Thursday, July 4, 2013

A Skeptical Look at Turks And Caicos Joining Canada

I'm sorry, I can't get enthusiastic about Canada having its own tropical paradise without wondering what the financial angle is.  The biggest alarm bells for me come from Turks and Caicos being notoriously corrupt (to the point that the UK Government took away home rule in 2009), with a higher banking secrecy rating (90) than Switzerland (78) and the Caymans (77) and "absolutely no taxes."  Well, ok, it seems they have a tax on hotel rooms and a "stamp duty" (which if I read correctly is mostly to cover transfers of money from the island back to the UK).

This increasingly looks like a scheme to set up a tax haven within Canada.  Forget racing to the bottom against Alberta, Canadian provinces would be plummeting toward the bottom well behind a micro-province with next to no taxes, a massive influx of the wealthy setting up residences there (for the attractive climate of course), and absurd levels of banking and financial secrecy.

A couple findings from that last:
  • Turks and Caicos does not adequately curtail banking secrecy
  • Turks and Caicos Islands does not maintain company ownership details in official records
  • Turks and Caicos Islands does not require that ownership of companies is put on public record
  • Turks and Caicos Islands does allow harmful legal vehicles (nb. reference to trusts)
Any of the people pushing this idea could have massive investiments there, and there would be no way to know. 

Yes, it's true if the place became a province (or territory) it would be subject to Canadian income tax.  It would also receive equalization, and though the population is small, given that their GDP per capita is about one-quarter that of Canada, it wouldn't be a trivial amount, in order to bring the island government's ability to offer comparable services up to Canadian standards. The key thing about Canada's financial laws is that they are mostly provincial, a power the provinces have zealously guarded, in particular over this government's proposal to set up a federal regulator for stock markets

Sure, ordinary Canadians would benefit from having the ability to fly domestic to a place that would run on the Canadian dollar for vacations. That's not really much of a benefit for the one or maybe two (and often less than one) annual trips to warm locales that the typical Canadian takes. We'd be subsidizing a libertarian paradise for our 1% to park their wealth, run their businesses (via teleconference) and shirk their duties to the commons.  It would likely become even less of a benefit as I expect prices to visit (and especially to buy real estate) on the islands would soar and there wouldn't really be much employment in the jobs most of us have. 

Conservative politicians have been pushing this idea since Borden in 1917 (and one NDPer in '74) and it's not hard to see why it appeals to them.   The UK seems willing to give up the islands, probably because the "Tax Haven Capital of the World" is already in London and they have plenty of other warm-weather overseas territories for their 1% to winter in (also notorious tax havens).  Canada's conservatives and business elite are just jealous of this arrangement, but that's no reason we should be beguiled by the mirage of beautiful beaches and warm ocean waters. 

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