Monday, 13 July 2009

Monday funnies

An article in today's City AM raises two issues:

1. That a vague grasp of geography is useful when relocating your head office:

2. The article also refers to this fascinating bit of research:

UK tax refugees stoke offshore property prices

Most offshore tax jurisdictions within easy reach of Britain are bucking the European property market slump as wealthy Britons prepare for an exodus from harsh UK tax rises, according to a survey by The Sovereign Group.

Property values in Monte Carlo and Gibraltar, two of the most prominent European destinations for "ex-pat" money, are holding firm or increasing while prices around them on the Cote d'Azur and the Costa del Sol have plunged by up to 50%. Jersey, Guernsey, the Isle of Man and Geneva are also enjoying trend-bucking strength in their housing markets.

"The facts speak for themselves here," said Howard Bilton, Chairman of The Sovereign Group. "Property prices in the south of France and southern Spain are languishing in the worst slump they’ve seen in many years but on their outskirts are two little areas – Monaco and Gibraltar -- where the market is extraordinarily resilient. We believe, and all our local sources are telling us, that much of this disparity is because of interest from a new breed of British tax refugee as the UK government's tax-and-spend folly begins to bite."

Yup, this phenomenon is exactly as I predicted here. To cut a long story short, it is a government's job to make a country the nicest possible place to live; if it does this properly, rental values go up.

One of the things a government can do to make a country more attractive is to cut income tax rates, or as is illustrated by the research, keep your tax rates stable while surrounding countries increase theirs. The net present value of the tax saving that a tax-exile expects flows straight through into higher property prices in the tax haven, hence the slogan "All taxes come out of rent", or, in terms of Ricardo's Law of Rent, a £1 income tax cut just leads to an increase in rents of nearly £1, and, depending on the discount rate you apply, a jump in property values of well over £10.

So although I am a rabid tax cutter, I'd like to see taxes cut for the benefit of present and future generations of everybody in general and the productive economy in particular, rather than the narrow and static class of "people who happen to own UK land and property at the time that tax rates are cut", hence why it is important to have some sort of tax on property or land values in place before you start slashing taxes on incomes and output, to prevent the tax cuts just leading to another property price bubble (albeit a semi-permanent one).


AntiCitizenOne said...

The main arrow goes to Genoa, not Geneva!

Good job those layers of editors are there to make sure this sort of mistake would never get into a newspaper, unlike those unreliable blogs.

banned said...

Geneva On Sea, marvelous.

Anonymous said...

Land Value Tax!

Even in a post about McDonalds, I just knew it was coming.

His eyes start to revolve in opposite directions...the audience scramble madly for the exits...but it's too late, the dreaded words are heard "...Land Value Tax..."

Monomaniacs r' us!

MaxG said...

Genova / Geneva - maybe the graphic person was Italian and got confused?