Some of the most open, prosperous and happy nations around the world are low tax nations. So why doesn’t the UK join them, asks Rory Broomfield?
What do Canada, Denmark, Australia and Switzerland all have in common? They are all some of the most economically liberal and happy nations on Earth, according to multiple studies including the Heritage Foundation’s Index of Economic Freedom and the World Happiness Report. The UK doesn’t fair too badly either. It’s ranked by Heritage as the 12th freest economy in the world and by the World Happiness Report as the 19th happiest country in the world. But, just looking at which countries are higher in these and other rankings, you can’t help but ask the question: why?
The methodologies of these studies obviously explain the reasons that they give for the rankings. Notwithstanding this, there are significant differences as to how some of these countries structure their tax system.
The UK has at least 18 different broad tax groups that bring in £670 billion of revenue annually and make up a tax burden of 32 per cent. A lot of these taxes are consumption taxes, such as VAT or alcohol duty which helps the government raise the funds in a consumer driven marketplace. But other taxes, such as National Insurance and income tax, are taxes on work that penalise both individuals and companies for employment and earnings.
In some countries, like Hong Kong, they have a flat tax which allows individuals the freedom to provide for themselves and their families. As a result, Hong Kong’s tax burden is just 14.4 per cent – less than half that of the UK’s. Yet the former British Overseas Colony isn’t (for now at least) one of the happiest countries. Why? This, according to the report, is because of its freedom to make life choices and generosity – despite having higher GDP per capita than many other nations ranked more highly.
A factor in this is state control and, of course, Hong Kong is experiencing increases in that control in social areas. It means that the relatively high economic freedom isn’t the problem – it is the relatively low social freedom that’s causing people to become unhappy.
Indeed, it is worth pointing out here that regulations are also a form of tax. They cost businesses money, they cost people money and they actually cost governments money as businesses are either likely to move, not to invest and not start up in the first place if regulations put in place by the state lead to the costs of establishing and running a business being costlier than the overall benefit. Many people here look at the economic regulations and, in Hong Kong’s case, there are fewer economic regulations than in other countries. However, there are higher social regulations which mean, among other things, that people feel restricted in their ability to express themselves and pursue their lives.
What many of the consumption taxes in the UK do (such as airline duty, alcohol duty, the BBC’s TV tax, cigarette duty, excise duty, fuel duty, inheritance tax, insurance premium tax, savings tax, stamp duty, and VAT) is ensure that the state is always influencing and taking something out of your life. Indeed, it is increasing the costs of the life you choose to lead.
Of course, not all of it is about economics. Some of the countries with the longest life expectancies, for example, are helped by the type of social environments and interactions that they encourage. Nonetheless, looking at some of these countries I do wonder whether the UK can learn something concerning taxes, regulation and social structure.
Indeed, providing for a strong society – rather than a strong state – allows for people to voluntarily contribute to the lives of their communities and the direction of their state. Countries like Switzerland have this in abundance and, along with low taxes (and no federal inheritance tax), it is no wonder that it is both one of the freest economies in the world and contains some of the happiest people in the world.
The UK has a lot to learn from Switzerland.