EU referendum 1: The Risks of Remaining a Member

Prime Minister David Cameron claims that Britain would be “safer, stronger and better off” inside the European Union. This is a false prospectus which should be exposed before people vote in their referendum on June 23. Let’s look at one argument in favour of quitting a union that wants to become a political super-state.

The Paris-based OECD, in recent reports, warned that the global economy is dangerously locked into a downward trend in growth rates. The EU is already a victim of this flat-lining future.

Worse still, the OECD predicts that, without substantial reforms, the global economy will endure a declining rate of growth over the next 50 years. If correct, the prospects are frightening. This outlook provides the context for pressures that could easily lead to political misjudgements which, in turn, could lead to catastrophes of one kind or another.

So the OECD urges the need for reform. One of its policy proposals is in the realm of taxation. The OECD says that taxes should be shifted onto assets that are not mobile. This is jargon for stating that governments should tax the economic rents received by the owners of land and natural resources.

Now, within the EU, each member state is currently free to act on that advice. In time, however, Eurozone members will be prevented from unilateral action on the fiscal front. But that would not be a problem for Britain, which will retain its own currency and will remain at arm’s length from further political integration.

So why should the people of Britain vote to withdraw from the EU?

Think what would happen if the UK acted on the OECD advice. What would happen if it raised more revenue from rents, with compensating cuts to taxes on people’s wages? A virtuous cycle of growth would erupt. This would attract the attention of folk within the EU, many more of whom would exercise their right to migrate to Britain. And that would create an unmanageable crisis for UK governance.

Britain would become the victim of her success!

  • Yes, the tax shift would result in an increase in house construction – but the flood of EU migrants would out-pace the capacity to construct the accommodation they would need.
  • Yes, wages would begin to recover – but that trend would be offset by the influx of work-hungry East Europeans.
  • Yes, there would be more money to fund improved social services – but that money would be needed to repair the damage of the austerity years. Services such as health and education are broken, and they would not cope with more families from Bulgaria searching for a better life.

Alarmist?

Reflect on the case of Hong Kong. Her record is a prime example of the wonderful results achieved by a government that raises a large part of its revenue from “assets that cannot migrate” – i.e., on the rent of land.

When the UK established a toehold colony on China’s coast, she leased the land to entrepreneurs and funded infrastructure out of the rental revenue. Today, Hong Kong remains the No 1 free market economy, with per capita incomes that the Brits, the French and the Americans would envy. Businesses flourish because the tax-take is low.

But: there is also significant poverty. Why, if the financial model was so good?

Hong Kong became a victim of her success.

During the communist years, peasants looked with envy at the rising living standards of families in Hong Kong. Many risked their lives to climb the bamboo curtain and escape into the British colony. That bequeathed a big problem to the colonial authorities. Migrants had to be housed – and a very good job was done in constructing the towers of apartments that mushroomed within the colony. Nonetheless, the inflow of migrants exceeded the capacity of the economy to meet everyone’s highest aspirations. Hence the legacy: poverty in Hong Kong.

That is what would happen to the UK if she acted on the OECD advice and reformed her tax regime. The accelerated economic growth rate would be exceeded by the rate at which EU families exercised their right to move to Britain. Regulation of the inflow of migrants would only be possible if the UK controlled her borders. And Mr Cameron was not able to negotiate that right with the governments of the other 27 members of the EU.

2 Responses to EU referendum 1: The Risks of Remaining a Member

  1. Eli 22 February 2016 at 3:15 am #

    But what’s the likelihood that the UK will shift taxation onto land before any other economy does? And why would this tax “result in increased house construction?”

  2. Alan Longbon 24 February 2016 at 2:35 am #

    Hello,

    Zero likelihood of a land tax shift, if it were to happen housing construction would increase because land would be much cheaper and the bulk of the expenditure would go into the house itself and not the location that it sits on, – as is now the case.

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