Tax havens under attack: Germany vs Switzerland
published on the Institute of Economic Affairs (IEA) blog, March 2009
Switzerland and other so-called “tax havens” have finally succumbed to international pressure and threats to be “blacklisted” by the OECD. Banking secrecy laws will now be weakened, which will make it easier for tax authorities elsewhere to get hold of their fiscal renegades. On hearing the news, Germany’s finance minister, Peer Steinbrück, triumphantly commented: “It is not even necessary for the cavalry to ride out. It is sufficient if the Indians know that the cavalry is there.”
His remarks caused a furious outcry in the Swiss press and a minor diplomatic scandal. For this isn’t the first time that this crusader against tax oases has criticised his southern neighbour. In October last year, he threatened to “crack the whip” if the Swiss were unwilling to cooperate.
So what is it that makes Steinbrück so obsessed with this small pocket of wealth in the Alps? Is it really just the banking secrecy laws which are at issue? Or does it anger him that each month Germany is losing thousands of highly skilled, productive taxpayers to the Swiss? Is it the well-known aversion of policy-makers, especially in high-tax nations, to tax competition in general?
At the end of the day, Switzerland, by its sheer success, exposes the deceit of big-government advocates in Germany and elsewhere. In high-tax countries it is often asserted that current public expenditure levels are indispensable to maintain the high standard of public services. But if this is the case, why is it that Switzerland, where government spending amounts to 36% of GDP (as opposed to 47% in Germany), manages to provide infrastructure assets, hospitals, schools and universities which are at least as good as their German counterparts, if not better? Could it be that governments do a better job if they are under fierce competitive pressures, through legal tax competition or even the threat of tax evasion?
The chairman of the Liberal Party in the German parliament got it right when he said “the problem is not the oasis, the problem is the deserts around it.”