Should Tesla Have Built Its European Gigaplant In The UK Instead Of Germany?

After all, Germany wasn’t the only option on the table. There were rumors last year that Elon Musk was in talks with the UK government to open a Gigafactory in Somerset in the UK. Some years ago, the UK was a preferred manufacturing location for non-European car brands because it had direct access to the EU market but more relaxed labor laws.

Several Japanese manufacturers, including Toyota, allegedly built their manufacturing in the UK for that reason. The country was even dubbed the “Japanese aircraft carrier floating off the coast of Europe” in 1992 by Jacques Calvet, who was then head of PSA Group, a French automaker that was the country’s largest industrial company at the time (and now part of Stellantis).

Sadly, Brexit has reduced the UK’s utility in this respect, so that only the reduced red tape at the manufacturing stage remains. There is now a lot more bureaucracy when it comes to trading with the EU from the UK, and that was reportedly a major factor in Honda closing its Swindon factory after 35 years.

Officially, bureaucracy is not why Tesla walked away from the EU money he was being offered, though, even if you can bet there would have been many hoops to jump through to get it. Musk stated that he had turned down the $1.28 billion in EU funding for the Berlin Gigafactory because “It has always been Tesla’s view that all subsidies should be eliminated. But that must include the massive subsidies for oil & gas. For some reason, governments don’t want to do that…”

You should always take such statements from Musk with a pinch of salt, particularly considering his record on labor relations, which isn’t as benevolent as his environmental message. However, he does have a point about subsidies. There are a lot of complaints about governmental assistance for EVs and green energy, but the oil and gas industry hasn’t exactly been free from monetary incentives over the years either.

Activist group Paid to Pollute claims the UK has provided nearly £14 billion ($18.7 billion) in subsidies to oil and gas since 2016 alone. In the US, the figure is more than this every year, with an Oil Change International report in 2017 putting the American total at $20.5 billion annually.

There is also more to attract business than just hassle-free labor, financial kickbacks, and free trade agreements. The UK does have considerable other opportunities in the brave new world of EVs. Start-up Britishvolt broke ground on the UK’s first battery Gigaplant in August, a £2.6 billion ($3.5 billion) project that aims to create 8,000 new jobs and manufacture 30GWh of batteries from 2027 onwards, enough for 300,000 EVs a year.

The UK also has its own supplies of lithium, a key element in most rechargeable battery chemistries, which Cornish Lithium and British Lithium hope to exploit. This is both from mining and brine, geothermal underground water that is high in lithium content. These companies even argue that there will be enough local lithium to electrify the entire UK car fleet. Electric hypercar maker Rimac has its design office in the UK too, because of the talent available in the country.

Tesla does need to think about where it is producing cars for the right-hand-drive market. This doesn’t just include the UK, but also Japan, South Africa (plus several adjacent countries), Australia, New Zealand and (the big ones) India, Indonesia, Pakistan, and Bangladesh. Malaysia and Thailand also drive on the left. In fact, the sum of right-hand-drivers is 2.8 billion people – 36% of the world population.

Right now, the Tesla cars coming into the UK are being made in China, which ironically is considered to be a quality improvement over those manufactured in America. The Chinese Model 3s now also come with LFP batteries, which are cheaper, more tolerant of being charged to 100%, and contain no cobalt, so are free of the moral issues that mining that mineral poses. But even if China is a cost-effective place to produce cars, transporting them around the world is hardly great for the environment.

Tesla will almost certainly iron out its problems in Germany sometime in 2022. But you do have to wonder if Elon Musk is considering it a rather bitter pill dealing with the bureaucracy that he has faced setting up the Gigafactory in Berlin. Even when the plant opens, this is likely to continue, looking at past history in Europe. Perhaps, as the EV market continues to grow, local UK manufacturing could end up back on the table. Brexit or no Brexit, the UK is still a very lucrative automotive market after all.

Follow me on Twitter or LinkedIn. Check out my website.

I am the editor of independent electric vehicle website WhichEV. I have over 25 years’ experience as a technology journalist and a life-long love of cars, so having the two come

Source: Should Tesla Have Built Its European Gigaplant In The UK Instead Of Germany?

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Americans Are Still Spending Ahead Of Holiday Season Despite Inflation Surge

Personal spending rose 1.3% last month in a sign that consumers are continuing to spend more despite higher inflation, which continues to rise at its fastest pace in three decades, according to new data from the Commerce Department on Wednesday.

Prices climbed by 5% in the year through October, the fastest gain in over 30 years, according to the latest Personal Consumption Expenditures price index report.

Inflation is surging at its fastest pace in three decades, data shows: October’s annual jump in prices is more than last month’s reading, which showed prices for the year through September climbing 4.4%.

Despite the lingering Covid-19 pandemic, the reduction of stimulus payments and ongoing supply chain issues adding to investor fears about inflation, consumer demand remains steady amid rising private wages and salaries, the Commerce Department’s report said.

Personal consumption expenditures (or PCE)—a key measure of consumer spending—rose 1.3% in October, while personal income rose 0.5%, according to the data.

Both measures of consumer strength were up sharply from recent months: The elevated spending levels ahead of a busy holiday season could help boost the broader economic recovery, experts say.

The increase in personal spending comes as Americans benefit from large pay increases and healthy household balance sheets, especially after several rounds of government stimulus, according to the report.

“Within goods, increases were widespread, led by motor vehicles and parts,” according to the report. Energy prices increased over 30% and food prices nearly 5%. Excluding both of those, the PCE price index for October gained 4.1% from a year ago.

Whether rising inflation starts to cut into consumer demand. While spending on consumer goods is now well above prepandemic levels, Americans with lower incomes could start to defer purchases if price increases continue, economists warn.

genesis-1-1-1-1-1-1-1-2-1-1

In a more positive sign for the U.S. economic recovery, weekly jobless claims fell substantially to their lowest level in 52 years, according to new data on Wednesday. The latest report from the Labor Department showed that the jobs market has continued to make a comeback in recent weeks. Around 199,000 people filed initial jobless claims in the week ending November 20, which was down 71,000 from the previous week and the lowest level since November 1969.

Stocks continue to remain near record highs—with the S&P 500 up 26% so far this year, though markets could be more volatile in 2022, experts warn. Rising fears about higher inflation, the Covid-19 delta variant, supply chain issues and Federal Reserve policy are all top of mind for investors going into the end of the year.

Further Reading:

This Wall Street Firm Sees A Negative Year Ahead For The Stock Market (Forbes)

New Jobless Claims Unexpectedly Sink To 52-Year Low Despite 2 Million Americans Still Receiving Unemployment Benefits (Forbes)

Stocks Jump After Biden Reappoints Jerome Powell To Lead Federal Reserve (Forbes)

Follow me on Twitter or LinkedIn. Send me a secure tip.

I am a New York-based reporter covering billionaires and their wealth for Forbes. Previously, I worked on the breaking news team at Forbes covering

Source: Americans Are Still Spending Ahead Of Holiday Season Despite Inflation Surge

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China’s Burned Out Tech Workers are Fighting Back Against Long Hours

1The draining 996 work schedule—named for the expectation that employees work 9 a.m. to 9 p.m., six days a week—has persisted in Chinese companies for years despite ongoing public outcry. Even Alibaba co-founder Jack Ma once called it a “huge blessing.”

In early October this year, it seemed the tide might have been turning. After hopeful signs of increased government scrutiny in August, four aspiring tech workers initiated a social media project designed to expose the problem with the nation’s working culture. A publicly editable database of company practices, it soon went viral, revealing working conditions at many companies in the tech sector and helping bring 996 to the center of the public’s attention. It managed to garner 1 million views within its first week.

But the project—first dubbed Worker Lives Matter and then Working Time—was gone almost as quickly as it appeared. The database and the GitHub repository page have been deleted, and online discussions about the work have been censored by Chinese social networking platforms.  The short life of Working Time highlights how difficult it is to make progress against overtime practices that, while technically illegal in China, are still thriving.

But some suspect it won’t be the last anonymous project to take on 996. “I believe there will be more and more attempts and initiatives like this,” says programmer Suji Yan, who has worked on another anti-996 project. With better approaches to avoiding censorship, he says, they could bring even more attention to the problem.

Tracking hours

Working Time started with a spreadsheet shared on Tencent Docs, China’s version of Google Docs. Shortly after it was posted, it was populated with entries attributed to companies such as Alibaba, the Chinese-language internet search provider Baidu, and e-commerce company JD.com.  “9 a.m., 10:30 p.m.–11:00 p.m., six days a week, managers usually go home after midnight,” read one entry linked with tech giant Huawei. “10 a.m., 9 p.m. (off-work time 9 p.m., but our group stays until 9:30 p.m. or 10 p.m. because of involution,” noted another entry (“involution” is Chinese internet slang for irrational competition).

Within three days, more than 1,000 entries had been added. A few days later, it became the top trending topic on China’s Quora-like online forum Zhihu.  As the spreadsheet grew and got more public attention, one organizer, with the user name 秃头才能变强 (“Only Being Bald Can Make You Strong”), came out on Zhihu to share the story behind the burgeoning project. “Four of us are fresh college and master’s degree graduates who were born between 1996 and 2001,” the organizer said.genesis3-1-1

Initially, the spreadsheet was just for information sharing, to help job hunters like themselves, they said. But as it got popular, the organizers decided to push from information gathering to activism. “It is not simply about sharing anymore, as we bear some social responsibility,”

The spreadsheet filled a gap in China, where there is a lack of company rating sites such as Glassdoor and limited ways for people to learn about benefits, office culture, and salary information. Some job seekers depend on word of mouth, while others reach out to workers randomly on the professional networking app Maimai or piece together information from job listings.  “I have heard about 996, but I was not aware it is that common.

Now I see the tables made by others, I feel quite shocked,” Lane Sun, a university student from Nanjing, said when the project was still public. Against 996 According to China’s labor laws, a typical work schedule is eight hours a day, with a maximum of 44 hours a week. Extra hours beyond that require overtime pay, and monthly overtime totals are capped at 36 hours.125x125-1-1-1

But for a long time, China’s tech companies and startups have skirted overtime caps and become notorious for endorsing, glamorizing, and in some cases mandating long hours in the name of hard work and competitive advantage.  In a joint survey by China’s online job site Boss Zhipin and the microblogging platform Weibo in 2019, only 10.6% of workers surveyed said they rarely worked overtime, while 24.7% worked overtime every day.

 Long work hours can benefit workers, Jack Ma explained in 2019. “Since you are here, instead of making yourself miserable, you should do 996,” Ma said in a speech at an internal Alibaba meeting that was later shared online. “Your 10-year working experience will be the same as others’ 20 years.” But the tech community had already started to fight back. Earlier that year, a user created the domain 996.icu.

A repository of the same name was launched on GitHub a few days later. The name means that “by following the 996 work schedule, you are risking yourself getting into the ICU (intensive care unit),” explains the GitHub page, which includes regulations on working hours under China’s labor law and a list of more than 200 companies that practice 996.  Within three days, the repository got over 100,000 stars, or bookmarks, becoming the top trending project on GitHub at that time. It was blocked not long after by Chinese browsers including QQ and 360, ultimately disappearing entirely from the Chinese internet (it is still available through VPNs).

The 996.icu project was quickly followed by the Anti-996 License. Devised by Yan and Katt Gu, who has a legal background, the software license allows developers to restrict the use of their code to those entities that comply with labor laws. In total, the Anti-996 License has been adopted by more than 2,000 projects, Yan says. Today, 996 is facing increasing public scrutiny from both Chinese authorities and the general public.

After a former employee at the agriculture-focused tech firm Pinduoduo died in December 2020, allegedly because of overwork, China’s state-run press agency Xinhua called out overtime culture and advocated for shorter hours.This company delivers packages faster than Amazon, but workers pay the priceSouth Korean e-commerce giant Coupang uses AI to promise almost-instant delivery. But speed comes with troubling labor issues—including worker deaths.

And on August 26, China’s Ministry of Human Resources and Social Security and the Supreme People’s Court jointly published guidelines and examples of court cases on overtime, sending reminders to companies and individuals to be aware of labor laws. But even though authorities and state media seem to be taking a tougher stand, it is unclear when or if the rules that make 996 illegal will be fully enforced. Some companies are making changes.quintex-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-2-1-1-1-1-2-2-1-1-1

Anthony Cai, a current employee of Baidu, says working six days a week is quite rare in big companies nowadays. This year, several tech companies including and ByteDance, the developer of TikTok, canceled “big/small weeks,” an emerging term in China that refers to working a six-day schedule every other week. “Working on Saturday is not that popular anymore,” Cai says. “However, staying late at the office is still very common, which is not usually counted as overtime hours.” 

 Source: https://www.technologyreview.com

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“Guide to Employment law in Spain”

Modern Monetary Theory Isn’t the Future. It’s Here Now

The infrastructure act signed into law last week marked a defeat for the faction of progressive economists in ascendancy in 2020. For these advocates of modern monetary theory, the insistence by both political parties that all the $550 billion of new spending be matched by offsetting revenue, known as “payfors,” goes against their belief that money is merely a tool for government.

This is a temporary rhetorical setback. The reality is that MMT’s ideas have insinuated themselves deep into government, central banking and even Wall Street—and the infrastructure act is in fact deficit-financed anyway.

MMTers detest payfors as wrongheaded thinking about money. Money only exists because of government spending, and under MMT, the government should just create as much as it needs to finance its projects. In a tight economy—like we have now—MMT might want offsets to new spending. But higher taxes or lower spending elsewhere would be aimed at avoiding inflation, not at balancing the budget.

The government hasn’t embraced MMT. But important elements of it are now accepted by much of the economic and financial establishment, with major implications for how the economy is run.The most important claim of MMT is that a government need never default on debt issued in its own currency. The lesson of 2020 was that MMT is right.

“We got five or six trillion dollars of spending and tax cuts without anyone worrying about payfors, so that was a good thing,” says L. Randall Wray, an economics professor at Bard College in New York and a leading MMT academic. “In January [2020], MMT was a crazy idea, and then in March, it was, OK, we’re going to adopt MMT.”

It isn’t just MMTers who say the world took a turn toward a new way of thinking.

“Governments have lost their fear of debt,” says Karen Ward, chief market strategist for EMEA at JPMorgan Chase’s asset-management arm. “They were terribly worried about bond markets and investors punishing them. What they saw last year was record high levels of debt at record low levels of interest rates.”

Central banks that had struggled for a decade to boost inflation using monetary tools found that fiscal tools were far more powerful. Government spending does far more for inflation than quantitative easing, it turns out, and central-bank calls for more fiscal action to boost the economy are more likely to be accepted next time deflation looms.

Key parts of MMT haven’t been adopted, particularly its call for government to guarantee everyone a job. But the MMT critique of the status quo, where the central bank modulates the number of unemployed people to control inflation, hit a nerve. The Federal Reserve shifted in favor of running the economy hot to reduce inequality. Employment has become more important in its thinking, and its move to a target of average inflation means it is willing to accept higher inflation than previously.

Still, the Fed is (rightly) worried about inflation and is tweaking its tools to try to influence the economy with monetary policy, something MMTers think just doesn’t work. As Mr. Wray points out, it wasn’t when trillions in benefit checks landed in bank accounts last year that inflation went up; prices went up when the recipients went out and spent the money. “Money doesn’t cause inflation,” Mr. Wray argues, a view that infuriates monetarist economists. “Spending causes inflation.”

In the next downturn it is going to be very difficult for governments to resist calls to provide huge support, now that it has been shown that bond markets don’t care. That should mean recessions are shallower, debt is higher, the government is more involved in the economy and, assuming the Fed doesn’t accept that its tools are useless, interest rates are higher on average than in the past. Bond markets aren’t pricing in anything of the sort, though. The 30-year Treasury yield is only 2%, well below the 3.2% average of the 10 years up to 2020.

Under full-blown MMT, payfors would be ditched for a mix of micro-planning of the resources needed for new projects, and an assessment of the overall impact on the economy—and potentially, higher taxes.

MMT is both right and wildly optimistic that higher taxes could slow an overheated economy and bring down inflation. The flip side of last year’s demonstration of the power of fiscal policy is that higher taxes can suck demand out of the economy much more effectively than the Fed’s interest-rate tools.

There was a brief moment when it looked as though Democrats might impose higher taxes on billionaires as part of the payfors for the roughly $2 trillion social-spending bill, although they were dropped on first contact with reality. MMTers mostly aren’t worried about  Biden’s spending plans causing inflation anyway. But MMT prescribes that if tax rises are needed to slow demand, billionaires wouldn’t be the target: The rest of us would.

“It makes more sense to have a broad-based tax that would reduce demand across the broader economy, especially people who have a propensity to spend of 98%, which is the majority of Americans,” Mr. Wray said.

Other MMT ideas have infiltrated their way into the heart of the establishment, but the idea that the government should raise taxes on ordinary Americans, let alone that it should do so to control inflation, is exceptionally unlikely to be accepted.

That is a bad thing, because MMT’s ideas encourage more spending, and if that results in more inflation in the longer run, MMT is right that higher taxes are the simplest way to reduce demand and prevent a surge in prices.

James Mackintosh

By: James Mackintosh / Senior columnist, markets, The Wall Street Journal

Source: Modern Monetary Theory Isn’t the Future. It’s Here Now. – WSJ

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Wealth And Windfall Taxes: Still Not Ready For Prime Time

One sign that post-COVID-19 normalcy is slowly coming to the tax world is that tax authorities are increasingly being accused of launching or seeking unwarranted investigations of taxpayers. Eighteen months or even a year ago, when liquidity was paramount during the height of the pandemic lockdowns, tax authorities across the world quietly backed away from tax enforcement, giving taxpayers some grace in a difficult time. But in some countries, the grace period appears to be over.

In New Zealand, the Inland Revenue Department is seeking contact information for high-net-worth individuals so it can follow up with inquiries about their financial affairs. That hasn’t been received well by the New Zealand Taxpayers’ Union, which recently accused the department of conducting fishing expeditions that could keep the rich from moving to or investing in New Zealand.

In the United States, the Biden administration received significant blowback when it released a bank reporting proposal that would have obligated financial institutions to report data on business and personal accounts with over $600. A second iteration that would have increased the reporting threshold to $10,000 didn’t fare much better. The idea was ultimately cut from a massive budget package winding its way through the government.

The South African Revenue Service, which recently beefed up its high-net-worth unit, is reportedly assigning specific staff to each high-net-worth taxpayer to engage in ongoing dialogue, reminiscent of private banking relationships, according to a report in South Africa’s BizNews.

Overall, this activity is a sign that governments are beginning to shift to the pandemic recovery phase instead of remaining in the pandemic emergency phase. Recent budget and legislative proposals issued in various countries back this up.

Yet the tax transition to recovery has not been as smooth or decisive as previous phases: It has been more hesitant and cautious because policymakers continue to grapple with taxpayer trust issues and slow economic recovery. This is particularly true with excess profits (windfall taxes) and wealth taxes, both of which have generated a lot of discussion.

Where Are We Now?

As a refresher, tax responses to the COVID-19 pandemic have generally followed three phases. The first was about liquidity and enabling taxpayers to keep cash on hand. Many tax administrations achieved this by allowing deferred tax payments, issuing faster tax refunds, increasing business deductions, and allowing taxpayers to shift losses to other years. In that phase, taxing authorities relieved taxpayer burdens and scaled back on enforcement.

The second phase was about maintaining liquidity and starting to ease into restructuring, which requires a careful balance between maintaining taxpayers’ access to cash and instating gradual and reasonable tax increases that do not impede growth or anger taxpayers.

Finally, there is what the World Bank calls phase 3: resilient recovery. This phase is about trust. According to the World Bank, if taxpayers think their lawmakers have been evenhanded and fair over the course of the pandemic by providing adequate relief when needed, then this phase’s needed tax hikes and tax base expansions will have the greatest likelihood of public acceptance.

Windfall Taxes Are Still Rare

At the beginning of the COVID-19 pandemic, many questioned whether countries should rely on windfall taxes to pay for pandemic-related support and recovery. There has been a lot of debate, but few takers. Malaysia stands out as one of the first countries to adopt a pandemic-related windfall tax.

Malaysia

COVID-19 battered Malaysia’s economy. In 2020 the country suffered a 5.6% decline in GDP — its worst economic contraction since the Asian financial crisis of 1997. The good news is that the economy is expected to steadily recover over the next year as part of the overall global economic recovery. But riding these economic coattails may not be enough for Malaysia, which has struggled with chronically low tax revenue collection.

In the run-up to the country’s October budget release, Deputy Finance Minister Yamani Hafez bin Musa said the government was considering a number of tax measures to fund recovery, “including taxing the profits on stock investments and imposing higher tax rates on a one-off basis on companies that generated extraordinary profits during the COVID-19 pandemic,” he said.

The government made good on that promise October 29 when it released a souped-up $80 billion budget, its largest ever, which features a controversial one-time windfall profit tax. Effective 2022 corporations will pay a 33% corporate tax rate on profits over MYR 100 million (about $24 million). The first MYR 100 million will be taxed at the regular 24% corporate tax rate. The government expects that a few hundred companies will cross the windfall threshold.

Malaysia did not arrive at this decision lightly, but there is precedent. Crude palm oil producers have been subject to the Windfall Profit Levy Act (Act 592) since 1999. The act imposes a tax on profits exceeding a crude palm oil market price of MYR 2,500 per ton for Malaysia’s peninsula and MYR 3,000 per ton for the states of Sabah and Sarawak.

Since its inception, the tax has generated MYR 4.1 billion in revenue, so expanding it and imposing it on other sectors was not a giant leap and reflects feedback garnered from various stakeholders.

Underscoring that strategy, the government refrained from hiking the windfall profit tax on crude palm oil producers. Instead, it increased the profit threshold by MYR 500 for peninsular Malaysia and Sabah and Sarawak, according to Finance Minister Tengku Zafrul Aziz.

But the initial response from industry was one of general displeasure; the country’s benchmark stock index, the FTSE Bursa Malaysia KLCI, fell 2% on the announcement, and some economists are warning that consumers will bear the cost of the tax. All told, Malaysia presents a case study for other countries considering similar measures.

Canada

In Canada, the manufacturing and extractives industries — mining, quarrying, and oil and gas extraction — performed handsomely in 2020. If the government imposed an excess profits tax on large companies that performed the best during the pandemic, they would bear the largest burden, according to data from Canada’s parliamentary revenue estimator.

The country’s New Democratic Party, which sits to the left of the ruling Liberal Party, has been the most consistent advocate for an excess profits tax.

In April New Democratic Party member of Parliament Peter Julian asked the Office of the Parliamentary Budget Officer to estimate how much an excess profit tax on the most profitable companies during the pandemic would raise, using the country’s previous World War II-era excess profits tax as a model.

When Canada imposed an excess profits tax during WWII, it calculated the average yearly profits that companies earned between 1936 and 1939 and levied a 100% tax on anything exceeding that figure. Using that formula, the parliamentary budget officer investigated what would happen if Canada, which has a 15% corporate tax rate, doubled the rate on excess profits.

Excess profits would be those made in 2020 by firms that earned over C $10 million in revenue for at least one year between 2016 and 2020 and exceeded their expected 2020 profits, which the office calculated using each company’s average profit margin between 2014 and 2019.

If Canada followed this formula, it could raise C $7.9 billion, according to the office’s estimates. That said, there’s very little indication that an excess profits tax is on the table. The measure wasn’t included in the country’s 2021 budget, released in April.

It was resurrected as a campaign point during the September general election, but the New Democratic Party, which has long held a minority of seats in Parliament, underperformed in the election. Prime Minister Justin Trudeau instead wants to rely on increased tax enforcement on businesses and the wealthy and to raise corporate tax rates on large financial institutions to 18%.

United Kingdom

Before COVID-19 became a worldwide pandemic, the U.K. Labour Party suggested the country should implement a windfall profits tax on oil companies. As the pandemic progressed, other stakeholders issued broader calls for a general business windfall tax.

In March the House of Commons Treasury Committee briefly analyzed the idea of a business windfall tax in a sprawling report, “Tax After Coronavirus,” that considered the country’s options for both COVID-19 recovery and general tax reform. Lawmakers asked private industry and civil society about the feasibility and wisdom of a windfall tax and emerged from the discussion skeptical about the future of a U.K. tax.

“There are downsides to a windfall tax, including its potentially retrospective nature. There would also be complexities, including the difficulties of identifying sectors to which any such tax should apply, ensuring that such a tax is fairly targeted at firms which have benefited excessively within those sectors, and identifying the element of a firm’s profits which could be reasonably attributed to excessive profits generated by the pandemic,” the report said.

The committee thought a windfall tax would be troublesome, but it also left the door open, adding that it might not “be impossible to introduce a windfall tax in certain circumstances in the future, if that was the political choice made.”

Wealth Taxes Gain More Traction

During the COVID-19 pandemic the ultrawealthy flocked to Singapore from all around the world, seeking a sophisticated, low-tax refuge in a time of chaos. But they wound up bringing chaos of their own, driving real estate prices to all-time highs amid a frenzy to put down roots.

According to Bloomberg, Singaporean authorities have been quietly asking high-net-worth individuals and the business community their opinions on wealth taxation. On one hand, the government is loath to disrupt the multimillionaire pilgrimage, but on the other hand, growing wealth inequality within the country may require creative wealth taxation, according to the head of Singapore’s central bank.

That creativity could arrive in the form of a property gains tax or inheritance tax — neither of which Singapore has — according to Ravi Menon, managing director of the Monetary Authority of Singapore. He shied away from proposing a net wealth tax, which historically has not performed well around the world.

In early November MP Jamus Lim offered the first concrete proposal: a graduated net wealth tax between 0.5 and 2% imposed on individual net worth in excess of SGD 10 million (about $7.4 million). Net wealth above SGD 10 million and up to SGD 50 million would be taxed at 0.5%, and wealth above SGD 50 million and up to SGD 1 billion would be taxed at 1%. Anything above SGD 1 billion would be assessed at 2%.

Latin America has embraced wealth taxation more than any other region during the pandemic, with several countries, including Bolivia and Argentina, introducing or expanding wealth taxes.

The next country to watch in the region is Colombia. In April lawmakers there introduced, as part of a broader tax reform package, legislation for a one-off wealth tax that would apply a 1% tax on net assets over the equivalent of $1.3 million and 2% on net assets over the equivalent of $4 million. The tax would apply in 2022 and 2023. However, the reform package was subsequently revised following public protest, and the wealth tax component was omitted. It is unclear where the idea stands.

Meanwhile, Belgium thought the COVID-19 pandemic presented a good opportunity to resurrect its controversial wealth tax on securities accounts. A securities tax was scrapped in 2019 after a Belgian high court found that it violated EU legal principles of equality and nondiscrimination and deemed it unconstitutional.

The country’s Constitutional Court found that the 0.15% tax contained some discriminatory exclusions, like real estate certificates, without a solid justification. The court also found that the tax applied unequally because individuals who own a share of an account can potentially avoid the tax if their share exceeds €500,000.

This time around, Belgium is applying a blanket tax on all securities accounts worth over €1 million — unlike the previous version, there are no exemptions. The government says the proceeds will be used to fund healthcare, but it remains to be seen whether this new provision will also be subject to legal challenge.

In the United Kingdom, the House of Commons Treasury Committee explicitly rejected the idea of an annual wealth tax, citing design and administration challenges as well as the fact that several other countries have abolished their wealth taxes because of administrative difficulties. As for a one-off wealth tax, the committee didn’t fully write off the idea, noting that “it could be used to raise significant revenue.”

The idea of a one-off tax has been floating around ever since a group of economists from the London School of Economics and Political Science and the University of Warwick formed an independent wealth tax commission to evaluate the country’s revenue-raising options. In a December 2020 report they estimated the country could raise £260 billion over five years if it taxed individual wealth over £500,000 at a 1% rate and would raise £80 billion if it taxed wealth over £2 million.

There are design concerns with that proposal. It would likely hit middle-income earners because “wealth” for purposes of the tax would include main home values. There also are concerns over retrospectivity.

Beyond that, some worry that a one-off wealth tax would simply open a Pandora’s box if the tax is imposed and succeeds because the government could very well impose it again. For now, wealth tax conversations in the United Kingdom remain academic: The measure failed to make it into the U.K. annual budget, released October 27.

A similar phenomenon happened in Germany when the center-left Social Democratic Party, which won a plurality in the country’s recent parliamentary election, vowed to resurrect the country’s wealth tax, which had been struck down over constitutionality concerns. But because the Social Democratic Party lacks a governing majority, it is seeking a coalition with two other parties — the Alliance 90/The Greens and the Free Democratic Party — and has decided to abandon the wealth tax to make a coalition possible. So it remains an academic topic, perhaps to be resurrected at a later date.

I am a contributing editor for Tax Notes International, where I write weekly analysis on various international tax topics including European tax developments, the digital economy, base erosion and profit shifting, and tax transparency. I also write for the Tax Analysts blog. I am passionate about the intersection of tax, law, and journalism, and I look for the accessible and interesting angle in tax. Before joining Tax Analysts I was a managing editor for Thomson Reuters in New York and a senior tax reporter for Law360. I have a BA from the University of Pittsburgh and a JD from Columbia Law School.

Source: Wealth And Windfall Taxes: Still Not Ready For Prime Time

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