Ignorant fuckers at Action Aid

Sigh.

Barclays has huge and growing operations in the developing world. Last year it declared almost £1 billion of its £5.9 billion profit were made in Africa. This should be good news for developing countries, which need to increase their tax revenues to invest in their teachers, doctors and much needed infrastructure.

Eventually it’s these efforts that will enable them to become independent of international aid. But the OECD estimates developing countries lose three times more to tax havens than they receive in aid each year.

No you miserably ignorant tosspots.

What will increase tax revenues is economic growth. Africa is a capital poor region: so what they want is more capital so that the rate of economic growth can increase so as to increase tax revenues. Which means that you\’d really rather like foreign banks and investors to put that capital in so as to increase economic growth.

Indeed, Africa is so capital poor that it\’s almost certainly a better idea to allow foreigners to stick capital in without any tax on their profits at all: so as to get the maximum amount of economic growth that one can.

And as to losing more to tax havens than gaining from official aid: that\’s not the correct comparison to make and you fucking well know it.

What\’s the private investment in Africa and what\’s the outflow from Africa are the relevant numbers. And given that there\’s an net investment inflow the amount going in must be larger than the amount going out.

Twats.

30 comments on “Ignorant fuckers at Action Aid

  1. ” it’s almost certainly a better idea to allow foreigners to stick capital in without any tax on their profits at all:”

    if I shared your rhetorical style, I’d be calling you an ignorant fucker and a twat for that one. Maybe you are not the expert of development economics you think you are. Low state capacity is a major problem in Africa, and tax authorities are weak and need to raise revenues from easy-to-tax sources (this is why trade taxes have always been so important in poor countries). people like the OECD and IMF advise African countries to invest in large tax payer units, and foreign-owned large companies are just the sort of tax payer they need. That is, if they haven’t bribed or lawyered their way out of having to pay taxes. It’s almost certainly not a good idea to offer zero-tax deals to foreign capital. There’s a good deal of empirical and theoretical work by perfectly respectable mainstream economists consistent with what I’m saying here. But you’d know that, not being ignorant, right?

  2. Worstall
    Luis Enrique is being kind to you.

    I’ve been trying to distill my usual bad language into a loaded few syllables.

    I can’t.

    You simply have no idea.

  3. and all that great contradictionary libertarian ianb cares about is his fucking blog code.

    like a pedant’s singularity.

  4. Ian B: simply, capacity to enforce the rule of law.

    The state can’t afford to pay politicians, cops or civil servants, so all of these positions become patronage-based, with the ability to take bribes being the main source of earnings.

    At this point, if you’re local, you can’t start a business and start employing people unless you’re either a politician’s crony or have large amounts of seed money to use for bribes. In which case, why bother starting a business, when you can just keep on extorting money from bribes?

    Meanwhile, there’s basically no formal employment sector, so leveling PAYE taxes, corporate taxes, or even VAT simply isn’t possible.

    Then Megacorp X turns up offering to build a mine or a factory or whatever. This is a brilliant way of getting some legitimate, audited tax revenue (and unless Megacorp X is Chinese, its domestic and/or US law will prevent it from being able to follow the bribery route).

    Suddenly, the government has actual legit money that it can use to build basic state functions, install people in positions of authority who aren’t beholden to corrupt factions, and start enforcing the rule of law.

  5. What a mess.

    Luis and john b: There’s so much wrong with your arguments I’m not sure where to start.

    We know how countries can get rich – we just have to look at the examples of the US, Europe, and more recently, Asia. We also know that reliance on natural resources is a terrible way to get rich (c.f. the “resource curse”).

    Concluding, as you do, that it would be terrible to enact the kinds of policies that have historically led to wealth, but just awesome to rely as heavily as possible on natural resources is uh…

    …well, the word that springs to mind is “insane”, to be perfectly honest.

    You seem to be arguing that African countries struggle to fund their government not due to the fact that they’re trying to fund an inappropriate amount of government, or due to corruption, or due to their countries poverty…but simply because they are unable to capture a sufficiently high percentage of the wealth that already exists in the private sector.

    Again, this is wrong. A cursory glance at the economic stats shows this. Ghana has a per-capita GDP of around $3,200/head, with taxes taking 21% of that – which is much higher than a lot of rich and pleasant places. If you look at those numbers and immediately think the real problem is the 21% being too low – and not the $3,200 – then there’s probably no hope for you. We have no empirical evidence or theoretical backing for the idea that magically raising that number to 40% or 60% would somehow lead to the $3,200 number increasing. That’s just now how the real world works.

    Let’s look at a few more:
    Kenya – 21% – $1,700/head
    Gambia – 19% – $2,000/head
    Camaroon – 19% – $2,200/head
    Senegal – 18% – $1,700/head
    Zambia – 17% – $1,500/head

    I just picked those at random off a list of African countries, but in each case, we see a government that manages to extract around about 1/5 of GDP to fund its operations. (Most of those countries also receive a lot of aid, and run budget deficits as well; all of them have a government sector significantly larger than that number implies. That’s just the tax take.)

    Huh. That’s not really enough for a modern European welfare state, no. But the US spent, in total (local + state + federal) 12% on government in 1925, when it had a per capita GDP in 2005 dollars of only $7,300/head. And by 1950 it spent 24% of a per capita GDP of $13,200/head.

    And of course, we would not consider that positively barbaric, but back then it seemed pretty decent. But then, we were a lot poorer then.

    And Zambia is significantly poorer today than the US was in 1925. You can’t fund all the goodies that Italy or France give their lucky citizens on what Zambia can scrape together off it’s populace, but it absolutely can fund the kind of state that the US and Europe had pre-WWII. Which is, well, not that surprising, because Zambia is a hell of a lot more like a Western pre-WWII country than it is like a modern Western country.

    Maybe that’s a clue?

  6. Concluding, as you do, that it would be terrible to enact the kinds of policies that have historically led to wealth

    Open capital markets with zero taxation on FDI is absolutely not the kind of policy that has historically led to wealth. For anyone. Ever.

    You seem to be arguing that African countries struggle to fund their government not due to the fact that they’re trying to fund an inappropriate amount of government, or due to corruption

    That’s an odd thing to claim, given that my entire bloody comment was about how the reason they’re left poor is because the rule of law is eroded by corruption.

    Look at the tax data for any of the African countries you list. You’ll find that the tax take comes from mineral royalties, plus import and export tariffs.

    Now, we all know that trade tariffs are bad and make us poorer in aggregate – but the problem is, if you have a society where income and sales are both outside of the formal sector, they’re the only way you can raise any effing money.

    Hence why there is an advantage in having a source of tax revenue that can be taken in a way that doesn’t hideously distort economic incentives.

  7. Government corruption doesn’t appear to be related to funding. It’s whether or not people en masse cleave to a post-tribal mentality or not. If they don’t, well funded police and courts are just well funded extortionists.

    Botswana has had quite a lot of success in this regard, as I understand it.

  8. Wot simplefish said.

    The idea that “low state capacity” in, say, Africa , is either more important than growth or (more nuanced) a gating item to growth is, in the language of our host, really fuckin’ stupid.

    Probably the only more stupid idea is that “state capacity” necessarily increases with the tax take (Nigeria anyone?). Sadly, in some cases (including my own Zim), the ability of the State to extract money from foreign capital is actually an obstacle to many of the key elements of state capacity – there is no salary feasibly available to a Govt official in Zim under any tax scenario that will outbid the “fees” platinum and diamond finds have made possible and thus a previously comparatively honest system is increasingly corrupted.

  9. simplefish

    “I’m not sure where to start.”

    well you could start by actually responding to something I wrote, instead of sharing your thoughts on the optimal size of government in Africa. Then if you still think taxing FDI profits is a bad idea, I suggest you rush over to the IMF, World Bank etc. and share your insights with them, because they will be interested to hear how they are wasting a lot of effort on domestic revenue mobilization, sending teams to try and improve tax policy and administration etc. in Africa.

    jono,

    Similarly, I suggest you google the words “state capacity development” and then start contacting all those researchers and tell them how fucking stupid they are too.

  10. Luis,

    You have to bear in mind that the IMF, World Bank etc are basically political bankers. Their primary preferred paradigm is thus based on big government that borrows lots of money from bankers to fund social programmes, thus making bankers very very rich indeed. Small government is useless to them, because it is useless to the bottom line on the balance sheet of the state banking industry.

  11. …forgot to add-

    …and they need reliable hegemonic tax systems, policy and administration to fund the repayments on the national debts.

  12. Luis #2 & 3 Neither of these papers actually states that there is a capacity problem. Nor do they say that a zero tax rate is not sensible. The World Development paper makes th claim that having some capital income taxes is sensible to prevent labour income being changed to capital income, but both are fundamentally about the undesirability of tax incentives (because of the usual prblems – payments made for investment that would have happened anyway, admin costs etc).

    Neither paper substantiates your claims in #1:

    1)Low state capacity is a major problem in Africa
    2) tax authorities are weak and need to raise revenues from easy-to-tax sources
    3) It’s almost certainly not a good idea to offer zero-tax deals to foreign capital

    The argument that tax incentives are bad does not exclude the possibility that a general zero tax rate is good – it only means that if you need to raise money from capital taxes and you want to balance lower rates on some activities vs. benefits from those activities, this does not pay off. It is possible that zero capital tax increases growth and other revenue sources more than offset the loss of income from capital tax.

    This is not to say that 1) Africa does not suffer from some capacity issues. 2) Taxing foreign entities is sensible 3) A capital tax of greater than zero is sensible.

    Merely that your proffered evidence is insufficient and sloppy.

    FWIW – I tend towards the view that African countries lack capacity, that taxing multinationals is sensible (but difficult – and that they should be taxed on resource extraction), but that capital taxes should be minimised. The latter point is a general one – reflecting the reality that capital is mobile.

  13. Luke

    from abstract of first paper:

    “They observe that tax incentives neither make up for serious deficiencies in a country’s investment environment nor generate the desired externalities. …. Even if tax incentives were quite effective in increasing investment flows, the costs might well outweigh the benefits. Tax incentives are not only likely to have a negative direct effect on fiscal revenues but also frequently create significant opportunities for illicit behavior by tax administrators and companies. This issue has become crucial in emerging economies, which face more severe budgetary constraints and corruption than industrial countries do. ”

    from conclusion of second:

    The main policy implications to be drawn from the discussion in the preceding sections are the following: (a) to stimulate investment, the first-best approach is always to ensure that the tax system in general is in conformity with international norms, supported by suitable macroeconomic, structural, legal, and regulatory environments; (b) there are, however, some limited circumstances (e.g., those involving market failures) under which the use of tax incentives could be economically justified, but even here their cost-effectiveness is uncertain, and their design and administration must maximize transparency and minimize discretion; (c) if tax incentives are to be used at all (irrespective of their objectives), some forms of such incentives are to be preferred over others: as a general rule, tax incentives that provide for faster recovery of investment costs (e.g., investment allowances/tax credits and accelerated depreciation) are more cost-effective than those that involve reducing the CIT rate; CIT holidays are the worst among those in the latter category;

    Tim adds: Just to stick this in the argument somewhere.

    I’ve no problem at all with the taxation of extraction rents. Ricardian rents on oil, copper, diamonds, whatever. Very sensible such a system of taxation is too. That’s just fine.

    It’s the taxation of capital I’m talking about, or the returns to capital, not the rents from resource extraction.

    That’s also where I think Ritchie, Christensen, TJN, Action Aid etc go wrong.

    Should Angola get a chunk of, if not the majority of, the difference between the exploration and pumping cost of oil from their waters and the world price? Sure they should. Natural resouce royalties are just fine.

    Should the capital returns from installing a brewery in hte country be so taxed? That’s what I’m disagreeing with. The lack of capital is so bad that perhaps the country would be better off by allowing free entry and free repatriation of such profits? Given the local capital paucity?

    Perhaps telecoms is a better example: Sure, charge people some sum for access to that scarce resource, spectrum. But having a mobile network we know increase economic growth hugely (one estimate is 0.5% of GDP for every 10 out of a hundred that have a mobile phone) so perhaps the value of allowing the profits from such to go untaxed in order to get more of such is worthwhile?

  14. and you think these papers do not support my claim:

    “It’s almost certainly not a good idea to offer zero-tax deals to foreign capital”

    but you are correct those two papers are not specifically about whether low state capacity is a constraint upon development or about whether African tax authorities are weak and need to target easy-to-tax.

    I’m sure you could spend a fruitful afternoon on google scholar if you were so inclined.

  15. Luke? Ken

    I love the fact I’m getting called sloppy whilst citing a few examples of relevant research whilst other people are just pulling conclusions out of their arseholes

    Tim W

    “The lack of capital is so bad that perhaps the country would be better off by allowing free entry and free repatriation of such profits? ”

    well, it’s a hypothesis. And one that’s been investigated a good deal with most papers I am aware of concluding that tax-free deals do not make enough of a difference to inward investment to be worthwhile.

  16. Luis #19

    No, you’re being dense.

    Both papers assume that a tax on capital is good. The World Bank paper even mentions tax havens and notes the benefit to them of havnig had mobile capital arrive.
    They then show that tax incentives that lower the tax on capital do not compensate for the cost of admin, end-runs and the tax foregone given the benefits.

    It’s already built into both papers that a tax on capital is positive. It isn’t a result they find.

    To take the Kaldor quote at the beginning of the World Development:

    it is an uncertain matter how far the total flow of capital investment from the developed to the underdeveloped areas is enhanced in consequences of such policies; and if it is not, such “beggar-my-neighbor” policies of stimulating development deprive the underdeveloped countries of revenue, without any compensating benefit.

    The question they are answering is the second one the “beggar thy neighbour” policy, not the first – whether there is an enhancement of flows.

  17. Action Aid in Australia make the worst kleptocratic African states look good.

    In 2008/09, they took in $2million in public donations. $354,000 was paid to the top two executives. $1 million was spent on fund raising. A further $520,000 was spent on admin. If the government hadn’t come along and thrown $6 million at them, they would have had just over a hundred grand to spend on aid projects in Africa.

    If I was you Tim, I’d have a very good look at the financial statements in their annual reports.

    http://boy-on-a-bike.blogspot.com.au/search?q=act!onaid

  18. The state can’t afford to pay politicians, cops or civil servants, so all of these positions become patronage-based, with the ability to take bribes being the main source of earnings.

    In my experience – albeit limited only to Nigeria – the state can’t afford to pay police or civil servants because those at the top of government are raking in multi-million dollar salaries and flying about in private jets. Lack of tax isn’t the reason everything is underfunded, and were more tax to be levied we’d find the effect registered in real estate prices in London and Dubai more than an improved lot of the country’s citizens.

  19. Ken

    you write that the papers I cite do not address the question of whether “there is an enhancement of flows”

    see section 4 of the World Development paper

    Review of the empirical literature
    The effect of tax variables on investment flows is well-studied. This section briefly reviews this research.

    I’m dense am I? Well you’re evident a big hairy cunt. How do you like them apples?

  20. Also, only an idiot would be concerned about whether profits were being taxed or not in Africa, when the overwhelming benefit of the corporation being there is the expenditure, most of which is local. If a company is splashing out $100m in a poor country, who really gives a shit where the $10m profit goes? By concentrating on the profits, people forget that the employees, service providers, suppliers, local restaurants and hotels, taxis, etc. are paid out of operating costs and are typically 5-10 times greater than the profits.

  21. Luis

    Can you actually read?

    “tax incentives can influence investment, but that unless they are well targeted, they are rarely cost-effective”

    The premise with the first two sections is that tax incentives increase investment but that the cost of them is higher than is desirable. Their cost is predicated on the tax already received. Ergo you presume a CIT. “The additional investment generated by tax incentives can be compared to the revenue forgone from these incentives as a measure of the cost effectiveness of this investment.”

    The final section on FDI suggests that tax reduces FDI, but doesn’t try to explore the optimality of any given tax rate.

    Therefore nothing in this paper substantiates the view that the enhancement of flows is less than the tax given up. Ergo

    “It’s almost certainly not a good idea to offer zero-tax deals to foreign capital” is not substantiated.

    There may be papers out there that say this, but this one doesnt. That dog don’t hunt.

  22. Isn’t that making a presumption that inbound currency will stimulate rather than inflate?

    It is, but this isn’t money just being dished out for fun: it is usually spent on paying people to either do something they weren’t doing before, or doing more of what they were doing before. People do suffer from inflation during the boom times in an oil town, but the place does get richer in a genuine sense, i.e. they can actually buy goods and services they could not afford before.

  23. In case you haven’t already worked it out, it’s obvious that “Luis Enrique” is actually “Arnald”.

  24. Phil, don’t be a prat. Arnald shits all over the place like a parody of a stroppy 14-year-old; Luis cites peer-reviewed data and gets stroppy with people when they repeatedly ignore it and give him personal abuse over points he’s already addressed.

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