feature of the first (and only) person I ever met who worked in Brussels with the European Commission. All I recall is that he was a smooth-talking, post-pubescent All American Boy  wearing khaki trousers, a blue Oxford shirt and navy blazer. He spoke with the confidence of a young man who had been to enough college lectures about Europe to know he could teach it a thing or two. C’est tout, as they say  at the epicentre of European folly  and promptly translate it into 22 other languages. With 27, going on 28, countries to cherry-pick its people from, I have never been able to fathom how this New World imposter managed to elbow his way into the bastion of the Old.

I admit that I have no time for the faceless bureaucracy of Europe. Those guys would give the Circumlocution  Office in Dickens’s Bleak House a real run for its money. Legislation starts its life at the European Commission where 27 individuals, whose main claim to their position is that their national governments needed to be rid of them,  churn out competition choking ideas by the kilometer. The Commission sends its proposals to the directly elected European Parliament together with the ever-changing Council of Ministers (made up of 27 ministers who fancy a day-trip to Brussels) for them to mull over.

While both the Parliament (directly elected) and the Council (constituting representatives of national governments) can put a tick in the box on the form that says “democratic” , in reality that democracy has virtually no meaning. Whether followers of Hobbes, Rousseau or Locke, the raison d’être (when I think of the waste in the EU, those French expressions just keep on coming) of any system of government is the organization of civil society. The European Union is not (at least, yet) a civil society. It is at least 27 civil societies (some more civil than others). 27 civil societies cannot produce a representative government. What they CAN produce is a serious irritation to the skins of their societies – and that they have done very effectively.

End of world domination?

End of world domination?

The respected contemporary historian, Niall Ferguson, points out in his recent book “Civilization”, that one of the main reasons that “The West” completely eclipsed “The East”  over the last 500 years was the competition between the myriad of States in Europe. The Industrial Revolution was led by Britain not because the Greatest Nation in the History of the World (sorry, I had to get that in) invented everything (it didn’t), but because labour costs in Britain were comparatively high, which encouraged innovation to improve productivity.

Well, after the better part of a century of a world dominated by Communism, National Socialism and Socialism, over the last 30 years it has looked like we are finally getting back on track with the word competition making a comeback in the lexicon of polite English, and the East not overcoming the West but joining it.

Did I forget something?

With the collapse of Planet Earth’s financial system a few years back the world’s governments realized (once again) that, while competition is a grand thing and the financial sector is a critical part of world growth, that same financial sector has the power to really screw things up for everybody bigtime so it needs regulating.

The Dodd-Frank Act in the US and the UK’s Financial Services Act 2012 represented the verbose but fairly measured responses of the two most significant financial sector nations.  The Basel Committee, established originally by Central Bankers, came up with Basel III revisiting the capital adequacy of the international banking system – which, while inevitably attracting a degree of controversy, is the most appropriate response  for bankers to a crashed financial system.

With the rational responses safely on the road, it was inevitably time for the We-Want-To-See-Blood Brigade to get going. The British Government had briefly, and ignominiously, flirted with a super tax on bankers’ bonuses (it would have been much more fun to burn them at the stake), but soon realized that revenge maketh not sound economics. Meanwhile, across La Manche (there I go again) President Folies Bergere still insists he wants to bury his nation with a 75% top income tax rate even though the courts have struck it down (who cares – when there have been 5 Republiques, what’s the big deal going for a 6th?). But, these, at least are anti-competitive responses of national governments pandering to the blood-lust of their electorates.

The EU, on the other hand, exercising what Rudyard Kipling’s cousin Stanley Baldwin once called “power without responsiblity, the prerogative of the harlot through the ages”, is left to run havoc with its bureaucratic chainsaw through the back streets of Europe.

Following a mad agreement in February to limit bankers’ bonuses which will just lead to higher fixed salaries and less flexibility in a downturn (the EU , to its chagrin, has not yet managed to sink its fangs into national tax systems), in March the EU Parliament decided to go after investment managers. And not just any investment managers –  the investment managers of Mutual Funds. These funds, which are generally not leveraged, do not cause any systemic risk to the economy. Furthermore, the Parliament wants the managers to receive at least half of their bonuses as investments in their funds – which ignores the fact that US investors are banned from investing in such vehicles so “Good Night, and Good Luck” to American Fund Managers; they could always, I suppose, get work in Brussels. In short, this is a load of piffle. The good news is that, in order for it to become law, it needs the agreement of the 27 National Governments  which is about as likely as World War III breaking out (which is what the EU was designed to prevent). Meanwhile, the Members of the European Parliament will be able to keep spending taxpayers hard-earned cash commuting between Brussels and Strasbourg (not to mention, their home countries). A far better idea than limiting investment managers’ bonuses would be to limit MEPs’ salaries – to zero, and send them home.

Weapon in next European War

Weapon in next European War

Groucho may have another lesson for us regarding EU bureaucrats. Following a luncheon interview with the legendary Alastair Cooke at Marx’s golf club, they were queuing at the till to pay. The middle-aged Jewish matron in front of them was taking her time finding the cash in her handbag to settle her bill. His signature cigar revolving in his mouth like an anti-aircraft gun, Marx finally fired a salvo at the cashier: “When you see the whites of her eyes – shoot!”.

Europe has fought several of its wars on Belgian soil. Could the next one be over free markets and competition? C’est la guerre.

Losing Marx

Stiff upper lip or not, there must be some outlet for one's emotions

Stiff upper lip or not, there must be some outlet for one’s emotions

“Another decade is traveling through, and I’m here, and you are there.”

Growing up in England, I was always taught that showing emotion was a weakness. So, as I read the above line in the New York Times the other day a fleck of dust must have popped into my eye and made it, and its twin, lightly water. Written by a mentally ill and physically handicapped woman to her successful writer sister (who authored the article), it highlighted that, well before considering any human failure, the world is not a fair place. All men may have been created equal but some were definitely created more  equal than others.

As the running of the western world has been gradually wrested from the Church by rational thinkers, advances in science have done much to close the natural gap. In the moral sphere too there have been major advances in recent centuries with the individual finally achieving centrality in the scheme of things.

But the fact remains that, while we may dream of a Utopian society where all burdens and benefits of life are shared equally, the fundamentals, whether they are interpreted as God-given or Big Bang-given, do not imply that outcome. Success in life is about managing to fit your own lyrics to a predetermined tune – like fitting the “I did it my way” to the “dum-dum-di-dum-dum”.

At dinner last week with a very dear relative who can best be described as an unreconstructed 1960s socialist (and worst described as a Bloody Lefty), we got to discussing that age-old yawn – the equitable redistribution of income. The watered-down social democratic version of Marx’s “From each according to his abilities to each according to his needs” has been experiencing yet another revival with the recent social protest movements.

The Communist Manifesto of Marx and Engels, of course, had much to recommend it. The manual’s main problem was that it was a bit short on what Communism meant. What had become apparent 150 years after its publication was that Communism, as it came to be meant,  was not the ticket for two reasons; firstly, it didn’t work; and,  secondly, judging by the number of Russians , Chinese and assorted comrades who ended up at the end of a gun barrel or rope, the manual was not very user-friendly

Who said Communism is dead?

Who said Communism is dead?

What must be said regarding the durability of the equitable redistribution of income is that, despite the fact that Communism eventually accepted it had got itself wrong and gallantly fell on its own sickle, that concept still keeps knocking at the door of democratic nations across the globe (though not, it must be admitted, at 2 o’clock in the morning with an unmarked black car waiting on the street outside)

Much has been written about the merits or otherwise of  the redistribution of income. Intuitively, the average post-Neanderthal man, woman or other would tend to agree with taxes being charged disproportionately to fund health, education, unemployment and pensions – though progressive taxes can cause disequilibrium in the economy to the detriment of all.

The interesting thing is that almost all efforts over the last century and a half at leveling the socio-economic playing field, be they inspired by Marxist equality of income or Liberal equality of opportunity,  have bombed across the globe. The Economist ran an interesting article recently in which a number of studies on social mobility were reviewed. Previous studies based on a sample of two generations showing 50% of socio-economic standing as inherited, had been unfairly skewed because it was quite regular for a wealthy father to have a child who did not work in gainful employment or chose charity work and suchlike. However,  by following the fortunes of rare surnames from the 18th century to the present it was established that “70% to 80% of economic advantage seems to be transmitted from generation to generation”.

That means that, currently, all bets are off on comparative social progress. The implication is that, while efforts at serious redistribution of income –  around for quite a while now – have not worked (and, evidently, cannot work), enlightened governments should concentrate on absolute social progress. In the 1960s the miserably inadequate British Labour Government hiked tax rates on investment income as high as 105% and the nation reaped the benefits until Margaret Thatcher finally brought a sledgehammer to the Trade Unions in the 1980s. One Labour minister in that wonky administration summed up the philosophy of the time in a hurriedly conceived reply to an attack by the Press who caught him traveling in the First Class compartment of a train. It was his ambition, he retorted, that the entire nation would one day travel first class.

That was not as stupid as it sounds (although it was totally stupid to say it). If, instead of wasting endless energy  on the elusive Holy Grail of redistribution of income, the education systems of countries and their means of assessment of students were revolutionized from the bottom up to meet the economic needs of the country, while businesses were freed of all but the most essential red tape (eg. conditions of employment, anti-trust and financial sector regulation),  as well as punitive taxes, greater opportunity should bring across the board increases in standards of living. As prophesied by that jerk of a Labour minister, workers may indeed then be traveling First Class, albeit that their bosses will be traveling  Heaven Class while the super-rich will opt for Seventy-Two Virgin Class.

Did you hear the one about  Regressive Consumption Taxes? How about Flat Taxes?

Did you hear the one about Regressive Consumption Taxes? How about Flat Taxes?

Socialism has brought much to the world – spawning an important safety net for workers in Free Market economies that should never be underestimated. There has, however, also been a lot of hot air which might have been summed up by the other Marx – Groucho: “I worked my way up from nothing to a state of extreme poverty”.

Of the people, by the people, for the people

Different price. Different taste.Same effect.

Different price. Different taste.
Same effect.

In the early days of my marriage an ageing, newly acquired  relative informed me that – other than the price – there was no difference between Johnnie Walker and Tesco’s no-frills, own-brand blended whisky. The market survey was not long in coming when, the following weekend, a visitor involuntarily sprayed the contents of a freshly imbibed  glass of the stuff over our new tablecloth. In a similar vein, democracy, when stripped of all the fancy packaging, has been described as “two wolves and a sheep discussing what to have for lunch”. On the face of it, that is indeed Democracy – but it would make the average paid-up member of modern society throw-up his lunch  over a friend’s tablecloth.

We have come to think of Democracy as a one-size-fits-all commodity manufactured somewhere between the 49th Parallel and the Rio Grande, which can be exported by friendly persuasion or armoured convoy and lead Man back into the Garden Of Eden. Long forgotten are the words of that greatest of democracy’s defenders, Winston Churchill: “Democracy is the worst form of government except all those other forms that have been tried from time to time.”

Now, just as there are loads of 50-something Plain-Jane Marilyns wandering the planet, whose parents thought that something might wear off if they named them after Norma Jeane, some of the ugliest nations on Earth carry titles like the Democratic People’s Republic of Korea (North Korea) and Democratic Republic of Congo (Rape Capital of the World).

Benign dictator

Benign dictator

Democracies in point of fact come in all shapes and sizes. The “Liberal” type we tend to like owes its popularity less to democratic principles and more to the sanctity of  personal freedom. John Stuart Mill, the author of “On Liberty” and one of the fathers of modern Liberalism,  considered that a benign dictatorship could, in theory at least, deliver the same positive effect as a democratically elected government.

Which brings me to my point.

Democracy, in its various forms, has been an incontrovertible success in the development of modern society when compared with all the alternatives. But, that does not mean that , when you drill down, democracy, in all its current forms, is an unequivocal success in all respects. Take the economy. If you had a spare $10,000,000 to burn which of the world’s two largest countries would you choose to invest in – China or India? If you were trying to sort out the mess of the Eurozone (which democracy probably caused in the first place) would you have left Mario Monti in charge in Italy or gone for the current headless chicken of a Parliament? If you wanted to tame the unforgivable US deficit, would you establish a steady 10 year plan or join the Broadway Farce that is Capitol Hill today?

With the exception of India, whose problems are probably more to do with geriatric governmental  incontinence than an overdose of democracy (though the Chief Minister of West Bengal is giving New Delhi a good run for its money), there is a real democratic economic crisis arising from the short-termism of politicians. Similar to the problem with Stock Markets, where company managers have to deliver short-term returns to public shareholders at the expense of long-term strategy, governments – from the moment they are elected – are looking at the next election four of five years hence.

In the case of Stock Markets, a recent study suggested that public companies should have different classes of shares with voting shares held by a Trust that would not be affected by short-term issues. Perhaps it is time for governments to be effectively bifurcated. Governments would be elected (or not) just like now, but economic policy would be placed in the hands of an Economic Assembly. Members would be elected for a single, say, 10 year period with 20% of members being up for election every two years. The Assembly would be in charge of budgets and taxation and would make its informed decisions on the basis of requests from the Government. If that sounds far-fetched, think of Monetary Policy. Once upon a time, Central Banks of most countries were controlled by the Government. Today, the norm is for a Central Bank to be independent, charged with controlling inflation and encouraging full employment. And those guys are not even elected.

Make no mistake. I support democracy. It is just that, like Marilyn Monroe’s dress at JFK’s 45th birthday party bash in 1962, it needs to be carefully stitched to make it fit.

Did somebody mention the Renaissance?

Did somebody mention the Renaissance?

Having said all that, one of my favourite quotes of all time came from Harry Lime in The Third Man: “Like the fella says, in Italy for 30 years under the Borgias they had warfare, terror, murder, and bloodshed, but they produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland they had brotherly love – they had 500 years of democracy and peace, and what did that produce? The cuckoo clock.”

Blessed are the consumers (part 1)

It had its advantages

One of my first memories as a child is of the working forge across the road from our home where rag-and-bone men and other deniers of the 20th century could take their carthorses to be shod. A couple of days ago I was driving with my son through an ultra-orthodox enclave, where the regular upkeep of roads is evidently far too temporal an issue for the local council to be bothered with, when I realized that I had a puncture.  I have been changing wheels for over 35 years on an array of  semi-roadworthy vehicles that generally departed my ownership straight for the great carpark in the sky. But this was the first time I was shodding my precious Volvo, purchased 3 years ago after I was finally persuaded that as, of the 150 cars in the firm’s fleet, my faithful Mazda (of blessed memory) was the only one built in the second millennium, it just had to go.

Beats white gloves

Opening up the boot (trunk in foreign English), and raising the floor, we found suitable cavemen drawings explaining without resort to Swedish idiom, what we had to do.  But there was one thing that captured my interest. My son who – being of the new generation that knows how to work things out from cavemen drawings – had a much better handle on the situation, produced a pouch containing a pair of white cloth gloves and a large plastic bag. The pictures on the plastic bag led us to understand that the gloves were to protect my lily- white hands as I wrestled with the jack and crippled wheel while the bag was for the offending wheel. This was presumably to protect the seldom spied underfloor of my boot (trunk) from annoying dirt. My first thought was “How bloody ridiculous”. My second thought was “I wonder what they put in the back of a Bentley – a cocktail cabinet to take your mind off things while they airlift a new tire in by helicopter?”. It was only on the way home, wearing the daft gloves to prevent my grease-ridden hands ruining the steering wheel, that I got to thinking about the utter absurdity of it all. Modern life, that is.

Regular readers of this blog will know that I am fond of Charles Dickens. Probably because of the socially reduced circumstances of much of  his youth, Dickens loved to send his characters out on the open road. From the moment of his debut novel, the wealthy Samuel Pickwick and his friends would bundle up and climb atop a horse-drawn coach to be bounced around and exposed to the elements through a long winter’s night of travel. Less than 200 years later, in western countries at least, a run-of-the-mill factory worker can climb inside his  motor car in the middle of winter, turn on the heater to shut out the cold and arrive at his destination in a fraction of the time, protected from shock by a suspension system and, if not choosing the same enclaves as me, suitably inflated pneumatic tires. It is fair to say that any person in modest employment today lives in greater bodily comfort than a King 200 years ago.

That in itself is wonderful and may the rest of the world catch up soon – but there is a dark side and my white gloves are a small pointer.

Most of my generation were raised to consider frugality a virtue. Just as it took me until past my 50th birthday to be persuaded to succumb to an elevated motor experience (I justified it on long-term financial  grounds that my wife refuses to believe), I have – to this day- never owned any product of a certain fruit company, be it pod, pad or phone. The reason is simple – I have never felt I needed any one of them, and that is my litmus test. Apart from that I buy most of my clothes in the above-mentioned enclave where you can get any colour you like as long as it is black, grey or blue – which is good enough for me (I have a Christian Dior tie, still in its box,  lying in my wardrobe, that was a gift several years ago).

Charlton Heston playing Ralph Nader

If modern economics is to be believed, when I finally get to the Pearly Gates, the only slim chance I have of being admitted to Heaven will be thanks to the pleas of those poor Chinese and comfortable Belgians who make all the bits for my no-longer-Swedish Volvo. It appears that my frugality has been depriving the world. And when you have a population that has grown in the space of 85 years from 2 billion to 7 billion and shows no signs of slowing down  in the immediate future – that is a lot of world to deprive. Evidently, while I was sleeping, somebody tampered with the Ten Commandments. We are now told: Forget the Sabbath day to keep it commercial; Covet thy neighbour’s SUV; Honour thy children’s credit card bills.

When they are not talking about destroying Europe with austerity, politicians and economists are talking about expanding demand. Germany has to inflate to save the Euro, China has to open its economy to more foreign investment and concentrate on consumer demand, India has to grow, not just for itself, but to import from the west and taxes or debt have got to finance the growing social security costs of   stubbornly aging populations. So our Fridges die after 5 years, our cars are replaced every 3 years (over my dead body), our mobile phones are outdated by the time they leave the factory and manufacturers come up with things you didn’t know you didn’t need like white gloves (why white for heaven’s sake?) and body bags for dead tires buried in  the bottom of your car…

To be continued

Just another argy-bargy

Otherwise visitors might mistake it for the Outer Hebrides

Adrian Mole, aged 15 years and 1 day, wrote in his diary on April 3, 1982:  “10am. Woke my father up to tell him Argentina has invaded the Falklands. He shot out of bed because he thought the Falklands lay off the coast of Scotland. When I pointed out that they were eight thousand miles away he got back into bed and pulled the covers over his head.”

Argentina fires another salvo in Falklands conflict

30 years on and Argentina is making noises again – this time through the good offices of President Cristina Fernandez de Kirchner who has recently been rattling her jewelry at Britain. One notch up on Eva Peron – the legendary Evita was wife of a  president, Cristina was wife of a president and  IS a  president – her rantings seem to be going nowhere. If Britain no longer has the capability to send a task force to the South Atlantic ( no Harrier jump jets , no Ark Royal aircraft carrier, no Royal Yacht Britannia), Argentina doesn’t have the money to send a telegram to Downing Street declaring war. Though, of course, there is no room for complacency now the stakes have been raised with the anticipation of substantial oil reserves in the region.

Meanwhile, the good life in the Falklands goes on. There are  3000+  residents – the Falkland Islands is an archipelago of around 700 islands, which sounds as impressive as Luxembourg’s 4 cities –  but 75% of the population live in the undisputed capital, Stanley (undisputed because it is the only city) and the rest are thrown around a few other windswept islands.

The Falkland Islands has a government (the British retain responsibility for defence and foreign policy). Currently relying on fishing, tourism and the wool trade for its economic viability (it is self supporting and relatively wealthy), there is even a developed taxation system with a full-scale Double Taxation Treaty with the UK. Around 600 people (some 30% of the workforce) work in the public sector.

Wait a minute! Let’s rewind. Are they potty? They have a population the size of a large school and institutions to compete with the European Union.

It takes 4 government workers to operate the doors

I took a look at the  Falkland Islands Government Website  which makes fascinating reading if you are the sort of person who stands on railway bridges marking down the registration numbers of passing trains, and where I discovered most importantly that “Falkland Islands” is singular. The most striking thing about this site is that, despite 600 (six hundred!) public sector workers contemplating their navels, they can’t even be bothered to keep it up to date. The last time someone appears to have rolled into the office after a busy day of penguin watching was in 2010 when the higher personal and corporate tax rates stood at 26%.  There was talk of a Medical Levy being charged on income with effect from 2011 but I suppose we will have to wait until 2013 to find out if it ever went into force.  The Taxation Office (which shares premises, but not a telephone number with the Pensions Office) is in the capital Stanley (couldn’t be anywhere else, really) – and its address is Stanley, which is easy to remember.

But why do they need all this Nation State nonsense?  Surely it would make more sense if, when they need revenue, the Chief Executive (sort of Prime Minister) would just stroll into the local pubs (there must be more than one, I suppose) and have a whip around for say, Mr Foggerty’s hip replacement, or a new road leading nowhere. And what do they spend all this money on (other than the 600 government stargazers)? In fact, what does a relatively wealthy remote society do with its money at all – how many IMAX cinemas does Stanley need?

"Argies, now after me! Simon says...."

When Britain dashed to save the Falklands in 1982 none of this was important. What was important was that Argentina was the World Cup holder and Margaret Thatcher knew that, after qualifying for the July 1982 finals for the first time since 1970, England didn’t have a prayer. The best thing she could do was nobble the Argies at the thing the British do best – War.  Unlike today, those were jingoistic times. The tabloid Sun Newspaper ran a headline after the sinking of the Belgrano with the totally unnecessary loss of 350 Argentinian lives: “Gotcha” , but was not responsible for “Kill an Argie and win a Metro” – which, as it referred to the flagship of  the dying British motor industry, was not much of an incentive for the boys in green.

Of course, not everybody supported the Falklands War. Ronald Reagan, Maggie’s platonic lover from across the pond, refused to play ball – probably saving himself for the more-sure-thing of invading Grenada , with its two men and a dog, the following year.

The Argies always did play fair

In the event, Britain was – of course – victorious and the Argies surrendered just in the nick of time at 9pm on June 14, the day after the start of the World Cup in Spain. Argentina and England both got blown away in the second qualifying round and Italy –  no stranger to losing wars – went on to take the title.

If I were a Falklander, I would watch out for 2014. The World Cup is in Brazil.

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