The Greed of Government: The March of the unstoppable tax machine

The London Times reports:

Your greed is not good, say Britain and Germany, pointing accusing fingers at thousands of very wealthy clients of LGT, the Liechtenstein bank at the centre of a row over tax havens. But bend your ear and you might just hear, beneath the cries of moral indignation over alleged tax evasion, a compromise - sotto voce. Greed is not good, say Europe's finance ministers, unless we can have 40 per cent.

The state is on the march, in search of ever more cash to oil its creaking machinery. It will even buy stolen property - in this case the client details of thousands of LGT customers, hawked by a thieving employee - if it leads to another treasure trove. Britain invented income tax to pay for the war against Napoleon. Two hundred years on, money is again needed to finance foreign wars, to fund the distribution of bread to the poor and to pay for Olympic circuses that entertain. The hunger of government for more of the national cake is acute and it is becoming a problem.

Last week, the Hundred Group, representing some of Britain's largest companies, revealed more evidence of the encroachment of the dependent sector on the wealth-creating sector. In 2007, corporation tax paid by a sample representing three quarters of the top 100 quoted UK companies increased by 18percent. Over the same period, these companies increased their UK profits by just 7.8percent while inflation was 2.75percent and the British economy expanded by 3percent.

Such a mounting burden on the corporate sector is not sustainable and can only lead to more companies leaving the UK in search of corporate fiscal havens, such as the Republic of Ireland with its 12.5percent corporate tax rate and the Netherlands and Luxembourg with their indulgent holding company regimes.

The underlying problem is the push and pull between competing government interests in tax co-operation and tax competition. The latter keeps tax rates down and whatever you think of the wealthy Liechtenstein depositors, tax havens of the Irish corporate or Monaco jet-set variety are a constant worry for government ministers who want to spend more of our money. Without the competing lure of some neighbouring fiscal paradise, Europe would certainly be a tax hell, a land of disinvestment and unemployment, governed by parasitic states and funded by an overburdened and shrinking middle class. Those with long memories will recollect Britain in the 1970s when the top tax rate was close to 80 per cent.

The government isn't motivated by altruism.