The call from German Chancellor Angela Merkel’s two top advisers to introduce yet another tax on private wealth and property in Europe’s debtor member countries in order to establish a fund for bail-outs is no longer considered outlandish – it is being considered.
Few can argue against the thinking that poorly managed economies have their own governments partly to blame and that these same governments must now accept responsibility for paying back their debts in order to restore some economic equilibrium.
Yet while a lack of options led the Cypriot government to tax deposit holders to fund its bail-out conditions, there’s a big difference in announcing the introduction of a tax and giving those affected the time to adjust their finances, and simply announcing a tax and taking the money.
Smash and grab
Despite this, there are rumblings at Europe’s top table that we may not have seen the end of such smash and grab tactics.
Professor Peter Bofinger, one of the five wise men – as this group of advisers has been termed – has spoken openly in the press that, while it was a mistake for the EU-IMF troika to come up with a bail-out formula that included the necessity to target deposit holders in banks, he did believe a viable solution would be for the ‘rich’ to surrender part of their wealth over the next 10 years in order to cover future bail-out costs.
Up until now, southern member states’ governments have batted back with the argument that it is right for Germany to pay more into the bail-out packages because its economy has strengthened and profited so much more than the rest from the single currency.
However, that argument is looking decidedly thin when compared alongside the figures included in an European Central Bank survey revealing that private investors in many ‘crisis’ countries are richer than the Germans. The report reveals that the average wealth in Cyprus for example is (or was before the bail out) €671,000. Compare that balance to four AAA creditor member states: Austria €265,000, Germany €195,000, Holland €170,000 and Finland €160,000 and it fuels the argument that Germany is right to take a tough line when it comes to rescue packages.
Europe is already divided sharply between creditor and debtor nations and this latest talk only adds to the fear and panic now tangible in the psyche of our clients. It’s perhaps never been more true that the only certainties in life as the saying goes are ‘death and taxes’. But it’s one thing to know that more taxes are on the way and another to not know how, where and when the tax axe will fall.
Financial planning is about to get more complicated.
David Howell is chief executive of Guardian Wealth Management
