FREE PORTS, THE NEXT BIG THING IN TAX EVASION FOR THE RICH
This Photo by Unknown Author is licensed under CC BY
Neoliberals are awash with money they never imagined possible. After the banks collapsed in 2007 the wrongdoers were rewarded with unimaginable volumes of free cash to invest.
As industry collapsed and the world was transferred to zero hours and imaginary pensions, the stock markets soared and then really took off.
The Fed, ECB and UK pumped huge volumes of cash into markets making it possible for Banks, Hedge funds and assorted businesses to acquire enormous portfolios of assets using interest-free loans. Not only that, they made it clear they would keep doing so for as long as necessary. That translates into guaranteeing rich investors a free loan going in plus guaranteed growth.
Were this the housing market it would mean giving slum landlords interest free mortgages, then providing tenants and driving the value of the portfolio up. Who would turn that down?
The problem with this experiment is this; long before Covid, it became clear that economies everywhere were ailing. Consumption was not helped at all by this financial fudgery and without consumption there’s no GDP, leaving everything to unravel for the money men.
Covid clouded the issue with new massive injections of cash to make 2007 look puny.
SPX futures are now about 60% above their mid-March lows, almost unprecedented in a six month period.
Other indexes are showing similar though more constrained performances.
Today, companies like Apple and Tesla are valued greater than some indexes. They didn’t achieve these values through world beating products, but perhaps bullshit if the sharper commentators are to be believed. I believe them.
Apple (AAPL)market cap approximately $2.3 trillion. That’s trillions baby!
Apart from good advertising and rounded corners, Apple, who has delivered nothing of note in a decade is now worth more than the entire FTSE 100, representing the 100 biggest publicly quoted companies in Great Britain. They are trading about 35 times next year’s consensus EPS
Tesla (TSLA) market cap approaching $450 billion
Tesla, is the promises company. If it can be dreamed, it can be promised and financed, but precious little is ever delivered. After a 5:1 split shares are now around $500 from 2,3500 before the split.
These firms represent the upper layer of the market that sings in celebration of the power of demand over supply.
Why these companies?
They represent above all, the power of free money for the rich and super powerful marketing.
Some see Tesla as the only one with a lead in electric vehicles and they see that as the replacement for the current car industry, a sort of shimmy to the left and carry on like before.
Pension Peter and Steady Sam love to buy icons of fashion.
Finance Fred knows a good bubble when he sees one and kids himself, he knows how and when to get out.
The promises are simply supersonic pitches that nobody with wads of free cash to invest could possibly turn down. The best part will be if something eventually comes of it all other than a De Lorean milk float.
But the game’s not over yet.
Well actually, the rush has ended, but the game’s not quite over. The new challenge for Benny the Banker is how to hang on to his unexpected windfall as the assets vaporise, the banks finally go the happy hunting grounds and a new world emerges out of the rubble of Covid and the Great depression. We may as well be optimistic here, what do we have to lose?
Real Assets are the new bubble.
Gold, we all know from the past is the retreat of the canny investor. Its more like Granddad’s idea of assets; visible, useful, intrinsically valuable.
Gold is not the only thing.
Art, wine, even consumables with long life expectancy at a pinch can provide a safe haven. After all, even if you reduced the downside by 59% you’ve still gained a lot of free cash and there’ll be empty repossessed houses to buy soon and governments paying us to house families. More free cash.
What on earth does any of this have to do with free ports?
UK became a service economy under Thatcher. Nobody outside Westminster seems even today to understand what that meant and means.
She referred not to the penniless couch surfing waifs touting to wash banker’s cars, or toss their posh burgers or even sausages.
No, she was describing Neoliberalism, a structure based on obscenely wealthy bankers providing tax avoidance and investment services to the world’s wealthiest, the superrich. The ordinary tax-payer gets to run errands. That; my friend, is “Trickle down”, the wonder of the Neoliberal age.
Before the banking meltdown, investment advice and services alone was a huge industry and proponents often earned as much as their clients from the huge funds they managed. Now they have only bubbles to play with and they can see the writing.
Banking services can no longer offer interest to attract clients and the bulk of their income comes from tax avoidance schemes.
The UK has long been a world leader in tax avoidance and financial crime.
Tax free havens
According to Berkeley professor Gabriel Zucman, author of ‘The hidden wealth of nations’, an estimated $8.7 trillion is held offshore by ultra-wealthy households in a handful of tax shelters the largest proportion of which are British. As one banker said when questioned: “Until the playing field is level, my bank can’t refuse to create structures to reduce client tax costs, because those clients will just go to a competitor, and that would make for some very unhappy shareholders.”
The Labour Party claims tax avoidance has cost the UK economy more than £12.8 billion in five years, enough to have paid for 21 new hospitals.
The city of London is represented in parliament without election and is more-or-less independent of parliament. Sixty MPs were seen to be involved with havens when the last report was released and some 16% of lords receive pay from Bankers. The top jobs in UK government frequently include a representative of the world’s biggest banks.
Now FREE PORTS are the next big thing.
Most of the world’s free ports are crammed full of Art, wine and other tangible, hideable assets, including of course, assets of dubious ownership and many undocumented.
Deals happen daily behind closed doors as people transfer billions worth of assets the old-fashioned way.
Just in case you’ve been hiding under an upturned box all these years, assets are generally taxed when they are transferred and it is calculated at the transfer value.
A Recent example showed a valuable artwork valued at more than two million changing hands with a valuation of just £100. There is little to prevent such deals. The benefit, apart from such underhanded dealings is that vat and capital gains can be put off until the item leaves storage as opposed to when it arrives, though as we have seen above, there is no telling what happens to it in the intervening time.
So our friend Benjamin the banker is aching for an alternative way to store wealth for his lucky and panicking clients. He’d like to buy them assets and to store those assets out of site of the tax collector, this way he gets to tax them instead of the government and you and I make up the tax shortfall as well as paying for all the financial largesse that saved the banks.
Don’t worry about Benny though, the Bennies, Rishis and their like will swap jobs with a bored politician when the time comes.
You thought it was about jobs. Ah Bless!
But there will be a trickle down. Lots of builders will be imported to build the infrastructure and there will be some people moving to these regions as well as a few genuine manufacturers and they will be needing housing and their cars will nerd polishing, and their pizzas need delivering.
It’s not all doom and gloom.
The EU is to blame right?
You guessed I was probably going to refute that. Well its at least partly true. Here is the situation:
The U.K had freeports up until 2012 and the EU raised no complaint whatsoever. In-fact, there are lots of freeports around the EU. A recent article I read suggested the list came to around 70 in all, I am happy to accept that as a ballpark figure.
So first of all: No, the EU has not banned freeports and are not against the UK’s daring new plan.
What might be worrying the people who represent us to the world is that:
The WTO and the EU both have certain rules governing the behaviour of members who want to trade globally or in Europe. These rules were formed through a democratic process, one which incidentally the UK played a n important role in.
These rules are in place to prevent one country using tricks to gain an unfair advantage in the market against their fellow members. The types of tricks often used include devaluing your currency, providing no rights or fair pay to your employees and offering state aid to a business in order to help them compete with their neighbours.
Free-ports could, in certain circumstances fall foul of this last one and it seems highly likely that this is where the problem lies.
Even if EU were foolish enough to accept this notion, the WTO would most certainly not do so. We just witnessed the US leaving the WTO over a similar dispute. The only options that could solve such a problem, at least for WTO is accepting a tariff on your trades to make up for the unfair advantage. The whole point of the EU is avoiding such tariffs and hence it seems very unlikely to be accepted.
All in all, it would seem that free-ports are an idea simply made for the British and no doubt with some city ingenuity, new ways will be found to avoid taxes and increase the value of assets.
Some new ideas include an auction house that sells on your beloved asset to an unknown buyer ( yourself, silly) at a price you could only dream about and thus increases the value. This way you could use it as collateral to raise finance in the real world or of course you could borrow from your own offshore organisation and claim tax relief on the interest, but thats old hat.
One way or another, as long as you are kind to the right people in London there will be opportunities to make it big and pay nothing towards the exchequer. What could possibly be wrong with that.