Will governments impose a Wealth Tax as suggested by the IMF?

Will governments impose a Wealth Tax as suggested by the IMF?

Will governments impose a Wealth Tax as suggested by the IMF?

The IMF had a suggestion in its Fiscal Monitor Report in October 2013, that Eurozone economies with large deficits could close the gap by raising revenues through a ‘one off’ wealth tax of 10%.

Of course after a barrage of comments, it was revealed that this was an analytical work rather than a recommendation.

Well, pretty much all such taxes arise from such ‘suggestions’.

In the UK, the Treasury has been also exploring ways of increasing revenues through taxing savers. Recent reports in the financial press, suggests that the tax free lump sum taken from pension pots maybe in danger of being capped  at £36,000! The ‘mansion tax’ is something that has been discussed openly over the last year. Of course, a ‘one off ‘ tax on wealth may close the UK deficit in the short term.

At present, the government is hoping that economic growth will close the deficit gap but in the long term it is unrealistic to expect the majority of public spending which is on social welfare and the health, can be sustained by growth alone or even by crazy ‘one off’ taxes on people’s savings.

Looking at the figures more closely, just a one off tax on savings won’t be sufficient. According to a ONS (Office for National Statistics) report on total wealth in the UK in 2012, housing is worth £3.5 trillion with pensions worth £4.7 trillion and financial wealth £1.8 trillion, totalling £10 trillion. So just taxing financial wealth won’t be enough and that’s why pensions and housing wealth is being looked at.

Confiscating assets, which is what it really amounts to will mean that assets have to be turned into cash since most people’s assets will be in housing and pensions. This in turn will result in asset sales, thereby reducing those prices and making people feel much poorer. A very similar result to the 2008 financial crisis in which consumers stopped spending! So the problem with acting like Robin Hood is that the government will be faced with another recession, which will make matters worse.

The only thing that may stop politicians to think awhile would be the fact that the people with the most housing and pension assets will be the older people who have paid off mortgages and saved for their retirement, also much more likely to vote!

Let alone individuals, the effect on business would be even worse. Zombie companies who have survived due to low interest rates will go bust and others especially SMEs’ which are recovering will be set back with more lay offs, which in turn will make the economy worse.

It seems to me that people working on such analysis and coming up with such daft suggestions in public organisations have no link to reality and have probably not worked in commerce. Unfortunately, neither have most of our politicians and that can be a deadly combination.

Let’s hope there are people with common sense who would advise against such nonsense.

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