Why isn't Switzerland progressively closing its wealth gap? The question is important in the context of the intense ongoing debate from Washington to London about a wealth tax.
The coronavirus pandemic has caused government debt to soar and led to calls for substantial new levies on the rich. The argument goes that the wealthy should pay their fair share and growing inequality must be addressed.
Switzerland is supposed to offer a template. Not only does it have the highest density of millionaires in the world, it has a recurring annual wealth tax, which goes back 181 years. It consistently generates more income than the other three European countries that also have a wealth tax or some version of it. In 2017, the Swiss wealth tax contributed 3.6 per cent to the total tax takings. That’s respectable, compared to the 1.1 per cent generated by Norway’s wealth tax, the 0.55 per cent raised by Spain’s and the even lower sum brought in by Belgium’s limited wealth tax on security holdings.
Eastern Swiss Alps are seen in the background as people cross the Limmat River on the Muensterbruecke bridge in Zurich. Switzerland imposes a wealth tax on its richest few. Reuters
And yet, the Swiss Trade Union Federation, Switzerland's largest trades union, is scathing about the country’s widening wealth gap. Its 2016 report said the wealthiest 2.1 per cent of Swiss taxpayers hold assets equal in value to the remaining 97.9 per cent. Ueli Mader, a Swiss sociologist who specialises in social and wealth inequality, recently noted that “10 per cent of Swiss heirs own three-quarters of the country’s total inherited assets”.
So is a wealth tax even worth it? After all, it exacts an administrative cost, there is a political price to pay for its imposition and it could distort behaviour in terms of rich people holding more of their wealth overseas or simply bailing out of a country. In fact, France suffered an exodus of millionaires between 2000 and 2016 and an annual fiscal shortfall of billions of euros, according to some estimates, because of its "impot sur la fortune". That wealth tax was abolished in 2017 by President Emmanuel Macron.
Even so, in the US, the world’s richest but also increasingly unequal country, the issue is rising to the top of the political agenda. Just days ago, Senator Elizabeth Warren proposed the Ultra-Millionaire Tax Act. It may be hard to pass into law but there is a chance some elements may be included in another budget bill later in the year for President Joe Biden’s planned infrastructure package. On the presidential campaign trail, Mr Biden championed a different way to Ms Warren to raise money from America’s richest. This included taxing unrealised gains on assets after death and doubling the income tax rate to 40 per cent on capital gains for taxpayers with incomes of at least $1 million. But the Biden White House has still responded encouragingly to Ms Warren’s bill. Jen Psaki, the White House press secretary, recently said that Mr Biden “strongly believes that the ultra-wealthy and corporations need to finally start paying their fair share”.
US President Joe Biden is said to be open to the idea of a wealth tax. Reuters
US Senator Elizabeth Warren, centre, is pushing for a wealth tax targeting millionaires. EPA
Ms Warren’s proposed legislation would do that in spades. It would exempt the first $50m of wealth for everyone, impose a two per cent annual levy on households and trusts valued at between $50m and $1 billion and slap an extra one per cent surcharge on billionaires. The senator has said the proposed wealth tax would raise at least $3 trillion over a decade, thus helping to pay for badly needed investments in America’s infrastructure, child care and health reforms. What’s more, she claims, it will create a “fairer” economy.
That argument has powerful appeal, especially because only small numbers of people – just 75,000 households – would have to pay more towards a project of national renewal. A wealth tax would also address the perception – and reality – of inter-generational inequality in America.
In 2019, data from the Federal Reserve showed that the top one per cent owned nearly one-third of all US household wealth, compared to nearly one-quarter about 30 years ago. In that timespan, the bottom 50 per cent went from owning 3.7 per cent of the wealth to just 1.9 per cent. According to the two economists who have done significant work on the issue – Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley – the top 0.1 per cent of American taxpayers accounted for about 20 per cent of wealth in 2012, up from seven per cent in 1978.
In 2019, data from the Federal Reserve showed that the top one per cent owned nearly one-third of all US household wealth, compared to nearly one-quarter about 30 years ago. Reuters
Many economists question the wisdom of taxing wealth every year it is kept, rather than taxing all sources of wealth once they are received or used
There is broad bipartisan approval among ordinary Americans for taxing the very rich. A January 2020 Reuters/Ipsos poll found nearly two-thirds of respondents – 77 per cent of Democrats and 53 per cent of Republicans – in agreement.
The sentiment is mirrored across the Atlantic. Three-quarters of the people polled by Ipsos Mori in Britain in October supported a wealth tax. Everyone said it was better than a rise in income tax, VAT, council tax or capital gains tax. The survey was conducted right before leading UK tax experts and economists issued a report on the fairness and efficiency of a one per cent levy on millionaire households. The report said a one-off tax on a person's total wealth could raise £260bn ($362bn) over five years if the threshold was set at £1m. It would affect just six per cent of Britain's adult population.
The idea of a one-off tax contrasts with the Swiss model, which has obvious problems. Switzerland’s wealth tax is relatively low, varying by canton between about 0.3 and one per cent a year of taxpayers’ total net worth. Also, foreign residents are only taxed on the portion of their fortune deemed related to their living expenses in the country. This means, as Professor Mader has pointed out, that “the Swiss tax system is very favourable” to multi-millionaires, about half of whom come from abroad. Taken together, these aspects help explain why Switzerland might be becoming less equal despite its annual wealth tax.
Elyas Ismail, founder of the Newham Community Project food bank, organises food packages ahead of their collection by international students in east London. AFP
Finally, there are the doubts raised by some about the very idea of an annual tax on wealth. A November study from the UK’s Institute for Fiscal Studies said “the case for a one-off wealth tax is simple” but it’s harder to explain why “it is better to tax the same wealth every year – penalising those who save”. Many economists question the wisdom of taxing wealth every year it is kept, rather than taxing all sources of wealth once they are received or used. In other words, they advocate tax reform rather than the introduction of a new annual wealth tax.
Overall, it seems that one big levy is the way to go. There is precedent. In the throes of the First World War, British economist AC Pigou called for a one-time wealth tax to allow the very wealthy to share more equitably in the burden of an exceptional disaster. He saw it as analogous to a draft – necessary, painful, but sorely needed.
There is resonance today.
Rashmee Roshan Lall is a columnist for The National
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Qosty Byogaani
Starring: Hani Razmzi, Maya Nasir and Hassan Hosny
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
Centre Court (4pm UAE/12pm GMT)
Victoria Azarenka (BLR) v Heather Watson (GBR)
Rafael Nadal (ESP x4) v Karen Khachanov (RUS x30)
Andy Murray (GBR x1) v Fabio Fognini (ITA x28)
Court 1 (4pm UAE)
Steve Johnson (USA x26) v Marin Cilic (CRO x7)
Johanna Konta (GBR x6) v Maria Sakkari (GRE)
Naomi Osaka (JPN) v Venus Williams (USA x10)
Court 2 (2.30pm UAE)
Aljaz Bedene (GBR) v Gilles Muller (LUX x16)
Peng Shuai (CHN) v Simona Halep (ROM x2)
Jelena Ostapenko (LAT x13) v Camila Giorgi (ITA)
Jo-Wilfried Tsonga (FRA x12) v Sam Querrey (USA x24)
Court 3 (2.30pm UAE)
Kei Nishikori (JPN x9) v Roberto Bautista Agut (ESP x18)
Carina Witthoeft (GER) v Elina Svitolina (UKR x4)
Court 12 (2.30pm UAE)
Dominika Cibulkova (SVK x8) v Ana Konjuh (CRO x27)
Kevin Anderson (RSA) v Ruben Bemelmans (BEL)
Court 18 (2.30pm UAE)
Caroline Garcia (FRA x21) v Madison Brengle (USA)
Benoit Paire (FRA) v Jerzy Janowicz (POL)
WRESTLING HIGHLIGHTS
Is it worth it? We put cheesecake frap to the test.
The verdict from the nutritionists is damning. But does a cheesecake frappuccino taste good enough to merit the indulgence?
My advice is to only go there if you have unusually sweet tooth. I like my puddings, but this was a bit much even for me. The first hit is a winner, but it's downhill, slowly, from there. Each sip is a little less satisfying than the last, and maybe it was just all that sugar, but it isn't long before the rush is replaced by a creeping remorse. And half of the thing is still left.
The caramel version is far superior to the blueberry, too. If someone put a full caramel cheesecake through a liquidiser and scooped out the contents, it would probably taste something like this. Blueberry, on the other hand, has more of an artificial taste. It's like someone has tried to invent this drink in a lab, and while early results were promising, they're still in the testing phase. It isn't terrible, but something isn't quite right either.
So if you want an experience, go for a small, and opt for the caramel. But if you want a cheesecake, it's probably more satisfying, and not quite as unhealthy, to just order the real thing.
