Austerity? What austerity? In the wake of the 2008 credit crisis, the weathy have rarely had it so good.
According to surveys by Royal Bank of Canada/Capgemini and Boston Consulting Group, global net worth has recovered over the last four years. Their assets suffered a slight fall in Europe to $10 trillion (€8 trillion) in 2011, said RBC, but the actual number of millionaires rose to 3.2 million, thanks to growth in Russia, Switzerland and the Netherlands.
Something has to give, of course, as European economies struggle to repay debt incurred to support the banks, while maintaining their social welfare programmes. In the UK, it emerged last week that Britain will have to borrow £11 billion (€13.75 billion) more than forecast over the next two years because government receipts are falling short. Budget cuts across Europe are delivering far less than expected. The new French socialist government wants to raise its top rate of tax to 75% to plug its funding gap.
Several European governments have fastened on to the idea of clamping down on tax avoidance to raise some cash. And, superficially, it looks like they are making some progress.
A series of tax amnesty deals with Switzerland have been pushed through. The Greeks, more desperate to raise cash than anyone else, have pushed through several initiatives, including the publication of a list of 4,200 prominent tax dodgers early this year. Tax avoidance in the country is currently equivalent to 15% of GDP.
The Italian authorities recently checked out a string of yacht registrations and discovered a third had been secured by people who paid no – or very little – tax. The Bank of Italy has calculated that if tax avoiders and criminal elements in society were forced to pay their taxes, the country’s deficit would disappear in a decade. It vows to take action.
As part of its measures, the Spanish have limited cash transactions to €2,500 after discovering that a huge number have taken place, to avoid tax, in recent years. No less than a quarter of €500 notes, the highest denomination in Europe, are circulating round the country, as a result of being used to pay local builders in the boom years.
In Britain, they are baiting comedian Jimmy Carr, whose fondness for tax avoidance has dominated newspaper headlines for more than a week.
It emerged, last week, he has been avoiding tax by giving his salary to an offshore company, which went on to lend it back to him. All of which is legitimate but smells wrong, not least because Carr made fun of a tax avoidance scheme in one of his skits.
Carr has apologised for his moral failings. The Times, which broke the story, has gone on to name and shame a string of celebrity tax avoiders, harking back to an earlier Daily Telegraph campaign against gross expenses claims by Members of Parliament.
The extent to which HM Revenue & Customs helped the Times is unclear. But its campaign has seemingly emerged at a perfect moment for the tax authority, which is fighting to get support for its so-called general anti-avoidance rule following the recent publication of a consultation paper.
By being highly ambiguous, it would give HMRC sweeping powers to convert tax avoidance schemes into tax abuse. One section said it would be “reasonable” to assume tax abuse can apply “where the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangement".
Ronnie Ludwig, partner of accounting firm Saffery Champness, reckons this means the rule could even hit people trying to develop their business by converting it to a perfectly innocent limited company. As it stands, the proposal will lead to a string of debilitating legal battles, as the wealthy use their lawyers to squeeze favourable judgements out of its lumpen prose. Legal firm Withers reckons it will take many years for the current proposal to work effectively.
As a result – and not for the first time – the UK government is set to discover that squeezing more money out of the rich is never easy. And they are not alone.
Greek tax receipts in May, for example, were said to be 20% below levels struck a year ago, as a result of austerity. Rich types are crossing Europe’s porous borders to find lower tax rates. The Irish, for all their problems, are determined to retain their low level of tax to attract entrepreneurs. The UK has decided to cut top rates of tax from 50% to 45%. Its non-domiciled residency status, which allows foreigners to avoid tax on overseas earnings, is increasingly attracting a range of wealthy types, led by the French determined to escape their Waterloo in the shape of a 70% top tax rate.
In Italy, austerity has become so unpopular that political agitator Beppo Grillo is scoring 20% support in opinion polls along with his plan to get Italy to default and quit the eurozone and make everyone poorer. By comparison, the government's campaign to get the Mafia to pay more tax is scarcely judged worthy of a shrug.