This section provides a selection of media items posted in the last seven days on issues within TaxWatch's area of interest. Items of longer-term interest will then be transferred to the monthly archives and may also be filed under he relevant topic in the Tax Policy collection.
IMF says not recommending a wealth tax
SBS News, 25 October 2013
The IMF is trying to shut down debate that it is backing "wealth tax" after a suggestion in a report earlier this month triggered a barrage of comment.
The International Monetary Fund has denied that it favoured a tax on the wealthy to reduce public deficits, as suggested by a recent IMF report.
"We're not recommending a wealth tax, it's an analytical work," IMF spokesman Bill Murray said at a news conference.
In the report released in early October, the IMF said advanced economies appeared to have room to raise more revenue by increasing taxes on the rich, noting that a 10 per cent tax hike in 15 eurozone member countries would allow them to reduce their deficits to pre-crisis levels.
The suggestion, tucked inside the IMF's Fiscal MonThe IMF, triggered a barrage of comment, with some seeing a major shift in IMF austerity policy and others accusing the global lender of endorsing a leftist "Robin Hood" tax on the wealthy.
Murray sought to tamp down the debate.
"That's a staff analysis suggestion... it's not a policy statement from the Fund," he said.
In the report, the IMF said "scope seems to exist in many advanced economies to raise more revenue from the top of the income distribution," citing "steep cuts" in top rates since the early 1980s.
According to its estimates, taxing the rich even at the same rates during the 1980s would reap fiscal revenues equal to 0.25 per cent of economic output.
Why the 1% should pay tax at 80%
Emmanuel Saez and Thomas Piketty, The Guardian, 24 October 2013
The Reagan-Thatcher revolution changed society's beliefs about taxes. If we want economic growth shared fairly, we must rethink
Before 1980, both the US and the UK had top marginal tax rates of 70% or more.
In the United States, the share of total pre-tax income accruing to the top 1% has more than doubled, from less than 10% in the 1970s to over 20% today (pdf). A similar pattern is true of other English-speaking countries. Contrary to the widely-held view, however, globalisation and new technologies are not to blame. Other OECD countries, such as those in continental Europe, or Japan have seen far less concentration of income among the mega rich.
At the same time, top income tax rates on upper income earners have declined significantly since the 1970s in many OECD countries – again, particularly in English-speaking ones. For example, top marginal income tax rates in the United States or the United Kingdom were above 70% in the 1970s, before the Reagan and Thatcher revolutions drastically cut them by 40 percentage points within a decade.
At a time when most OECD countries face large deficits and debt burdens, a crucial public policy question is whether governments should tax high earners more. The potential tax revenue at stake is now very large.
For example, doubling the average US individual income tax rate on the top 1% income earners from the current 22.5% level to 45% would increase tax revenue by 2.7% of GDP per year – as much as letting all of the Bush tax cuts expire (only a small fraction of them lapsed in January 2013). But of course, this simple calculation is static: such a large increase in taxes may well affect the economic behaviour of the rich and the income they report pre-tax, the broader economy and, ultimately, the tax revenue generated. In recent research, we analyse this issue both conceptually and empirically using international evidence on top incomes and top tax rates since the 1970s.
There is a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares, for the period from 1975-79 to 2004-08, across 18 OECD countries for which top income share information is available. For example, the United States experienced a 35 percentage-point reduction in its top income tax rate and a very large ten percentage-point increase in its top 1% pre-tax income share. By contrast, France or Germany saw very little change in their top tax rates and their top 1% income shares during the same period.
So, the evolution of top tax rates is a good predictor of changes in pre-tax income concentration. There are three scenarios to explain the strong response of top pre-tax incomes to top tax rates; each has very different policy implications.
First, higher top tax rates may discourage work effort and business creation among the most talented: the so-called supply-side effect. In this scenario, lower top tax rates would lead to more economic activity by the rich and hence more economic growth. If all the correlation of top income shares and top tax rates seen in the above data were due to such supply-side effects, the revenue-maximising top tax rate would be 57%. This would imply that the United States still has some leeway to increase taxes on the rich, but that the upper limit has already been reached in many European countries.
Second, higher top tax rates can increase tax avoidance. In that scenario, increasing top rates in a tax system riddled with loopholes and tax avoidance opportunities is not productive either. A better policy would be to first close loopholes so as to eliminate most tax avoidance opportunities, and only then increase top tax rates. With sufficient political will and international co-operation to enforce taxes, it is possible to eliminate most tax avoidance opportunities, which are well documented. Then, with a broad tax base offering no significant avoidance opportunities, only real supply-side responses would limit how high top tax rate can be set before becoming counter-productive.
In the third scenario, while standard economic models assume that pay reflects productivity, there are strong reasons to be sceptical, especially at the top of the income distribution where the actual economic contribution of managers working in complex organisations is particularly difficult to measure. Here, top earners might be able to partly set their own pay by bargaining harder or influencing compensation committees.
Naturally, the incentives for such "rent-seeking" are much stronger when top tax rates are low. In this scenario, cuts in top tax rates can still increase top income shares, but the increases in top 1% incomes now come at the expense of the remaining 99%. In other words, top rate cuts stimulate rent-seeking at the top but not overall economic growth – the key difference with the first, supply-side, scenario.
To tell these various scenarios apart, we need to analyse to what extent top tax rate cuts lead to higher economic growth. Again, data show that there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s. For example, countries that made large cuts in top tax rates, such as the United Kingdom or the United States, have not grown significantly faster than countries that did not, such as Germany or Denmark.
What that tells us is that a substantial fraction of the response of pre-tax top incomes to top tax rates may be due to increased rent-seeking at the top (that is, scenario three), rather than increased productive effort.
Naturally, cross-country comparisons are bound to be fragile; exact results vary with the specification, years, and countries. But the bottom line is that rich countries have all grown at roughly the same rate over the past 30 years – in spite of huge variations in tax policies. By our calculations about the response of top earners to top tax rate cuts being due in part to increased rent-seeking behaviour and in part to increased productive work, we find that the top tax rate could potentially be set as high as 83% (as opposed to the 57% allowed by the pure supply-side model).
Until the 1970s, policy-makers and public opinion probably considered – rightly or wrongly – that at the very top of the income ladder, pay increases reflected mostly greed rather than productive work effort. This is why governments were able to set marginal tax rates as high as 80% in the US and the UK. The Reagan/Thatcher revolution has succeeded in making such top tax rate levels "unthinkable" since then.
Now, however, we have seen decades of increasing income concentration that have brought about mediocre growth since the 1970s. And with the Great Recession that was triggered by financial sector excesses, a rethink of the Reagan and Thatcher revolutions is underway.
The United Kingdom increased its top income tax rate from 40% to 50% in 2010, in part to curb top pay excesses. In the United States, the Occupy Wall Street movement and its famous "We are the 99%" slogan also reflects a view that the top 1% has gained at the expense of the 99% – a view endorsed by our findings about the highly unequal distribution of income gains during the recovery.
In the end, the future of top tax rates depends on what the public believes about whether top pay fairly reflects productivity or whether top pay, rather unfairly, arises from rent-seeking. With higher income concentration, top earners have more economic resources to influence both social beliefs (through thinktanks and media) and policies (through lobbying), thereby creating some "reverse causality" between income inequality, perceptions, and policies.
The job of economists should be to make a top rate tax level of 80% at least "thinkable" again.
Can The Coalition Axe The Tax But Meet The Target?
Jamie Hanson, New Matilda, 23 October 2013
Renewable energy in Australia is booming, thanks to some key policy incentives. Uncertainty surrounding the Coalition's climate policy could seriously damage the sector, writes Jamie Hanson
The Clean Energy Act and its complementary legislation are in essence the beginning of a long process of decoupling the Australian economy from its dependence on fossil fuels. The transition envisioned by that legislation is too slow, with pollution targets set unconscionably low. What the Clean Energy Act does provide, however, is the all important tool that will allow Australia to shift its economy away from a reliance on polluting industries: a price on carbon.
The Coalition will repeal the act and plans to replace it with an as yet unspecified set of policies known as "Direct Action". Against the advice of the World Bank, the OECD, the IMF and most independent economists who work in the area, they do not plan to price pollution.
In order to drive a shift of technologies towards renewable energy, successive Australian governments — first John Howard's, and then the ALP — have enacted "Mandatory Renewable Energy Target" (RET) schemes. It is currently thought that if Australia achieves its current target of 41,000 GwH of energy generated by renewables by 2020, that would represent 26 per cent of Australia’s total electricity generation.
Strangely, the Abbott government has been explicit about the removal of various programs which support renewables investment. For instance, on Monday there was speculation that the government, in an attempt to bring the budget into balance, would scrap $53 million in clean technology grants (this may be less likely after the government suddenly raised the national debt limit by $200 billion on Tuesday).
Likewise, immediately upon election the Treasurer sent a letter to the $10 billion Clean Energy Finance Corporation (CEFC) requesting it to stop making investments on the assumption that it would be wound up via legislation as soon as possible.
It is interesting to note that despite the generalised shredding of ALP-associated climate change schemes, Environment Minister Greg Hunt has explicitly denied that he plans to remove the RET (although there are rumours that he may move back the date by which the target should be met).
When it comes to providing appropriate assistance to keep the renewables industry in Australia competitive, $50-odd million in grants pales into insignificance next to the $10 billion CEFC, and a mandated target for the country to generate one-fifth of its power via renewables in seven years.
It is easy to see why Hunt would keep the RET: Australians don’t just like renewable energy, they love it. A recent Climate Institute report (pdf) showed that even Australians who don’t believe in climate change like the idea of a future Australia that is fuelled by wind, solar and hydro. That report showed 87 per cent of Australians are favourably disposed to a solar-fuelled future, while only 12 per cent like coal. Thus, the Coalition plans to "axe the tax", yet remain a champion of renewable energy.
Trouble is, it’s difficult to do both. The RET and the price on pollution are designed to fit together. Simply hanging a target over the head of industry is not sufficient. Making polluters pay creates a vital extra incentive for energy companies to come to the party.
The carbon price has already changed the playing field substantially, with recent modelling suggesting that the long-run cost of wind energy in the east coast electricity market has become lower than fossil fuel fired generation. That means that electricity producers are going to build wind. It just makes sense.
Remove the price on pollution, and all of a sudden things look very different. Indeed, analysts suggest that Australia will fail to meet its renewable energy targets in the absence of a pollution price.
Briefly, an explanation. The RET is not just an aspirational target. Rollout of renewable energy is driven by a penalty system, with electricity generators obliged either to produce renewable energy or pay someone to do it for them, via a system of tradable credits called Large-scale Generation Certificates (or LGCs). Or they can pay a financial penalty.
The existence of the carbon price means it is the interests of electricity generators to either produce renewable energy or buy credits — and resulting has been a boom in construction of new renewable energy facilities. Unfortunately, once the carbon price is removed, analysis shows (pdf) that the price of LGCs will spike to the point where they reach parity with the fine companies pay if they fail to comply with the RET.
Without a price signal to disincentivise pollution, the RET is toothless. Australia will fail to reach its 41 GwH target. Hunt has also signalled that he intends to "review" the targets — perhaps lowering them — which introduces yet another layer of uncertainty into the sector.
The response of the renewable energy sector has been what one would expect: they’ve stopped building. It hardly needs to be said, this is not the time to be messing with a scheme that works, especially in the absence of any proven alternative. The Australian renewable industry is on a good trajectory.
In recent years, Australia has seen a sharp spike in construction of renewable energy. Wind now produces 20 per cent of South Australia’s power needs, with average growth in capacity of 35 per cent over the five years to 2011. A number of large scale solar projects have been proposed in recent times, while the nation’s rooftops are disappearing under solar panels — the three years to 2011 saw a 35-fold increase in solar panel installations. Stopping this rapid growth could have serious long-term implications for the effectiveness of our renewable sector.
It will be interesting to see how Hunt goes about hitting the RET. He might choose to lift the price of LGCs. He may move the RET goalposts, perhaps by lowering our target, or by moving the date by which renewable energy targets must be achieved. These moves are likely to be poorly received by the public.
Hunt has signalled at various times that he may intervene more directly in fossil fuel generation, perhaps by paying coal fired generators to close. Most of these efforts, incidentally, will have the effect of raising power prices.
Australia currently has a set of incentives that are working, driving investment in renewable energy and reducing pollution. Hunt intends to remove many of those incentives, but still intends to achieve the same targets. It remains to be seen how he will do that. Every day that uncertainty remains is another day during which investors will delay, and during which our polluters will have untrammelled freedom to keep on keeping on.
Scrap stamp duty for annual land tax: report
Toby Johnstone, 22 October 2013
A new study has suggested abolishing stamp duty in favour of a broader property tax.
Property experts have rallied behind a new report that suggests abolishing stamp duty in favour of an annual land tax.
But negative gearing continues to polarize property commentators.
The report by independent think tank the Grattan Institute said Australia's housing policy was in need of "renovation" because it favours high-income households and investors at the expense of young people and renters who are locked out of the market.
The author, Jane-Frances Kelly, said that stamp duty acted as a barrier for young people to buy into established suburbs and forced them the fringe where jobs were scarce.
Advertisement The Housing Industry Association's chief economist, Harley Dale, added that stamp duty limited supply because it encouraged empty-nesters to stay put in the big family home.
"It not only acts as a disincentive for labour mobility but it limits people's freedom to choose to downsize."
"It is a highly inefficient tax," he said.
The report suggested that stamp duty should be replaced by an annual broad-based property tax levied by state governments.
This would "spread the tax burden more fairly" between those who already own property and those trying to buy their first home.
"We certainly think consideration of a broader based land tax has merit as one policy option," said Dr Dale.
The chief economist at AMP Capital, Shane Oliver, agreed that stamp duty should be abolished but said annualised land tax was not the best way to sure up state government revenue.
"Rather than have a myriad of taxes we should be seeking to eliminate them not create new ones," he said.
Dr Oliver said the ideal solution would be remove all the "odds and ends taxes" and replace them with increased rate of GST.
While stamp duty has been widely blasted as an inefficient revenue raiser, the suggested changes to negative gearing proved far less palatable.
"I disagree that removing negative gearing is going to be some kind of panacea for addressing concerns over rental affordability and accessibility for housing," said Dr Dale.
"We see it as an entirely appropriate policy that will help support the rental market in Australia."
Under the current rules investors can deduct losses made on rental properties from their other income. This reduces their overall tax liability.
According to the report, investors cost the federal government $6.8 billion annually through negative gearing and the capital gains discount. On average that works out to be a cost of $4500 a year for every investor.
Dr Oliver is also in favour of negative gearing.
"If we do away with negative gearing I don't think it will solve the problem of excessive house prices relative to incomes in Australia," he said.
"The one thing that we need at the moment is a greater supply and often that supply comes from investors putting money up, going into the property market and funnelling money into developments."
Ms Kelly argued the opposite.
"Policies that favour investors, such as negative gearing, increase demand for property and push up prices while doing little to increase supply."
Despite the government's overall annual spending of more than $40 billion Ms Kelly said that the rate of home ownership had started to decline, especially among young people and low-income earners.
The report concluded that while there was no overnight fix, it was time for a serious debate about the future of Australia's housing policy.
More home subsidies go to rich than renters
Peter Martin, The Sydney Morning Herald, 21 October 2013
High-income earners are the overwhelming beneficiaries of government support for housing, a report has found, turning on its head the popular perception that low-income Australians get the greatest subsidies through rent assistance.
''Only 25 per cent of renters get any support from the government,'' the cities program director at the Grattan Institute, Jane-Frances Kelly, said. ''They get none of the support that homeowners get. Even landlords get more.''
The report, Renovating Housing Policy, found homeowners received $36 billion a year in government subsidies, landlords about $7 billion and renters less than $3 billion.
''We are not arguing that renters should get lots of government subsidies, but we were just really struck by the level of support for owners, given that there are so many reasons for these people to own their own houses anyway,'' Ms Kelly said. ''It's hard to see why they need that level of subsidy.''
Home owners enjoy an exemption from capital gains tax, an exemption from the land tax faced by landlords, special treatment in applying the pension assets test and an exemption from tax for what is known as imputed rent.
''If a landlord is renting out a place, the landlord pays tax on that rental income,'' she said. ''Homeowners enjoy the same sort of benefit. It's as if they pay themselves rent. But they are not taxed on it.
''We are certainly not recommending that we start to tax those imputed rents, there are very few countries in the world that do that, but the size of that support should be recognised when it comes to calculating how the government skews the housing market.''
The report found the scale of the support for owners pushed up house prices, making it harder for younger and poorer Australians to get into the market.
''Support for owner-occupied housing used to be roughly even across all income groups,'' the report says. ''Now the highest-income owners get government support of roughly $8000 per year, whereas the lowest-income owners get a little over $2000.''
The report found the skewing of support to ownership, rather than renting, forced people to live further away from the centre of cities than they would like and made it hard for them to move because they face stamp duties.
''If you are living out on the fringes, you often can easily access only a small minority of jobs rather than those in the centre. It means employers face a thinner labour market and workers are locked into jobs they might rather not have.''
Ms Kelly said Australian social norms and the state-based rules governing rent gave tenants little security. This further drove Australians into owning rather than renting, making them less mobile and responsive to the jobs market.
The report recommended state governments replace stamp duty with a broad-based annual tax on all properties and re-examine the biggest tax breaks for landlords: negative gearing and discounted capital gains tax rates.
Tax policies widen divide between home owners and renters: Grattan Institute
Katie Hamann, ABC News, 21 October 2013
Government policies and tax arrangements that favour home owners and property investors are increasing the divide between renters and people who own their homes, a new report has found.
The Renovating Housing Policy report by the Grattan Institute found home owners are receiving $36 billion every year in subsidies through exemptions from land and capital-gains tax as well as negative gearing rules.
That comes in at an average of $6,100 for each home-owner household.
The report found around $6.8 billion more each year goes to property investors, with $4,500 on average for each property investor in the form of negative gearing and the capital gains tax discount.
The Federal Government pays around $2.8 billion a year in Commonwealth Rent Assistance, but only 25 per cent of renters are eligible to receive that subsidy.
The divide is income-based and generational, Grattan Institute cities program director Jane-Frances Kelly says.
The report finds home owners receive $14 billion a year in capital gains tax exemptions for the family home, the pension assets test exemption is worth another $7 billion and the land tax exemption is another $5 billion.
The report also found sharp falls in ownership rates among low-income households and those aged less than 45.
Ms Kelly says lower interest rates were one of the main structural drivers of rising house prices in the last two decade, not government policy.
Increased demand due to smaller household sizes and population growth also contributed, as did a shortage of housing stock.
"But now, government policies are inflating demand for housing and therefore putting up prices, and that's through things like negative gearing and capital gains discounts for property, and first homeowner grants, which just end up pushing up prices and ironically making it harder for first-time buyers to get into the market," she said.
Ms Kelly says tenancy laws must be overhauled.
"What renters really need is more stability and more of an ability to make a home out of the rental property," she said.
"What we suggest is that we take a look at tenancy law and to try and encourage longer lease terms.
"Australia has some of the shortest lease terms and the shortest notice periods in comparable countries.
"Overseas experience shows that's quite easy to change without unduly disadvantaging landlords or affecting the returns that landlords get."
The Grattan Institute is also calling for reforms to negative gearing and capital gains tax discounts to deflate demand among property investors.
Why cut a nearly undetectable tax?
Peter Martin, The Sydney Morning Herald, 21 October 2013
'The near invisibility of the 'great big new tax on everything' creates ... a minefield for business.'
Prepare for a price shock. Australia's inflation rate is out on Wednesday and the market is expecting 1.8 per cent. That's an annual rate of 1.8 per cent - a September quarter result so breathtakingly low it's close to the quarterly rate of 1.4 per cent for the previous September quarter.
The September quarters are the big ones. They are when electricity price rises hit the index. That one year on from the carbon tax a September quarter inflation result could be so low throws into an entirely different light Tony Abbott's claim that the price impact of the carbon tax would be ''almost unimaginable''.
''Almost undetectable'' might be a better description. This month energy consultant Hugh Saddler of Pitt & Sherry told Fairfax Media it had been ''almost impossible'' to see the impact of the carbon price when it was introduced, and it would be no easier to see what happened if it was removed.
The Bureau of Statistics agreed.
''The ABS is not able to quantify the impact of the introduction of carbon pricing, compensation or other government incentives and cannot produce estimates of price change exclusive of the carbon price,'' it said in a statement. ''Similarly, the ABS will not be able to quantify the impact of removing the carbon price (if that were to occur).''
The near invisibility of the ''great big new tax on everything'' creates both political and administrative problems for Abbott. And a minefield for businesses.
The political problem is that it's hard to get the public outraged about a tax that is part of the furniture. Sure, there was a bump in energy prices when the tax came in the September quarter 2012, but it's hard to tell how much of that was due to the tax and how much was due to the rapacious behaviour of the utilities we have been enduring for years. And the carbon tax bump is in the past (it won't be part of the annual inflation figure). The ongoing contribution of further adjustments to the carbon price is small by comparison.
The administrative problem is that it's hard to be sure you have removed what you can't see.
Abbott promised last week that if he axes the tax ''Australian households will be better off to the tune of $550 a year''.
The estimate derives from work done by the Treasury but it isn't the Treasury's. The department was asked in 2011 to predict the impact of a $23 a tonne emissions tax. It came up with $9.90 a week a household, around $515 a year. Abbott's team scaled that up for the increase in the carbon price from the middle of this year and the increase scheduled for the middle of next and came up with an impact of $550.
But, as best we can tell, the boost to prices from the carbon tax turned out to be lower than the Treasury forecast. That means any fall in prices resulting from axing the tax would also be lower, if suppliers act on the way down as they did on the way up.
(Environment minister Greg Hunt's claim the saving would be ''$3000 per family over the next six years'' is silly. It's hard enough to know what it would be for a year.)
There's an apparent acknowledgement in Hunt's draft repeal legislation that things aren't as straightforward as they seemed. During the campaign he promised that the Australian Competition and Consumer Commission would establish a special unit to monitor and enforce reasonably expected price reductions following the abolition of the carbon tax.
It would ensure that ''businesses pass on the benefits of lower input costs to consumers in the form of lower supermarket prices and lower prices for other goods and services''.
The draft mentions by name only four types of goods, none of them sold in supermarkets. They are natural gas, electricity, synthetic greenhouse gas and synthetic greenhouse gas equipment. The minister would be able to specify other types of goods later, but the exclusion of supermarket goods - so prominent in the Coalition's advertising - suggests it is coming to the realisation that the tax pushed up their prices by so little that there's little point in making sure they are brought down.
Woolworths reports that its average food and liquor prices were 2.9 per cent lower in the financial year that followed the carbon tax. The Treasury had expected it to nudge up food prices by 80¢ per week.
The minefield for businesses caught up in the law is that if they engage in ''price exploitation'' by not cutting their prices by what the ACCC thinks is enough, they can be fined up to $1.1 million plus damages. Worse still, Abbott says the tax will vanish from July next year even if the legislation axing it isn't passed until later, after the new Senate meets that month. Not knowing what they are liable for and not knowing what they will have to pass on sits uneasily with a clause in the law gagging businesses from making "false or misleading representations about the effect of the carbon tax repeal''.
If political positions weren't so entrenched Abbott and Hunt could just leave the tax in place. It's causing minimal damage, it's kicking goals (per capita household electricity and gas consumption is down 3 per cent) and it's an old tax. Google "old tax" and "good tax" and see what you find.
Despite the tough talk, this government is far too soft on tax evasion
Chris Huhne, The Guardian, 14 October 2013
The treatment of the British tax dodgers exposed by the Lagarde list of secret Swiss bank accounts has been very lenient. Why?
You might have thought the politics of hard times would be the same whatever the country, and that burgeoning public deficits would mean tough measures to collect tax. The surprise, though, is in the differences. In Germany and France tax evasion is hot politics. In Britain, there are some tremors about corporate tax dodging – but personal tax evasion seems the dog that does not bark.
Once upon a time the British would have argued that we were more inclined to pay our taxes, so our problem was small. If this were ever true, it isn't now. According to the UK taxmen's estimate last week, they are still failing to collect £35bn a year. If by some miracle HM Revenue and Customs (HMRC) could collect the lot, basic income tax could be cut from 20p to 12p in the pound.
Tax evasion matters. In theory, the government is getting tougher. The chancellor, George Osborne, has promised: "We will be as tough on the richest who evade tax as those who cheat on benefits." Admirable sentiments, but the delivery has been woeful. The government is being far softer on tax evaders even though it estimates tax evasion costs 29 times more than benefit fraud.
Take Britain's handling of the infamous Lagarde list. Christine Lagarde, now head of the International Monetary Fund, was France's finance minister when the French intelligence service acquired details in 2009 of 130,000 bank accounts held at a Geneva branch of HSBC – yes, our British HSBC. Lagarde, being a good European, duly shared the information with France's EU partners.
The Treasury received 6,000 British names. To date, 1,100 people who had secret HSBC bank accounts in Geneva, and who had testified on their tax returns that the accounts did not exist, have settled. The HMRC has received £120m in unpaid taxes, which means that the average HSBC tax dodger was probably evading £54,454 (allowing for the penalty).
Astonishingly, all those who settled were given anonymity and immunity from prosecution despite new powers that allow anyone who has evaded more than £50,000 in tax to be named and shamed on the HMRC website. Though there is more money going into criminal investigation, there has been just one prosecution in the UK as a result of Lagarde's list: a multimillionaire property developer called Michael Shanly.
Shanly had already reached a civil settlement with HMRC on £1.5m of evaded taxes, and HMRC was stung into a prosecution when he was subsequently discovered to have evaded a further £430,000 on his mother's estate. How long did he serve in prison? Not an hour. He was fined £470,000. Given his estimated net worth of £130m, the whole experience, while no doubt unpleasant and time-consuming, amounted to a pinprick.
Compare his case with a recent benefit fraud: Abdurrahim Bendaw was convicted in August of a 10-year fraud worth a total of £54,493, almost the average evaded by the British Lagarde listers. No immunity or anonymity for him. He has to repay the amount, faces confiscation orders, and was jailed for 10 months. Judge Leslie Hull warned: "If I don't send you to prison it will send the wrong message to the public." Clearly, the message is that tax evasion is just fine and dandy.
Is this soft touch on tax evasion political? Is the government trying to hide political donors, or members of the royal family? HMRC claims that ministers had nothing to do with the Lagarde decisions, as all individual cases are kept away from political interference. But dealing with 1,100 tax evaders as a group is surely a policy matter. The guidelines should be determined by ministers.
Yet, at every turn, the British have taken the herbivorous option. We run something called the Liechtenstein disclosure facility, allowing tax evaders to fess up and avoid charges. As KPMG, the big accountancy firm, tells their clients: "The Liechtenstein disclosure facility (LDF) provides a framework for the disclosure of UK tax irregularities connected with overseas assets held anywhere in the world with unique benefits and on favourable terms."
If you think the taxman is on to your British Virgin Islands accounts, you open one in Liechtenstein and disclose it – then you will be covered not just for your Liechtenstein account but for everywhere else too. It's an Amnesty-lite.
HMRC is also considerate about those who want to continue to bank secretly in Switzerland. The UK and Switzerland have reached a withholding tax deal – where the Swiss deduct tax from the accounts of UK residents, paying it to the UK without telling us who they are. The withholding tax is (a little) lower than the UK top tax rate, providing potential tax savings for banking in Switzerland.
That arrangement is justified as raising revenue for the UK, but revenue is lower than forecast. Swiss banks have decades of experience in hiding money. A similar deal was rejected by the German Bundestag for being too soft. Instead, the Germans aggressively pursue citizens who evade taxes. Berlin's intelligence services have paid €4.3m to a whistleblower for information about the Liechtenstein General Trust (LGT) group. France has rejected a UK-style LDF.
The better way? Public rewards for information: a share of the proceeds, as with the US citizen paid $14m for whistleblowing. Using the intelligence services to extract banking information. And locking up offenders. Tory ministers say prison deters crime. Perhaps they should try harder on tax evaders.