Timing Is Everything
In New Zealand we have something called the Goods and Services Tax. It is like a sales tax but it covers everything—all goods, including food, and services, including professional services.
It’s a part of life and one thing that’s really good down here is that all prices are quoted as “GST inclusive,” which means that you know exactly what things are going to cost and don’t have to worry in the checkout line that you won’t have enough money when the tax is added to the bill.
They have the same thing in England and, as you can imagine, there are some industries where a tradesman might say, “Just give me cash and we’ll call it even.” This saves you, the buyer, some money and also saves the tradesman the hassle of collecting tax from you and then remitting it to the tax man.
Of course, this is illegal and no big company with proper accounting systems is going to do it. But the local labourer who is simply providing services can see it as a way to undercut the competition and, let’s face it, everyone wants to save a buck. In the trade these are known as “cash jobs.”
I saw on the news last night that the British finance minister looked up from the wreckage of the global economy, the LIBOR and related banking scandals and the money pit that the Olympics have become and announced, no doubt as only the British finance minister can announce, that “cash jobs” are “immoral.”
Not to be outdone, the New Zealand finance minister agreed and announced that the tax authorities down here are going to spend $84 million over the next four years cracking down on cash jobs. They expect to reap $384 million in extra tax. In England, where the economy is much larger, they are expecting to bring in $1 billion.
Admittedly, that’s not chump change and ensuring compliance with the tax laws is the sort of thing that the tax authorities should be doing.
And painters and handymen and gardeners who are lucky if they gross $100,000 a year will be now paying their fair share of tax.
But what is funny is that the announcement of the finance ministers squeezed out of the headlines another story. An organization called The Tax Justice Network has issued a report called “The Price of Offshore Revisited.” The report says that somewhere between $21 and $32 trillion of wealth has been moved into offshore tax havens by “the wealthy.” Who are those people, you ask? We’re not talking about the 1%. We’re talking about the .001%.
What that means is that a very small number of people have a lot of money.
The article that disclosed that fact also had some other interesting tidbits. For example, the amount that has flown out of countries into tax havens is greater than the deficits of some of those countries. The very deficits that austerity programs are supposed to be reducing.
Not only that, using conservative assumptions, if the authorities were able to tax the earnings on those assets hidden away in tax havens, they would bring in more money than rich countries pay out to the developing world as aid each year.
Unlike the British and New Zealand governments plans to bring in a few hundred million by cracking down on cash jobs performed by people just over the poverty line, there was no mention of a plan to collect any tax on the money in the tax havens.
Over the past year I’ve been working on a book which is in the final stages of publication and should be available in a few months. It is called Identities and it is a satire on business, materialism and the way we construct our identities for the outside world. It is about a businessman who begins to have second thoughts about whether the identity he has constructed as a rich, powerful captain of industry is really who he is.
Once he comes to the conclusion that he wants his legacy to be more than maximizing shareholder returns, he tries to bring about change in his corner of the corporate world. One of his clients is the most highly paid executive in America and they have a number of entertaining confrontations where they debate things like offshore tax havens.
Like the article I read about tax havens, I don’t have any answers and neither does the book. But I’m happy to see that it is turning out to be timely and topical and I hope that it generates a lot of interest and discussion. I’ll let you know when the book is available!