Saturday, October 6, 2007

George Osbourne's Mickey Mouse financial proposals

It's fascinating to see how the public have warmed to the idea of a general election.

On 26th September, YouGov measured 29% saying GB should call an election this autumn.

On 30th September, MORI put the same measure at 39%.

Today, ICM say 48% want a poll now.

That's a remarkable trend, albeit from different pollsters.

I don't really buy this "Labour disintegration - Cameron riding wave" nonsense. Cameron's speech was only good in the sense that he didn't wet himself and cry in front of the cameras. Osbourne's tax package makes the rich richer, does nothing for the vast majority of people and is one of the most ill-thought-out policy packages ever advanced by any British political party.

Cameron's speech first. He learnt off by heart. It's not difficult if you have nothing else better to do with your brain cells. He wasn't making it up as he went along. There weren't sufficient pauses and "ums" or "ers" to indicate that it was truly "off the cuff". The speech got a few minutes on the news and a few favourable press pieces. It wasn't the Gettysburg Address. It was a very average speech which did, at least, give the impression that Cameron had some sort of idea of direction for his party. He would have to have a sub-cretinous level IQ quotient not to have achieved that.

Osbourne's tax package next. The married couples' initiative is a modest tax cut for the wealthy, especially for those with no children or adult children who have left home. The inheritance tax threshold change is reasonable up to £500,000 (as the LibDems have proposed) but beyond that, up to £1,000,000, is giving, again, to the already very wealthy. The Stamp duty relief is of questionable effectiveness and, certainly, there is huge doubt how it, and the other tax decreases, will be paid for. Clamping down on incapacity benefit to raise a projected £3 billion (Osbourne's estimate) is cloud cuckoo-land stuff. It's the fiscal equivalent of bottling fog. They would have to argue with doctors about their judgment in signing sick notes. Cameron talks about a revolutionary Duncan-Smith plan to get those claiming incapacity benefit back to work. At the reckless end of the estimates this would take about five years to perhaps see some small benefits. At the cautious end, it is the political equivalent of promising to push treacle up hill.

The non-doms levy of £25,000 is the biggest joke of all. Being charitable, it will raise £1 billion less than Osbourne thinks. Less charitably, it leaves a £2 billion hole.

When Osbourne announced the levy on Monday morning on Today, I was particularly sceptical about this comment that, coupled with the £25,000 imposition, he would "guarantee" to the non-domiciles that he would not pursue them any further for tax.

First of all, that struck me, and still strikes me, as a ludicrous "get out of jail free" card for the richer non-doms. It lets them off the hook for all manner of tax avoidance.

Secondly, for the very reason that Osbourne's "guarantee" lets the richer non-doms off the hook, it is very likely that it is illegal.

Richard Murphy of Tax Research says that the measure "will fall foul of Europe". The Code of Conduct for business taxation was set out in the conclusions of the Council of Economics and Finance Ministers (ECOFIN) of 1 December 1997. Even though this code was for business taxation, these things tend to be "influential", according to Murphy.

George Osbourne's levy proposal would breach no less than six of the practices ruled as harmful in the code. The six outlawed practices are:

1. An effective level of taxation which is significantly lower than the general level of taxation in the country concerned;
2. Tax benefits reserved for non-residents;
3. Tax incentives for activities which are isolated from the domestic economy and therefore have no impact on the national tax base;
4. Granting of tax advantages even in the absence of any real economic activity;
5. The basis of profit determination for companies in a multinational group departs from internationally accepted rules, in particular those approved by the OECD;
6. Lack of transparency.

The measure is also likely to fall foul of OECD regulations. The legal doubts are bolstered by a precedent involving Mohamed Al Fayed when Lord Gill criticised the Inland Revenue for failing in its duty to raise as much tax as possible by agreeing a deal with Al Fayed.

Prem Sikka, professor of accountancy at Essex University adds to the doubts in Guardian:

It has not been thought through, is of questionable enforceability and could be in conflict with race relations legislation.

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