Article

Economics

Politics

24 October 2024

1 min read

How can taxes build a better society?

As we await Rachel Reeve's budget announcement, Laurence Fletcher wonders what positive tweaks can be made to our economic system.

Laurence Fletcher

Laurence Fletcher is a journalist at the Financial Times.

Few doubt that Chancellor, Rachel Reeves, will be putting up taxes when she presents her first Budget on October 30. The political narrative of recent months has very much been of an alleged fiscal “black hole” of £22bn - or is it £40bn? - that somehow needs to be filled.

While the size of the shortfall and the identity of those responsible are both hotly disputed, and despite a lack of detail from the Treasury about what it actually consists of, the questions now being asked are not whether taxes will rise but which ones and by how much.

Months of speculation have focused on employer National Insurance, capital gains tax and freezing income tax thresholds as areas that Reeves could look to for the additional revenue. But beyond the immediate issue of raising enough revenue to make good any shortfall, lies a deeper, trickier question about the way in which taxes should be levied for the good of society. If a government is to force people and companies to hand over their money, then what is the most ethical way to do this? Who should pay and who shouldn’t? How can tax be used to reduce inequality and build a better society?

Answering such questions is, of course, far from straightforward, because there are plenty of other factors in play.

For instance, some taxes are surely levied because they are simpler to collect. Take income tax - an unpopular measure introduced in 1799, then abolished before being reintroduced as a supposed temporary measure. It could certainly be argued that taxing people’s income - their attempt to get on in life and improve their lot in life - is less “fair” than taxing wealth that has been accumulated by someone’s ancestors years ago. Working hard and earning income is often surely a way of breaking down class divisions. But income tax - contributing 28 per cent of UK government tax take in 2023-24, according to The Institute for Fiscal Studies - has the advantage that it is relatively difficult for the average worker at a UK company to avoid it. Ease of levying it is surely a driver.

Equally, some taxes that might seem “fairer” have deliberately not been levied because of the difficulty in collecting them, and/or because to try to do so could be counterproductive. A wealth tax, for instance, would be “economically damaging”, according to one of the UK’s highest profile tax experts, Dan Neidle. Or take the politically contentious issue of non-doms, a colonial era tax break allowing rich foreigners to avoid UK tax on overseas income. It would be fairer, the argument goes, to tax them on the whole of their income. If they are going to be resident in the UK, then surely they should be taxed like a UK resident whose home is here?

Former Chancellor Jeremy Hunt abolished this regime earlier this year but left a number of concessions that the incoming Labour government pledged to abolish. But non-doms are tax-sensitive and highly mobile, and a number of jurisdictions compete to attract them. Many are entrepreneurs and wealth creators that many countries need. Reports have suggested a clampdown could raise no money or even cost money and could drive people away.

So what can be done to use tax in an ethical way? Paul Williams, research professor of marketplace theology and leadership at Regent College, Vancouver and chief executive of the Bible Society, takes a perspective that he believes offers some solutions.

He takes as his starting point a story in the gospels, where Jesus is asked whether people should pay taxes to Caesar. The question is a trap - either Jesus gives his backing to taxation that is highly unpopular with the Jewish people, or he rejects the tax in an act of rebellion against the Romans.

Jesus replies that they should “pay to the Emperor what belongs to the Emperor, and pay to God what belongs to God.” We are to pay our taxes to those in authority, but we are also to honour God.

While Williams believes that too much emphasis is placed on the Budget and political parties’ promises to be able to fix everything, and that a more radical rethink of our economy is required, he also sees room for positive tweaks to the current system.

One key area is the property market, the manifestation of so much inequality in society, with some people owning multiple houses while others cannot afford to buy one. Williams argues that the ready availability of debt finance has allowed those who already hold assets to easily acquire properties, turning real estate into an investable asset class to the detriment of many of the poorer in society.

“The reason there’s so many homeless people and empty houses is due to debt finance. It makes it easy for a relatively small proportion of the population to acquire a large percentage of the assets.

“The system has allowed a structure in which a small advantage in the beginning can lead to big, big differences over time.”

Williams highlights parts of Devon and Cornwall that have been “completely ruined” by wealthy people from elsewhere buying second homes that used to belong to locals, leaving property out of reach of anyone who lives and works there.

Nevertheless, he believes taxation can be used in this area to help level the playing field.

He proposes a “pretty punitive” marginal rate of tax on ownership of more than one home. (Stamp duty only partly does the job and is a blunt instrument also affecting people moving homes, thereby makes mobility expensive).

“You want to disincentivise the way the housing market is used for speculation,” he says.

“Housing is being treated as a commodity. The problem is, it’s not; it’s not just an asset. It has utility value and a communal and quasi-spiritual value, enabling people to feel rooted.”

Buy-to-lets, meanwhile, are better than having empty second or third homes, but “wouldn’t it be better if occupiers could buy that house?” he adds.

Meanwhile, research by the Financial Times recently found a huge wealth gap between the average millennial and the top 10 per cent of millennials, who are benefiting from family wealth to accumulate substantial housing assets.

So would increasing the rate of inheritance tax - one of the most hated of taxes - and/or lowering the threshold also help reduce some of this inequality? After all, how is it fair that one child in the UK is born to inherit large property wealth while another is born to inherit little or nothing? Or, even worse, that second child will only ever be able to afford to be the tenant of the first, paying them rent for the rest of their lives? Williams is not a fan of inheritance tax per se, arguing that it is “not part of the package” in a Biblical image of a flourishing economy. But he adds an important caveat: “the playing field is not level".

“There might be circumstances to impose a one-off tax on the very wealthy… if you want a transition to a more equitable society.”

Such steps are not easy to take. It is, he admits, probably “career suicide” for a politician to adopt such views. But if we are to take steps towards a fairer way of life, and avoid a two-tier society in decades to come, then maybe the conversation needs to shift this way. Perhaps the Budget could be the time to start.

Article

Culture

Israel

Middle East

Politics

27 June 2024

7 min read

Netanyahu’s baffling ability to bounce back

Disliked and embattled, the Israeli premier’s purpose strengthens him.

Emerson Csorba

Emerson writes on geopolitics. He is also a business executive and holds a doctorate in theology.

Between two generals wearing camouflage uniforms, a man in a black shirt listens.

Bibi ponders future plans.

Prime Minister's Office, Israeli Government.

Are the dreams of Bibi Netanyahu about to be crushed? As the Israeli prime minister’s coalition teeters, what is remarkable is that he has survived so long. Central to this survival is his purpose – a dream of a secure Israel. We need to unpack such leaders’ dreams and understand why they are so potent.

Langston Hughes, in his poem ‘Harlem,’ asks what ‘What happens to a dream deferred?’ Several possibilities are put forward: ‘Does it dry up like a raisin in the sun? And an alternative: ‘Maybe it just sags like a heavy load?’ And finally ‘Or does it explode?’

It’s possible that Hughes referred to Harlem race riots in the 1930s and 1940s, but no-one knows for sure. The question is what happens when a dream is put on hold – or worse, destroyed – in the face of struggle?

Do we press on? Do we give up? What happens if we press on, and things do not work out? Or perhaps we press on, and things do work out. Hughes’ poem encourages us to ask these questions.

Looking back, Hughes’ poem is interesting but obviously gloomy, without hope. A dream is deferred. It withers, and then vanishes. But what if a dream is – when encountering struggle – maintained, kept in tact? The dream, perhaps nearly lost, emerges in the end, stronger than it was before.

Hughes’ poem is one of struggle and eruption. Not struggle and emergence. It is a despairing poem, one that denies the possibility of resurrection from the brink of death, even if the obstacles are significant.

We all have dreams, perhaps about peace, career, family, community, love, or something else. Inevitably, these dreams are – as dreams always are, in order to test our faith - met with opposition.

In these moments, we have two options: we can believe in what we see – the dream faltering, withering on the vine, ever so slowly. Or we can believe in the unseen, in which the dream re-emerges from whatever resistance it encounters. The former values the material, what we can actually see. The second values and trusts in what we cannot see. This brings us back to the point of faith.

'I have lost count of how many political obituaries I have written about Netanyahu — and how many resurrection stories.’

Nicholas Goldberg

The ability to struggle and emerge, in which death or near-death is followed by resurrection, is a quality that is in short supply in modern political leadership. It is easily – and not surprisingly – overlooked in a culture prone to despair and hopelessness, in which we are met with a new crisis at every corner.

But some leaders have a unique, if not baffling, quality: the ability to struggle and emerge stronger, somehow renewed. They resurrect themselves where this was thought impossible. And when they have this quality, they become unrelenting forces, whatever you might think of them.

No leader better embodies this quality in the political West than Israeli Prime Minister Benjamin Netanyahu (or ‘Bibi’ for short). Netanyahu strengthens whenever he is on the ropes, perhaps because he is on the ropes.

Although a profoundly disliked figure by many, Netanyahu’s ability to struggle and emerge merits serious study from any student of politics. It is worth asking where his ability to struggle and emerge, resurrecting oneself from the depths of despair – in seemingly impossible situations – comes from?

Ishaan Tharoor puts it well in a recent Washington Post article: ‘Yet Netanyahu is expert at defying the odds.’ However, puzzlingly few articles are written on this topic – Netanyahu’s ability to come back from seemingly impossible circumstances.

Columnist Nicholas Goldberg comes even closer to the essence of resurrection in a Los Angeles Times op-ed in 2020, in which he writes ‘Over the years, I have lost count of how many political obituaries I have written about Netanyahu — and how many resurrection stories.’ He later comments on Netanyahu’s single life mission focused on security.

Both articles are more anti-Netanyahu than they are a reflection on the why and how of his countless resurrections. So it is worth asking: what is behind this quality?

A mission is fundamental to resurrection, in which certain politicians find a way through whenever the world counts them out.

While commentators focus on the ills of Netanyahu’s tenure as Israeli Prime Minister – indictments of corruption and possible future jail time, thwarting of a two-state solution in favour of the Abraham Accords, and the security failures that contributed to the October 7 disaster – they fail to consider deeper questions related to Tharoor’s description of Netanyahu as constantly ‘defying the odds.’

Neglected in analyses on Netanyahu is the deep trauma of his brother Yonatan’s passing in the famous Operation Entebbe. Neglected is the fact that he was wounded, sometimes severely, on many occasions while fighting for the Israeli special forces. And neglected is the influence of his father Benzion, a notable academic well-known for his writing on the historical oppression of the Jewish people (and on his own later rejection by the Israeli academic community).

These are powerful, deep-seated experiences if not major traumas, which – as Israeli friends well-acquainted with Netanyahu wisely note – underpin his clear life mission of increasing Israeli security in a dangerous world.

Goldberg puts this mission, even if uncharitably, as follows in his column: ‘Netanyahu has stood for one key proposition: that peace is not to be trusted; it is a pipe dream pushed by starry-eyed doves who fell hard for the likes of Yasser Arafat. According to Netanyahu, only battening down, fighting back hard, building walls and rejecting compromise protects the country.’

Netanyahu provides us with a crucial lesson in political leadership: a clear and simple life mission provides the ability to claim victory from the jaws of defeat, even in the most seemingly intractable of circumstances. A mission is fundamental to resurrection, in which certain politicians find a way through whenever the world counts them out.

A mission – simple because it is grounded in brokenness (the death of his brother) – provides Netanyahu (and other politicians that have this quality) with a strategic and tactical advantage that cannot be replicated by opponents without similar purpose. Such mission is not fleeting but enduring, Netanyahu resisting all temptations that might thwart his single-minded purpose.

In the case of Israel, no other Israeli political leader has operated with the same sense of mission as has Netanyahu over the last two decades. For if this were the case, Netanyahu would not currently be in power.

Our focus therefore should never be on dreams deferred, as per Hughes’ poem, but rather on the realisation of our dreams – underpinned by unique and consistent life missions.

Commentators, focusing on external circumstances – the current direction of the war, certain decisions made, the opinions of well-read ‘experts’ – neglect these deeper human questions at their peril, because the answer to the question of purpose helps people find ways through where none seem to exist. Purpose, not circumstance, allows a political leader to struggle and emerge in circumstances where most others falter.

For wider context, we can here turn to the example of Jesus, whose resurrection follows his trials at Gethsemane. When Jesus prays in Gethsemane, it is not clear how he should act. Jesus does not know what God wants from him. But he knows that he must carry out the will of his Father.

He asks ‘My Father, if it is possible, let this cup pass from me, yet not what I want but what you want’. Jesus is alone in his deliberation. He asks and waits, and in this waiting, the way forward is revealed. Here we see, in its most poignant form, struggle and emergence. Jesus is resurrected three days following his death, when even his disciples had counted him out.

Our focus therefore should never be on dreams deferred, as per Hughes’ poem, but rather on the realisation of our dreams – underpinned by unique and consistent life missions. Discerning these missions is not easy. If anything, there is considerable pain involved in doing so.

Yet, struggle that involves the possibility of failure of a dream, within a consistent and singular life mission, contains within it the seeds of success. The dream emerges intact from whatever short-term struggle it faces, if not strengthened.

A way is found where none previously existed, when those focused merely on the seen long counted a person out. In the long run, mission enables victory: the realisation – not deferral – of dreams.