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Cheques and Balanceurs

First Published in BusNet on 18 May 2014

Two days ago in Paris, 44 countries (including all of the OECD ones) signed a declaration to end bank secrecy. Financial information will soon be automatically obtained from our banking institutions and routinely passed around, without restraint, amongst participating jurisdictions.

So now high net worth clients from Mexico, where the kidnapping of children for ransom is endemic, have lost the right to disguise their wealth in order to protect their kids. It doesn’t matter whether they intend to avoid tax (or even to encourage others to do so). Thanks to the Paris Declaration, everyone will know their wealth.

This new development will also send shock-waves through the Swiss banking sector, which is only beginning to recover from their last assault. Now client information will be placed in the hands of the lowest common denominator in their vast new tax network.

Switzerland manages about CHF 5.5 trillion in private wealth, roughly half of which is on behalf of non-residents. The right to secrecy has been central pillar of Swiss Banking for centuries, but in the past decade it has been stigmatised as a synonym for tax evasion. In most countries ‘tax evasion’ is a crime, while ‘tax avoidance’ is not.

Managing one’s tax liability is an essential part of wealth preservation. Let’s not forget that businesses are taxed whenever they make money; we are taxed when we receive it as salaries or dividends; we are taxed when we buy things; and we are also taxed when we throw things away once we are finished with them. Ultimately we are even re-taxed when we pass our remaining after-tax wealth to our heirs. Unless you have ticked all the above boxes, you have, according to the purists, evaded tax.

Which is why, in 1726, Daniel Defoe proclaimed that the only two certainties in life are ‘death and taxes’. Yet today’s tax policy is not as enlightened as Defoe - who also wrote Robinson Crusoe, still the only guy who managed to get all his work done by Friday!

In France this week, President Holland celebrated two years as President. One of the widespread objections to his so-far unpopular term of office is “every day a new tax”. That makes it hard to draw a clear distinction between those who avoid tax and those who mistakenly evade it. And it brings fresh revenue for those determined to pursue their ‘witch hunt of the still wealthy’ – particularly when their likely prey can be stripped of the legal basis on which they have, until now, defended themselves.

The trouble, in France and most of the OECD, is ‘they’ are in power and not ‘us’. This is troublesome because in their position but with our values, we would probably make better decisions. It’s even more troublesome because we can’t get ‘them’ out of office for several years. Yet at each election, anywhere in the world, politicians feed us enough social opium, for us to forget how much we hate them. Some just need a sniff and they’re hooked. Others would give the Marquis de Sade a run for his money. Unfortunately democracy means that both types get a vote.

Yet, in the current crisis, our social context begins with George W Bush, 43rd President. He was gifted his presidency as a bounty from his Dad, George H W Bush, 41st President - with the tangible intervention of Jeb Bush, then Governor of Florida, where the controversial issue of ‘pregnant chits’ became decisive in the local courts, who took over from the national polls to pronounce a second Bush Era for his brother.

Then in the aftermath of 911, George W divided the world into two opposing forces: terrorists, who hate freedom, and those who love freedom and democracy. The West bought it. George Bush was better than Defoe. When going to bed, I would have chosen George Bush’s stories. Both have a narrative style, but Robinson Crusoe had to endure encounters with cannibals, while the Bush manuscript describes the eternal glory of freedom and democracy - with a naively clear-cut verdict in favour of us, the good guys. Amen. Sleep Tight.

Fortified in his pursuit of ‘freedom’, George W’s conscience allowed him to build internment camps in Guantanamo bay, where individuals were denied any legal representation, as they were deemed prisoners of war. That war had no borders, and those prisoners had no vestige of support. And so the West was won again.

And this will become the new normal for tax information: a fiscal Guantanamo Bay.

We’re beginning to realise that democracy may be the best form of political representation, but politics is only legitimate in a very narrow channel of our civil life. And that channel should not extend to how we choose to earn, declare or spend our hard-earned revenue, however the Bush rhetoric has permeated our recent thinking in much the same way the much brighter Kissinger’s did twenty years before.

Yet we’re all tied into a global social convention, which started in Geneva, when Jean-Jacques Rousseau - probably its greatest philosopher - developed the notion of ‘the noble savage’. He postulated that a ‘social contract’ tied us into our civil obligations, despite our bestial instincts to behave differently. For the past 250 years this thinking has become so natural, we haven’t stopped to question it. We’ve lived our lives and paid our taxes, assuming that our public leaders were equally obliging.

Instead our public leaders have chosen to pick the low-hanging fruit of declared wealth, despite the cost this will levy on all account holders, innocent or guilty alike. And human resources which could advance our economic progress in 2015 will be diverted to controlling our financial position in 2013. The new moves will be steady enough to entrap the honest, but not fast enough to uncover the truly underground economy. And we will all endure more of the government above our heads and less of the government beneath our feet.

And so, ironically, we have rewritten our social fate exactly where we are believed to have discovered the New World – first with Bush in Florida, and now with the OECD in Paris –where Rousseau helped inspire the French Revolution that once brought the hope that we could rise above political tyranny.

Dust to dust, ashes to ashes, clogs to clogs.

The reference to the Marquis de Sade is based on “Confessions of an Opium Eater”. I don’t have as much money as he had, and opium costs much more these days, so I’ve never tried it. On the other hand George W refers to his father as 41, and is replied to as 43 – their reciprocal designates as Presidents of the USA. You have to wonder what they’ve been smoking!