Grow­ing num­ber of coun­tries al­ready mov­ing to lower rates to stay com­pet­i­tive

New Straits Times - - Business -


PRES­I­DENT Don­ald Trump’s plans to slash cor­po­rate taxes in the United States have sparked con­cerns of a new global fis­cal race to the bot­tom, pos­si­bly in­volv­ing a wave of neg­a­tive so­cial con­se­quences, ex­perts say.

In what Trump’s eco­nomic ad­viser Gary Cohn de­scribed as “the most sig­nif­i­cant tax re­form leg­is­la­tion since 1986, and one of the big­gest tax cuts in Amer­i­can his­tory”, the White House plans to dra­mat­i­cally cut taxes for US busi­nesses and in­di­vid­u­als, slash­ing the cor­po­rate rate from a top rate of 35 per cent to 15 per cent.

The aim, ac­cord­ing to US Trea­sury Sec­re­tary Steven Mnuchin, is to “bring back tril­lions of dol­lars that are off­shore to be in­vested here in the US” and cre­ate jobs.

Trump’s goal is for the re­forms to pro­pel the US econ­omy to three per cent an­nual growth.

But the long-an­tic­i­pated over­haul — de­tails of which re­mained un­clear be­yond a hand­ful of head­line mea­sures — could face stiff op­po­si­tion in Congress, in­clud­ing from some Repub­li­cans, with law­mak­ers sharply di­vided over the prospect of fu­elling al­ready-ris­ing deficits.

And the plans have also raised eye­brows at non-gov­ern­men­tal or­gan­i­sa­tions and non-profit or­gan­i­sa­tions.

They could ac­cel­er­ate “the race to tax com­pe­ti­tion on an in­ter­na­tional level and all of us will pay the price,” said Ox­fam spokesman Manon Aubry.

“When the world’s most pow­er­ful coun­try de­cides to slash tax rev­enues as much as this, a num­ber of other coun­tries may fol­low suit, bring­ing with it im­bal­ances that will have enor­mous im­pacts on our so­ci­eties,” she said.

Fall­ing tax rev­enues would make it harder for gov­ern­ments to pay for wel­fare, health­care and other ben­e­fits with­out go­ing too deep into the red, she said.

To make up the short­fall, gov­ern­ments could be tempted to hike val­ued-added tax (VAT), of­ten crit­i­cised for plac­ing a dis­pro­por­tion­ate tax bur­den on the less well-off, said Aubry.

Jean-Pierre Lieb, a tax lawyer at con­sul­tants EY, said “the cut in cor­po­rate taxes in the US will fuel ten­sions be­tween coun­tries”.

At the mo­ment, cor­po­rate taxes in the US are the high­est among Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment (OECD) coun­tries, fol­lowed by France with a rate of 34 per cent, Bel­gium with 33 per cent and Aus­tralia with 30 per cent.

The OECD av­er­age is cur­rently around 24 per cent.

But in or­der to be­come more at­trac­tive, a num­ber of coun­tries have de­cided to lower their cor­po­rate tax rates.

Bri­tain is plan­ning to cut its rate from 20 per cent to 17 per cent in 2020, a de­ci­sion that pre­dates Trump’s move and was strongly prompted by fears that cor­po­ra­tions may find the United King­dom a less at­trac­tive place af­ter it leaves the Euro­pean Union.

France, mean­while, is poised to take its cor­po­rate tax rate from 34 per cent to 28 per cent in 2020. Other coun­tries, in­clud­ing Italy and Is­rael, have sim­i­lar am­bi­tions.

“What we’re see­ing is a head­long rush” said EY’s Lieb, point­ing

The prob­lem stems in part from the col­lapse of a decade­long prop­erty bub­ble in 2008 that left thou­sands of build­ings empty across Spain.

There are 3.4 mil­lion empty prop­er­ties in Spain, the equiv­a­lent of 13.7 per cent of all real es­tate in the coun­try, the na­tional sta­tis­tics in­sti­tute says.

Many are in the hands of banks to the case of Hun­gary where the cor­po­rate tax rate is to be slashed from 19 per cent to just nine per cent.

Nev­er­the­less, there is suf­fi­cient doubt as to whether Trump will ac­tu­ally be able to get the cuts past Congress.

Ac­cord­ing to a US think-tank, the Tax Pol­icy Cen­tre, Trump’s plans could re­duce Wash­ing­ton’s bud­get by as much as US$6.2 tril­lion (RM26.9 tril­lion) over the next decade and mas­sively push up the US pub­lic debt by US$20 tril­lion by 2036. AFP which in­her­ited them af­ter builders or buy­ers were un­able to pay back their loans.

Just in Cat­alo­nia alone, banks own 45,000 empty apart­ments, ac­cord­ing to the re­gional gov­ern­ment’s hous­ing depart­ment.

These are the most sought af­ter since lenders usu­ally take longer to act against an oc­cu­pa­tion. AFP


Or­gan­ised gangs in Spain are chang­ing the locks of va­cant prop­er­ties and hook­ing them up il­le­gally to elec­tric­ity, gas and water be­fore sell­ing the keys to squat­ters.

White House plans to dra­mat­i­cally cut taxes for United States busi­nesses and in­di­vid­u­als, slash­ing the cor­po­rate rate from a top rate of 35 per cent to 15 per cent. MIKE BLAKE

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