Tuesday, April 04, 2006

EU Losing Money, Talent and Businesses to Non-EU Member Switzerland

The European Union is not the top to bottom, east to west continent of Europe. There are notable absences around the perimeter, but there is also one chuck of land conspicuously not shaded in the political maps that indicate the breadth of the union.

That chunk of land, sitting there surrounded by the EU like a small hole in a huge donut, is Switzerland. But, the hole in this donut is being filled with capital, human talent and corporations that leave the heavily burdened socialist states in the EU for the much more business and tax friendly Switzerland.

Micromanaging a society is not cheap, and as micromanagers go, those EU idealists are generally real control freaks. They know what they would like to do, they know that their economy isn't growing nearly fast enough to support current commitments, and they realize that the loss of money to the Swiss sets them even farther behind.

From The Brussels Journal:

Governing requires money. Extensive directing demands a lot of it. We also realize that taxation above what the payer regards as just and necessary provokes avoidance. The phenomenon is the reverse of what welfarism - an established cult in several EU states - produces. The closer welfare gets to what can be earned (after taxes) the more people will endeavor to become beneficiaries instead of contributors. The resulting drain on the economy will result in higher taxes thus becoming the motor of the game of avoidance participation. Some of the states defining the EU are high tax and extensive welfare states. Capital (like talent) being mobile, the natural desire to avoid what some feel are confiscatory taxes, leads to the flight of funds. Border checks are unlikely to stop the process.
What has been the cost to the EU in this capitalist scheme of "avoidance?"
Last year alone 510 firms located to Switzerland. (Besides "taxes" the country has an excellent infrastructure, a central location, a qualified work force and offers a stable, predictable framework.) Accordingly the EU is charging that "unfair tax competition and tax schemes [...] have a detrimental effect on Member States' fiscal revenues."
The article continues on covering the legal maneuvering of the EU against its much smaller neighbor but concludes with this:
The pressure exerted by the EU to forge unity through standardization, centralism and “more government,” will not end with reining in the obnoxiously successful Swiss. Competing for capital and know-how by offering, among other things, low taxes, too, is not a consequence of the genetically high economic IQ of the Swiss. A number of ex-Soviet countries pursue comparable strategies. Once this “Reaganism” shows hard-to-overlook signs of success these member states will also feel the whip the Coachmen like to crack. (Here an impertinent question comes to mind: what will the EU do about China where foreign firms are subject to a 15% tax while the native ones pay 33%). This resistance of the commanding “center” to reform has, besides the craving to be in command, an additional cause. As the current riots in France show, the “old” Europe is hard to reform. Instead they attempt to cope with the challenge of the modern world is by preventing those who are politically dependent on them from implementing their own modernization.
It seems to me that the socialists cling to the utopian dream by noting that not all economies are socialist. If they were all to become that way, according to the dream, a new world would flower where all days dawn bright and warm.

Until that dream is realized the socialists will be content to sit atop their atrophied kingdoms and make threats of ever shrinking substance--too poor to carry out the threats, even if they had citizens willing to sacrifice for their kingdom's salvation.

The streets of France indicate that some countries, at least, might already be there.

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