Money and mirrors

Adam Smith said, “The tax which each individual is bound to pay ought to be certain, and not arbitrary.” Add to that common thinking that an effective tax is generally judged to be one that is easily understood and enforceable and you could be forgiven for scratching your head this morning.

Between the UK government wanting to be seen to deal with this year’s demons – the bankers – and the Copenhagen Summit determined to be seen to deal with the environment’s demons – the airlines – we seem to be morphing to using tax as a popularity instrument rather than as a means of obtaining revenue to fund government activities.

The UK government is said to want to levy a windfall tax on the bonuses of bankers. Windfall taxes are not without precedent in the UK. Taxes on a category of employment rather than specific businesses are a different matter. How would you define a bank? How do you define which of a bank’s employees are bankers? How would you define a UK bank? American Express is a bank and it has a large UK operation. Will all bonuses paid by American Express be subject to this windfall tax? In reality how much tax could a tax on individuals’ bonuses raise? Several hundred million pounds might be a generous estimate. Will this cure the UK’s underlying ills? A short-term political gain by punishing the universally unpopular “bankers” could create long-term economic problems for the UK, a country which long ago abandoned any manufacturing for services, financial services being at the top of the list.

Similarly, the UN’s Summit on Climate Change in Copenhagen is thought to be seriously looking at a global aviation tax on international flights as the means to fund developing countries’ plans to deal with global warming. Just as banking practices are not wholly absent from the list of causes of the current economic downturn, airlines are acknowledged polluters. But airlines are taking more than their fair share of responsibility because they have become a politically acceptable target. Cars, energy and pets are not carbon neutral but these would be too unpopular a target. Methane is causing as much warming as carbon but no one has yet started taxing meat and dairy.

As with the banks, airlines, for better or worse, are an enabler of global business. Whereas leisure travellers have a choice about where to go on holiday and how to travel, business travellers have no choice about what destination they must visit and when. Virtual meetings are as often as not a complement rather than a substitute for corporate travel.

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