23 Sep 2014

Taxing wealth is the way things are going in the 21st century

I’m just watching the local news in London, where the capital’s richest residents are complaining that Ed Miliband’s “mansion tax” is a “tax on London”.

Regardless of the rights and wrongs, it’s a sign of the way things might go in the 21st century – and here’s why.

The OECD, an influential Paris-based think tank, warned in July that increased globalisation, combined with rising costs to the state of healthcare and ageing, will at some point create a structural tax crisis in the developed world.

As inequality widens (they predict) and labour mobility increases, it will be pointless trying to raise money for public services mainly through income tax and corporation tax. Instead they advocate moving to taxes based on “property, resource extraction and consumption”.

That is, stuff you can’t move.


Already, high-tech sectors of the economy – like video games design – see rival cities and countries competing for business with income tax breaks and low business taxes. If we see this as the shape of things to come, then the high earners are going to head for the lowest tax jurisdictions.

On top of that, for the very rich, much of their income is going to come from their assets, not their wages – so taxes based on what you own, not what you earn, might be logical, says the OECD.

Obviously there is scope for injustice. Most £2m properties (87 per cent) in Britain are in London – but just under a third of them are owned by people who have been in them for more than 10 years.

They could be minted aristocrats, or just elderly people stranded in properties they’ve lived in all their lives.

In a bizarre symmetry with the bedroom tax, such people now face the prospect of having to downsize or remortgage just to pay a tax aimed at the rich. Labour says it will taper the tax around the £2m mark, but one can also expect residents to do some DIY “tapering” – for example, what price a borderline £2m house with a lovely old caravan parked in the front garden?

For most people, the idea of being taxed – every year – on something you only bought once, or even just inherited, is new.

But if the OECD is correct, the landscape of taxation will, in the next 50 years, begin to move globally away from income and towards wealth. The Labour mansion tax, and the Lib Dem version, might look like pinpricks to our grandchildren – sharp as they feel to the Chelsea tractor brigade right now.

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