Monday, July 02, 2007


Norwegian socialist government has recently linked tax havens with features of corruption, and money laundering to further promote tax justice, whatever that is.

The premises and ideas released by the Norwegian socialist government are absurd and here, I analyze this particular initiative.

“Corruption is theft. People in poor parts of the world are being robbed of millions every day. This has enormous consequences, not only for individuals, but also for the economic and social development opportunities of poor countries.”
Erik Solheim, the Minister of International Development
Corruption is a theft and the most efficient way to fight it is to rely on institutional governance the rule-of-law which is one of the most burdensome obstacles in downwarding the economic peformance of the countries in transit.
Regarding opportunites and incentives, Western welfare cradles, including Norway, restrict the export performance of industrial and agricultural sector in third-world countries by setting-up high quotas and tariffs on imports from the third world and by protecting domestic producers (by agricultural subsidies) at the expense of higher product price level beared by consumers.
In this respect, the economies with a low portion of the GDP per capita, suffer from a denied access to international product markets resulted from the lack of institutional credibility and from exercising the experiment of protectionism.
“We are fighting the use of so-called tax havens to evade tax through international cooperation on tax matters. Other forums and types of cooperation are needed in the fight against money laundering, corruption, embezzlement and fraud. These types of misuse of funds have clear common factors. They involve the hiding of money and ownership. With a common ‘enemy’ of this type, is important that we support each other’s efforts to combat the so-called tax havens”
Kristin Halvorsen, the Minister of Finance
Low-tax jurisdictions emerged from a completely legal opportunity to compete for venture investment on the rock-bottom incentives to deliver a dynamic and globally competitive tax system which helps creating a business environment in which the economic growth is generated faster relative to global competitors. Money laudering is a serious problem but the legal actions should target individuals, not jurisdictions who obey the principles of the international law in accordance with territorial sovereignity.
It is not the responsibility of the Minister of Finance to judge the use of investment funds. Investment funds in offshore places such a Netherlands Antilles, Jersey, Bermuda and Cayman Islands operate under legally disciplined rules which do not violate international law. Regarding the use of fund, many enterprises in the private sector have spurred their performance on regional, global and domestic market and consolidated its competitive financial position after investing in particular funds and taking-out a certain amount of yield at a certain time.
It would be insane to fight against tax havens as they offer enviable secrecy laws and a shelter to escape tax jurisdictions with a punitive tax regime and unparalleled tax burden - the consequence of high government spending and expansionary fiscal 'outlay' pressure. It is not difficult to realize that the main reason behind which the attack on tax havens is hidden, is simply that politicians want to protect their interests such as high public spending which empirically implies that tax rates must be lifted up and capital formation thus punished.
In a relationship between government spending incentives and the tax system, higher spending boosts the incentive to increase compliance costs to minimize the burden which is paid to the government. An upward trend in gearing the speed and size of fiscal burden (spending), each company with assets abroad has more reason to evade taxes and move their headquarters to jurisdictions with lower tax burden and much more favorable regulatory scheme.
Punishing tax havens with discriminatory measures, such as accusing them of corruption and money laundering, with violate personal liberties as well as economic freedom to move labor and capital resources anywhere investors want.
In fact, tax havens should dynamize policymakers to further cut tax rates on corporate and personal income to boost capital formation and lure the level of investment which benefits the growth and competitiveness of any economy.
Countries with a low GDP per capita (PPP) do not benefit from higher tax rates on productive behavior because such a misconducted approach results in tax evasion and decreasing tax revenues.
Ideological course of fighting against tax havens is a way to dismantle the effect of economic analysis which is a credible instrument in dismissing the falsified propaganda such as the one fostered by the Norwegian government against jurisdictions which fostered dynamic economic performance and created an enviable business environment.

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