Wednesday, 25 March 2009
A Taxing Problem
Nassau, in The Bahamas, has an excellent museum devoted to the pirates and buccaneers of the past, those pioneers of free market principles, democracy,and racial and gender equality. They too imposed taxes on travellers to support their finances. Unluckily, they were blown away, by the weight of shot rather than influence, by the naval forces of Britain and Europe with their heritage of greedy government, elitism, and dirigiste policies. Now the locals have the OECD to contend with, as well as a complaining UK and EU.
The fiscal problems of The Bahamas are more complex than may appear, and the economy fragile. There are few real options open to the government in its search for revenue to support a full range of modern services for its growing population augmented by the many refugees from Haiti. Given the structure of the population, the types of employment available to the people, the narrowness of the base for taxation, and the way things work, it is very difficult to see how how an effective income tax regime could be imposed.
Moreover, in a small nation scattered over many islands the bureaucracy necessary to the task would be a costly item, and is likely to have very limited success. Sales taxes are certainly a burden, especially for those on lower incomes. The problems are to improve the earnings of the poor, to reshape sales taxes, and to strengthen the retail sector. There is no scope for industry or agriculture on any scale. So the emphasis has to be on service employment and on an international basis. This is highly tax sensitive. Also the educated and experienced local people engaged in the financial work would be welcome anywhere in the world, and Miami is only an hour's journey.
So dealing with the tax havens will not be a simple business. If the clamp down on finance is to be successful, many, like The Bahamas, are going to need a good deal of support. The major musical theme of the Nassau Museum is the old ditty "Over The Hills And Far Away". If the posturing of the EU and OECD, and others, result only in enforced tax changes, then that is a song which would be sung by almost all of the existing tax base of The Bahamas as well as most of the population, by sheer necessity.
So what would London do? Reopen Execution Dock?