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November 12, 2008

Comments

nicob

Larry, good article again. The implications for our country are important. However, I do have a question. Our current status as a tax haven generates a number of jobs and brings in government revenue, but how much does that in fact benefit the average middle-class Bahamian who is often outside the groups who benefit directly from the tax shelter arrangements? How does it spread through the society?

And my second question is how come Switzerland never seems to make it onto these lists?

larry smith

Good questions.

In the 2008 budget, the government said that total direct expenditure of banks and trust companies in The Bahamas was over $477 million. Total employment in the sector expanded by 5.6% to almost 5,000, based on increases in both the Bahamian and non-Bahamian workforce.

A 2007 report by Oxford Economics said that about "27% of Bahamian GDP is directly or indirectly attributable to the financial services industry, making it the second most important industry in The Bahamas, after tourism.

"Financial services support around 22,000 jobs in The Bahamas, over 13% of total employment.

"The direct impact on GDP of the financial services industry in The Bahamas was worth nearly B$850 million, or 15% of total GDP in 2004 (compared to 21% for tourism).

"The value added multiplier for the financial services industry is estimated to be 1.6. This means that for every B$1 million of value added directly generated by the financial services industry, another B$0.6 million of output is generated indirectly in the supply chain and from the induced spending of those directly or indirectly employed by the financial services industry. This multiplier is higher than that of tourism because the financial services industry imports less as a share of its business.

"In 2004, the broad sector was responsible for $200 million in government revenues and 19% of the tax base."

Interested

Good article. This is a vexing problem for tax havens but as can be gleaned from the article it is also a major problem for OECD countries and the United States.

Conceptually, it is really a simple problem. The highly industrialized nations who in effect are the productive and production based economies of the world find it almost impossible to police their financial activities when "Black Hole" non-production based economic parasitic economies base their economic engines on assisting tax cheats and criminal elements from these countires. The productive activity of these production based countries are threatened and the result is that the world economy suffers. It may be hard for the parasitic economies to understand and see this effect because of their more narrow self interests.

The ultimate solution however is clear since "Might is Right" in International law and the the production based economies will obviously eventually prevail.

The solution for countries like the Bahamas is to abandon this form of financial services ASAP so that its scarce resources can be directed toward developing some sort of truly productive revenue generation.

Rick

There's a simple solution for all this.

All the high tax jurisdictions need to do is lower their taxes and people will not try to avoid them.

Everyone has an aversion to high taxes, and particulalry of one is productive.

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